Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal
in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring
such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling
the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with
cargo which various merchants wanted delivered to differing establishments in Pangasinan. For that
service, respondent charged freight rates which were commonly lower than regular commercial
rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for
the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never
reached petitioner, since the truck which carried these boxes was hijacked somewhere along the
MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his
helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the
law, should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could
not be held responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well
as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages
and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court
of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p.
111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever
may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf
or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others.
There is no dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of
the applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a
common carrier because he has not secured the necessary certificate of public convenience, would
be offensive to sound public policy; that would be to reward private respondent precisely for failing
to comply with applicable statutory requirements. The business of a common carrier impinges
directly and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as
of passengers. The specific import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss,
destruction or deterioration of the goods which they carry, "unless the same is due to any of the
following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the
containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed
to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as required in Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in
the instant case the hijacking of the carrier's truck does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of
the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to have acted negligently.
This presumption, however, may be overthrown by proof of extraordinary diligence on the part of
private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent
should have hired a security guard presumably to ride with the truck carrying the 600 cartons of
Liberty filled milk. We do not believe, however, that in the instant case, the standard of
extraordinary diligence required private respondent to retain a security guard to ride with the truck
and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his
helper.
The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article
1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745,
numbers 4, 5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;
(6) that the common carrier's liability for acts committed by
thieves, or of robbers who donot act with grave or
irresistible threat, violence or force, is dispensed with or
diminished; and
(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car vehicle, ship, airplane or other equipment used
in the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to
divest or to diminish such responsibility even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat,
violence or force." We believe and so hold that the limits of the duty of extraordinary diligence in the
vigilance over the goods carried are reached where the goods are lost as a result of a robbery which
is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court
of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the accused
were charged with willfully and unlawfully taking and carrying away with them the second truck,
driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery
at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused
acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers
were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in
another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite
beyond the control of the common carrier and properly regarded as a fortuitous event. It is
necessary to recall that even common carriers are not made absolute insurers against all risks of
travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen
or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court
of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
THIRD DIVISION
[G.R. No. 112287. December 12, 1997]
NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS SHIPPING,
INC., respondents.
[G.R. No. 112350. December 12, 1997]
VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL STEEL
CORPORATION, respondents.
DECISION
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners
responsibility for damage to the cargo and its liability for demurrage and attorneys fees.The Court
also reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court
of Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of
Appeals. [1] The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro
Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing
the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the
counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at
the legal rate on both amounts from April 7, 1976 until the same shall have been fully
paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.
SO ORDERED. [2]
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by reducing the award
for demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of
litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement as to costs.
SO ORDERED. [3]
The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport
cargo or shipment for the general public. Its services are available only to specific persons who enter
into a special contract of charter party with its owner. It is undisputed that the ship is a private
carrier. And it is in this capacity that its owner, Vlasons Shipping, Inc., entered into a contract of
affreightment or contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit
1) whereby NSC hired VSIs vessel, the MV VLASONS I to make one (1) voyage to load steel products
at Iligan City and discharge them at North Harbor, Manila, under the following terms and
conditions, viz:
1. x x x x x x.
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
3. x x x x x x
4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading
within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive
hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. x x x x x x
9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not
responsible for losses/damages except on proven willful negligence of the officers of the vessel.
10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized
Charter Party Agreement shall form part of this Contract.
xxxxxxxxx
The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI
Charter Party which stands for Freight In and Out including Stevedoring and Trading, which means
that the handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under
Paragraph 5 of the NANYOZAI Charter Party, it states, Charterers to load, stow and discharge the
cargo free of risk and expenses to owners. x x x (Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the
voyage, exercise due diligence to make the vessel seaworthy and properly manned, equipped and
supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe
for its reception, carriage and preservation. Owners shall not be liable for loss of or damage of the
cargo arising or resulting from: unseaworthiness unless caused by want of due diligence on the part
of the owners to make the vessel seaworthy, and to secure that the vessel is properly manned,
equipped and supplied and to make the holds and all other parts of the vessel in which cargo is
carried, fit and safe for its reception, carriage and preservation; xxx; perils, dangers and accidents of
the sea or other navigable waters; xxx; wastage in bulk or weight or any other loss or damage arising
from inherent defect, quality or vice of the cargo; insufficiency of packing; xxx; latent defects not
discoverable by due diligence; any other cause arising without the actual fault or privity of Owners
or without the fault of the agents or servants of owners.
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible
for split, chafing and/or any damage unless caused by the negligence or default of the master and
crew.
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV
VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and
92 packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19
metric tons for carriage to Manila. The shipment was placed in the three (3) hatches of the
ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo
on board and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The
following day, August 13, 1974, when the vessels three (3) hatches containing the shipment were
opened by plaintiffs agents, nearly all the skids of tinplates and hot rolled sheets were allegedly
found to be wet and rusty. The cargo was discharged and unloaded by stevedores hired by the
Charterer. Unloading was completed only on August 24, 1974 after incurring a delay of eleven (11)
days due to the heavy rain which interrupted the unloading operations. (Exhibit E)
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the
shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated
March 17, 1975 (Exhibit G), MASCO made a report of its ocular inspection conducted on the cargo,
both while it was still on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa,
Manila where the cargo was taken and stored. MASCO reported that it found wetting and rusting of
the packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were
noted torn at various extents; that container/metal casings of the skids were rusting all over. MASCO
ventured the opinion that rusting of the tinplates was caused by contact with SEA WATER sustained
while still on board the vessel as a consequence of the heavy weather and rough seas encountered
while en route to destination (Exhibit F). It was also reported that MASCOs surveyors drew at
random samples of bad order packing materials of the tinplates and delivered the same to the M.I.T.
Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report
No. 1770 (Exhibit I) which in part, states, The analysis of bad order samples of packing materials xxx
shows that wetting was caused by contact with SEA WATER.
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the
defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the
amount of P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim
but defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April
21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18
as a result of the act, neglect and default of the master and crew in the management of the vessel as
well as the want of due diligence on the part of the defendant to make the vessel seaworthy and to
make the holds and all other parts of the vessel in which the cargo was carried, fit and safe for its
reception, carriage and preservation -- all in violation of defendants undertaking under their
Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV VLASONS I
was seaworthy in all respects for the carriage of plaintiffs cargo; that said vessel was not a common
carrier inasmuch as she was under voyage charter contract with the plaintiff as charterer under the
charter party; that in the course of the voyage from Iligan City to Manila, the MV VLASONS I
encountered very rough seas, strong winds and adverse weather condition, causing strong winds
and big waves to continuously pound against the vessel and seawater to overflow on its deck and
hatch covers; that under the Contract of Voyage Charter Hire, defendant shall not be responsible for
losses/damages except on proven willful negligence of the officers of the vessel, that the officers of
said MV VLASONS I exercised due diligence and proper seamanship and were not willfully negligent;
that furthermore the Voyage Charter Party provides that loading and discharging of the cargo was
on FIOST terms which means that the vessel was free of risk and expense in connection with the
loading and discharging of the cargo; that the damage, if any, was due to the inherent defect, quality
or vice of the cargo or to the insufficient packing thereof or to latent defect of the cargo not
discoverable by due diligence or to any other cause arising without the actual fault or privity of
defendant and without the fault of the agents or servants of defendant; consequently, defendant is
not liable; that the stevedores of plaintiff who discharged the cargo in Manila were negligent and did
not exercise due care in the discharge of the cargo; and that the cargo was exposed to rain and
seawater spray while on the pier or in transit from the pier to plaintiffs warehouse after discharge
from the vessel; and that plaintiffs claim was highly speculative and grossly exaggerated and that the
small stain marks or sweat marks on the edges of the tinplates were magnified and considered total
loss of the cargo. Finally, defendant claimed that it had complied with all its duties and obligations
under the Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the Voyage
Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00
despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum
of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila
waiting for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant
demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay
defendant attorneys fees and all expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following findings
which were set forth in its decision:
(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is
available for hire only under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV
VLASONS I was covered by the required seaworthiness certificates including the Certification of
Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh. 4);
Coastwise License from the Board of Transportation (Exh. 5); International Loadline Certificate from
the Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the Philippine
Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection by the Philippine
Coast Guard (Exh. 12); and Certificate of Approval for Conversion issued by the Bureau of Customs
(Exh. 9). That being a vessel engaged in both overseas and coastwise trade, the MV VLASONS I has a
higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage
Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was thoroughly inspected by
the Philippine Coast Guard. In fact, subject voyage was the vessels first voyage after the
drydocking. The evidence shows that the MV VLASONS I was seaworthy and properly manned,
equipped and supplied when it undertook the voyage. It had all the required certificates of
seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings
were covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch
covers were water tight. Furthermore, under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by
evidence. The provisions of the Civil Code on common carriers pursuant to which there exists a
presumption of negligence in case of loss or damage to the cargo are not applicable. As to the
damage to the tinplates which was allegedly due to the wetting and rusting thereof, there is
unrebutted testimony of witness Vicente Angliongto that tinplates sweat by themselves when
packed even without being in contract (sic) with water from outside especially when the weather is
bad or raining. The rust caused by sweat or moisture on the tinplates may be considered as a loss or
damage but then, defendant cannot be held liable for it pursuant to Article 1734 of the Civil Case
which exempts the carrier from responsibility for loss or damage arising from the character of the
goods x x x. All the 1,769 skids of the tinplates could not have been damaged by water as claimed by
plaintiff. It was shown as claimed by plaintiff that the tinplates themselves were wrapped in kraft
paper lining and corrugated cardboards could not be affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not
closing the hatch openings of the MV VLASONS I when rains occurred during the discharging of the
cargo thus allowing rainwater to enter the hatches. It was proven that the stevedores merely set up
temporary tents to cover the hatch openings in case of rain so that it would be easy for them to
resume work when the rains stopped by just removing the tent or canvas. Because of this improper
covering of the hatches by the stevedores during the discharging and unloading operations which
were interrupted by rains, rainwater drifted into the cargo through the hatch openings. Pursuant to
paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly made part of the Contract of
Voyage Charter Hire, the loading, stowing and discharging of the cargo is the sole responsibility of
the plaintiff charterer and defendant carrier has no liability for whatever damage may occur or
maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while en route
from Iligan City to Manila causing sea water to splash on the ships deck on account of which the
master of the vessel (Mr. Antonio C. Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15)
which can be invoked by defendant as a force majeure that would exempt the defendant from
liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter
Hire contract that it was to insure the cargo because it did not. Had plaintiff complied with the
requirement, then it could have recovered its loss or damage from the insurer. Plaintiff also violated
the charter party contract when it loaded not only steel products, i.e. steel bars, angular bars and the
like but also tinplates and hot rolled sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate.
(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4
thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier upon presentation of
the bill of lading within fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00
despite demands. The evidence also showed that the plaintiff was required and bound under
paragraph 7 of the same Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of
delay in the unloading of the cargoes. The delay amounted to eleven (11) days thereby making
plaintiff liable to pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I damage to the cargo are applicable to a private carrier.
The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned, equipped
and supplied, and that there is no proof of willful negligence of the vessels officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent nature or
character of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of
NSCs shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V Preliminary Matter: Common Carrier or Private Carrier?
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to VSI. [4]
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the
demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of
litigation. NSC and VSI filed separate motions for reconsideration. In a Resolution[5] dated October
20, 1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their respective
petitions for review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the
consolidation of these petitions.[6]
The Issues
In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading
delays caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and
12) were admissible in evidence and constituted evidence of the vessels seaworthiness
at the beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from
liability for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs
cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted
on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of
NSCs tinplates.
In its separate petition, [9] VSI submits for the consideration of this Court the following alleged
errors of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage
from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for
attorneys fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to
which there exist[s] a presumption of negligence against the common carrier in case of loss or
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the
Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.
The Courts Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the
demurrage.
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier
or as a private carrier. The resolution of this preliminary question determines the law, standard of
diligence and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public. It has been held that the
true test of a common carrier is the carriage of passengers or goods, provided it has space,
for all who opt to avail themselves of its transportation service for a fee. [11] A carrier which does not
qualify under the above test is deemed a private carrier. Generally, private carriage is undertaken by
special agreement and the carrier does not hold himself out to carry goods for the general
public. The most typical, although not the only form of private carriage, is the charter party, a
maritime contract by which the charterer, a party other than the shipowner, obtains the use and
service of all or some part of a ship for a period of time or a voyage or voyages. [12]
 In the instant case, it is undisputed that VSI did not offer its services to the general public. As
found by the Regional Trial Court, it carried passengers or goods only for those it chose under a
special contract of charter party. [13] As correctly concluded by the Court of Appeals, the MV Vlasons
I was not a common but a private carrier. [14] Consequently, the rights and obligations of VSI and
NSC, including their respective liability for damage to the cargo, are determined primarily by
stipulations in their contract of private carriage or charter party. [15]Recently, in Valenzuela
Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping
Corporation, [16] the Court ruled:
x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations
which perforce would be binding on them. Unlike in a contract involving a common carrier, private
carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on
common carriers protecting the general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in
contracts involving common carriers.[17]
Extent of VSIs Responsibility and Liability Over NSCs Cargo
It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall
not be responsible for losses except on proven willful negligence of the officers of the vessel. The
NANYOZAI Charter Party, which was incorporated in the parties contract of transportation, further
provided that the shipowner shall not be liable for loss of or damage to the cargo arising or resulting
from unseaworthiness, unless the same was caused by its lack of due diligence to make the vessel
seaworthy or to ensure that the same was properly manned, equipped and supplied, and to make the
holds and all other parts of the vessel in which cargo [was] carried, fit and safe for its reception,
carriage and preservation. [18] The NANYOZAI Charter Party also provided that [o]wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or default of the
master or crew.[19]
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSIs willful negligence or failure to exercise due diligence in making MV
Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden
of proof was placed on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has
not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due to
fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for the
account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his
omission to take the precautions usually adopted by careful persons, unless the shipper committed
fraud in the bill of lading, making him to believe that the goods were of a class or quality different
from what they really were.
Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule,
places the prima facie presumption of negligence on a common carrier. It is a hornbook doctrine
that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to
prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or
damaged while in the carriers custody does not put the burden of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the
protection of the goods committed to its care, the burden of proving negligence or a breach of that
duty rests on plaintiff and proof of loss of, or damage to, cargo while in the carriers possession does
not cast on it the burden of proving proper care and diligence on its part or that the loss occurred
from an excepted cause in the contract or bill of lading. However, in discharging the burden of proof,
plaintiff is entitled to the benefit of the presumptions and inferences by which the law aids the bailor
in an action against a bailee, and since the carrier is in a better position to know the cause of the loss
and that it was not one involving its liability, the law requires that it come forward with the
information available to it, and its failure to do so warrants an inference or presumption of its
liability. However, such inferences and presumptions, while they may affect the burden of coming
forward with evidence, do not alter the burden of proof which remains on plaintiff, and, where the
carrier comes forward with evidence explaining the loss or damage, the burden of going forward
with the evidence is again on plaintiff.
Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a
breach thereof and that such breach was the proximate cause of the damage rests on plaintiff, and
proof that the goods were lost or damaged while in the carriers possession does not cast on it the
burden of proving seaworthiness. x x x Where the contract of carriage exempts the carrier from
liability for unseaworthiness not discoverable by due diligence, the carrier has the preliminary
burden of proving the exercise of due diligence to make the vessel seaworthy. [20]
In the instant case, the Court of Appeals correctly found that NSC has not taken the correct
position in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11),
after citing Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellants
[NSCs] interpretation of Clause 12 is not even correct), it argues that a careful examination of the
evidence will show that VSI miserably failed to comply with any of these obligations as if defendant-
appellee [VSI] had the burden of proof.[21]
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended
purpose under the charter party; (2) whether the damage to the cargo should be attributed to the
willful negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3)
whether the rusting of the tinplates was caused by its own sweat or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the
firsthand opportunity to hear the parties conflicting claims and to carefully weigh their respective
evidence. The findings of the trial court were subsequently affirmed by the Court of Appeals. Where
the factual findings of both the trial court and the Court of Appeals coincide, the same are binding on
this Court. [22] We stress that, subject to some exceptional instances, [23] only questions of law -- not
questions of fact -- may be raised before this Court in a petition for review under Rule 45 of the Rules
of Court. After a thorough review of the case at bar, we find no reason to disturb the lower courts
factual findings, as indeed NSC has not successfully proven the application of any of the aforecited
exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy
and fit for the carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was
drydocked and inspected by the Philippine Coast Guard before it proceeded to Iligan City for its
voyage to Manila under the contract of voyage charter hire. [24] The vessels voyage from Iligan to
Manila was the vessels first voyage after drydocking. The Philippine Coast Guard Station in Cebu
cleared it as seaworthy, fitted and equipped; it met all requirements for trading as cargo vessel. [25] The
Court of Appeals itself sustained the conclusion of the trial court that MV Vlasons I was
seaworthy. We find no reason to modify or reverse this finding of both the trial and the appellate
courts.
Who Were Negligent: Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by
the negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit
for the carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or
canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It
faults the Court of Appeals for failing to consider such claim as an uncontroverted fact [26] and denies
that MV Vlasons I was equipped with new canvas covers in tandem with the old ones as indicated in
the Marine Protest xxx. [27] We disagree.
The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in
addition to the new one used primarily to make the ships hatches watertight. The foregoing are clear
from the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of
the ships boatswain, Jose Pascua. The salient portions of said marine protest read:
x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded
with approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel
Corporation; that before departure, the vessel was rigged, fully equipped and cleared by the
authorities; that on or about August 9, 1974, while in the vicinity of the western part of Negros and
Panay, we encountered very rough seas and strong winds and Manila office was advised by telegram
of the adverse weather conditions encountered; that in the morning of August 10, 1974, the weather
condition changed to worse and strong winds and big waves continued pounding the vessel at her
port side causing sea water to overflow on deck andhatch (sic) covers and which caused the first
layer of the canvass covering to give way while the new canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro; that we
re-secured the canvass covering back to position; that in the afternoon of August 10, 1974, while
entering Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while
approaching Fortune Island, we encountered again rough seas, strong winds and big waves which
caused the same canvass to give way and leaving the new canvass holding on;
xxx xxx xxx [28]
And the relevant portions of Jose Pascuas deposition are as follows:
Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides
and we place[d] a flat bar over the canvas on the side of the hatches and then we
place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the hatch
opening.
A: Forty-five feet by thirty-five feet, sir.
xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood are
put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many
canvas covers?
A: Two, sir. [29]
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not
give way and the ships hatches and cargo holds remained waterproof. As aptly stated by the Court of
Appeals, xxx we find no reason not to sustain the conclusion of the lower court based on
overwhelming evidence, that the MV VLASONS I was seaworthy when it undertook the voyage on
August 8, 1974 carrying on board thereof plaintiff-appellants shipment of 1,677 skids of tinplates
and 92 packages of hot rolled sheets or a total of 1,769 packages from NSCs pier in Iligan City
arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the
crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were
negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater away from the hatches of the
ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went
on board the vessel upon notice from the National Steel Corporation in order to
conduct the inspection of the cargo. During the course of the investigation, did you
chance to see the discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on
the pier but majority of the tinplates were inside the hall, all the hatches were
opened.
 Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct
examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at the
opening of the hatches.
Q: You also stated that the hatches were already opened and that there were tents
constructed at the opening of the hatches to protect the cargo from the rain. Now, will
you describe [to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high
at the middle with the whole side separated down to the hatch, the size of the hatch
and it is soaks [sic] at the middle because of those weather and this can be used only
to temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and
the hatch tent was not good enough to hold all of it to prevent the water soaking
through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter
and soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this tent
covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, I called the attention of the representative of the
National Steel but nothing was done, just the same. Finally, I wrote a letter to
them. [31]
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores negligence on the first day of unloading, pointing out that he
wrote his letter to petitioner only seven days later. [32] The Court is not persuaded. Angliongtos
candid answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed
because he first called the attention of the stevedores, then the NSCs representative, about the
negligent and defective procedure adopted in unloading the cargo. This series of actions constitutes
a reasonable response in accord with common sense and ordinary human experience. Vicente
Angliongto could not be blamed for calling the stevedores attention first and then the NSCs
representative on location before formally informing NSC of the negligence he had observed,
because he was not responsible for the stevedores or the unloading operations. In fact, he was
merely expressing concern for NSC which was ultimately responsible for the stevedores it had hired
and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and conclusions on this
point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores
hired by NSC were negligent in the unloading of NSCs shipment. We do not think so. Such negligence
according to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV
VLASONS I when rains occurred during the discharging of the cargo thus allowing rain water and
seawater spray to enter the hatches and to drift to and fall on the cargo. It was proven that the
stevedores merely set up temporary tents or canvas to cover the hatch openings when it rained
during the unloading operations so that it would be easier for them to resume work after the rains
stopped by just removing said tents or canvass. It has also been shown that on August 20, 1974, VSI
President Vicente Angliongto wrote [NSC] calling attention to the manner the stevedores hired by
[NSC] were discharging the cargo on rainy days and the improper closing of the hatches which
allowed continuous heavy rain water to leak through and drip to the tinplates covers and [Vicente
Angliongto] also suggesting that due to four (4) days continuos rains with strong winds that the
hatches be totally closed down and covered with canvas and the hatch tents lowered. (Exh 13). This
letter was received by [NSC] on 22 August 1974 while discharging operations were still going on
(Exhibit 13-A). [33]
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be
noted that the NSC may seek indemnification, subject to the laws on prescription, from the
stevedoring company at fault in the discharge operations. A stevedore company engaged in
discharging cargo xxx has the duty to load the cargo xxx in a prudent manner, and it is liable for
injury to, or loss of, cargo caused by its negligence xxx and where the officers and members and crew
of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores xxx the
vessel is not liable for loss of, or damage to, the cargo caused by the negligence of
the stevedores xxx [34] as in the instant case.
Do Tinplates Sweat?
The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat
by themselves when packed even without being in contact with water from outside especially when
the weather is bad or raining xxx. [35] The Court of Appeals affirmed the trial courts finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed,
the damage to the tinplates was occasioned not by airborne moisture but by contact with rain and
seawater which the stevedores negligently allowed to seep in during the unloading.
Second Issue: Effect of NSCs Failure to Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is
totally separate and distinct from the contractual or statutory responsibility that may be incurred by
VSI for damage to the cargo caused by the willful negligence of the officers and the crew of MV
Vlasons I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right, as owner and
real party in interest, to file an action against VSI for damages caused by the latters willful
negligence. We do not find anything in the charter party that would make the liability of VSI for
damage to the cargo contingent on or affected in any manner by NSCs obtaining an insurance over
the cargo.
Third Issue: Admissibility of Certificates Proving Seaworthiness
NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility
of the certificates of seaworthiness offered in evidence by VSI. The said certificates include the
following:
 1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]
NSC argues that the certificates are hearsay for not having been presented in accordance with
the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or acts of
public officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications or
certified true copies as required by Sections 25 and 26, Rule 132, of the Rules of Court. [37]
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and
12 are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are
certificates issued by private parties, but they have not been proven by one who saw the writing
executed, or by evidence of the genuineness of the handwriting of the maker, or by a subscribing
witness. Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best evidence
rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay
rule per Section 44 of Rule 130 of the Rules of Court, which provides that (e)ntries in official records
made in the performance of a duty by a public officer of the Philippines, or by a person in the
performance of a duty specially enjoined by law, are prima facie evidence of the facts therein
stated. [38] Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu issued by
Lieutenant Junior Grade Noli C. Flores to the effect that the vessel VLASONS I was drydocked x x x
and PCG Inspectors were sent on board for inspection x x x. After completion of drydocking and duly
inspected by PCG Inspectors, the vessel VLASONS I, a cargo vessel, is in seaworthy condition, meets
all requirements, fitted and equipped for trading as a cargo vessel was cleared by the Philippine
Coast Guard and sailed for Cebu Port on July 10, 1974. (sic) NSCs claim, therefore, is obviously
misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was
not seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the
obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to
discharge its duty of proving the willful negligence of VSI in making the ship seaworthy resulting in
damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is not sufficient
proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorneys Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]
The Court defined demurrage in its strict sense as the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the laytime or that period of time
agreed on for loading and unloading of cargo. [40] It is given to compensate the shipowner for the
nonuse of the vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in
running days, this means days when the ship would be run continuously, and holidays are not
excepted. A qualification of weather permitting excepts only those days when bad weather
reasonably prevents the work contemplated. [41]
In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and holidays included. [42] The running of
laytime was thus made subject to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo. [43] Consequently, NSC may not be held liable for
demurrage as the four-day laytime allowed it did not lapse, having been tolled by unfavorable
weather condition in view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was
error for the trial court and the Court of Appeals to have found and affirmed respectively that NSC
incurred eleven days of delay in unloading the cargo. The trial court arrived at this erroneous finding
by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only day of
unloading unhampered by unfavorable weather or rain which was August 22, 1974. Based on our
previous discussion, such finding is a reversible error. As mentioned, the respondent appellate court
also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by half.
Attorneys Fees
VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an
award of attorneys fees under Article 2208 of the Civil Code when x x x no sufficient showing of bad
faith would be reflected in a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause x x x. [44] Moreover, attorneys fees may not be awarded to a party for the
reason alone that the judgment rendered was favorable to the latter, as this is tantamount to
imposing a premium on ones right to litigate or seek judicial redress of legitimate grievances. [45]
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage
to the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such
damage was brought about during the unloading process when rain and seawater seeped through
the cargo due to the fault or negligence of the stevedores employed by it.Basic is the rule that factual
findings of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme
Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case is one of
them. Second, the agreement between the parties -- the Contract of Voyage Charter Hire -- placed the
burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such stipulation,
while disadvantageous to NSC, is valid because the parties entered into a contract of private charter,
not one of common carriage. Basic too is the doctrine that courts cannot relieve a party from the
effects of a private contract freely entered into, on the ground that it is allegedly one-sided or unfair
to the plaintiff. The charter party is a normal commercial contract and its stipulations are agreed
upon in consideration of many factors, not the least of which is the transport price which is
determined not only by the actual costs but also by the risks and burdens assumed by the shipper in
regard to possible loss or damage to the cargo. In recognition of such factors, the parties even
stipulated that the shipper should insure the cargo to protect itself from the risks it undertook under
the charter party. That NSC failed or neglected to protect itself with such insurance should not
adversely affect VSI, which had nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The
questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the
demurrage awarded to VSI is deleted. No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Romero, Melo, and Francisco, JJ., concur.
SECOND DIVISION
[G.R. No. 125948. December 29, 1998]
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS,
HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in
her official capacity as City Treasurer of Batangas, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of
Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a
business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor
of Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer
required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to
the Local Government Code.[3] The respondent City Treasurer assessed a business tax on the
petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for
products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order
not to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for
the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
"Please note that our Company (FPIC) is a pipeline operator with a government concession granted
under the Petroleum Act. It is engaged in the business of transporting petroleum products from the
Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is
exempt from paying tax on gross receipts under Section 133 of the Local Government Code of 1991 x
xxx
"Moreover, Transportation contractors are not included in the enumeration of contractors under
Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax 'on
contractors and other independent contractors' under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under Section 147
of the Local Government Code. The said section limits the imposition of fees and charges on business
to such amounts as may be commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition thereof based on gross
receipts is violative of the aforecited provision. The amount of P956,076.04 (P239,019.01 per
quarter) is not commensurate to the cost of regulation, inspection and licensing. The fee is already a
revenue raising measure, and not a mere regulatory imposition."[4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under
Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents City
of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner
alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts
violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a
tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151
does not include the authority to collect such taxes on transportation contractors for, as defined
under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the City
Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the immediate
refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes
under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common carriers
by air, land and water." Respondents assert that pipelines are not included in the term "common
carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to the
mode or manner by which a product is delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this
wise:
"xxx Plaintiff is either a contractor or other independent contractor.
xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions
are to be strictly construed against the taxpayer, taxes being the lifeblood of the
government. Exemption may therefore be granted only by clear and unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A)
whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said
law nor the deed of concession grant any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax
Code. Such being the situation obtained in this case (exemption being unclear and equivocal) resort
to distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses only common
carriers so as not to overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a special carrier extending its
services and facilities to a single specific or "special customer" under a
"special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local
autonomy to local governments than the previous enactments, to make
them economically and financially viable to serve the people and discharge
their functions with a concomitant obligation to accept certain devolution
of powers, x x x So, consistent with this policy even franchise grantees are
taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151
of the Code."[9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication.[10]On November 29, 1995, the respondent court rendered a decision[11] affirming the
trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied
on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in a
Resolution[14]of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is
not a common carrier or a transportation contractor, and (2) the exemption sought for by petitioner
is not clear under the law.
There is merit in the petition.
 A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for compensation,
offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public
employment, and must hold himself out as ready to engage in the transportation of
goods for person generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and over
his established roads; and
4. The transportation must be for hire.[15]
Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for
hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons
who choose to employ its services, and transports the goods by land and for compensation. The fact
that petitioner has a limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals[16] we ruled that:
"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
'general public,' i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly
with the notion of 'public service,' under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, with general or limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers through
moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not
provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the
United States, oil pipe line operators are considered common carriers. [17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential
right to utilize installations for the transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the transportation of such other petroleum
as may be offered by others for transport, and to charge without discrimination such rates as may
have been approved by the Secretary of Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:
"that everything relating to the exploration for and exploitation of petroleum x x and everything
relating to the manufacture, refining, storage, or transportation by special methods of
petroleum, is hereby declared to be a public utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:
"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum
products, it is considered a common carrier under Republic Act No. 387 x x x. Such being the case, it
is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government
Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following :
xxxxxxxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code."
The deliberations conducted in the House of Representatives on the Local Government Code of
1991 are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common
Limitations on the Taxing Powers of Local Government Units." x x x
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one
of those being deemed to be exempted from the taxing powers of the local government units. May
we know the reason why the transportation business is being excluded from the taxing
powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16,
paragraph 5. It states that local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that
provinces have the power to impose a tax on business enjoying a franchise at the rate of not more
than one-half of 1 percent of the gross annual receipts. So, transportation contractors who are
enjoying a franchise would be subject to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local
government units on the carrier business. Local government units may impose taxes on top of
what is already being imposed by the National Internal Revenue Code which is the so-called
"common carriers tax." We do not want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the so-
called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.[19] To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.
SO ORDERED.
Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.
SECOND DIVISION
[G.R. No. 148496. March 19, 2002]
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER
TERMINAL SERVICES, INC., petitioner, vs. UCPB GENERAL INSURANCE CO., INC.
(formerly Allied Guarantee Ins. Co., Inc.) respondent.
DECISION
MENDOZA, J.:
This is a petition for review of the decision,[1] dated May 31, 2001, of the Court of Appeals,
affirming the decision[2] of the Regional Trial Court, Makati City, Branch 148, which ordered
petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal interest,
representing the value of damaged cargo handled by petitioner, 25% thereof as attorneys fees, and
the cost of the suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI),
a sole proprietorship customs broker. At the time material to this case, petitioner entered into a
contract with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-chemical fluting
paper and 124 reels of kraft liner board from the Port Area in Manila to SMCs warehouse at the
Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB
General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on
board M/V Hayakawa Maru and, after 24 hours, were unloaded from the vessel to the custody of the
arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990, petitioner, pursuant to her
contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMCs
warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo
Surveyors, who found that 15 reels of the semi-chemical fluting paper were wet/stained/torn and 3
reels of kraft liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against petitioner in
the Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995, rendered judgment
finding petitioner liable to respondent for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody of
defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage Report (Exh. F) with
entries appearing therein, classified as TED and TSN, which the claims processor, Ms. Agrifina De
Luna, claimed to be tearrage at the end and tearrage at the middle of the subject damaged cargoes
respectively, coupled with the Marine Cargo Survey Report (Exh. H - H-4-A) confirms the fact of the
damaged condition of the subject cargoes. The surveyor[s] report (Exh. H-4-A) in particular, which
provides among others that:
. . . we opine that damages sustained by shipment is attributable to improper handling in transit
presumably whilst in the custody of the broker . . . .
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not
liable. Defendant by reason of the nature of [her] business should have devised ways and means in
order to prevent the damage to the cargoes which it is under obligation to take custody of and to
forthwith deliver to the consignee. Defendant did not present any evidence on what precaution [she]
performed to prevent [the] said incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence because of the nature of the
cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they have observed the extraordinary diligence required by law.
The burden of the plaintiff, therefore, is to prove merely that the goods he transported have been
lost, destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the mere proof of
delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad
order, makes out a prima facie case against the carrier, so that if no explanation is given as to how
the injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove
that the loss was due to accident or some other circumstances inconsistent with its liability. (cited in
Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is
supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of and
received by the carrier for transportation until the same are delivered actually or constructively by
the carrier to the consignee or to the person who has the right to receive the same.[3]
Accordingly, the trial court ordered petitioner to pay the following amounts
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyers fee;
3. Costs of suit.[4]
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES,
SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR
SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.[5]
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a
common carrier, although both the trial court and the Court of Appeals held otherwise, then she is
indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by her,
would require.[6] Consequently, any damage to the cargo she agrees to transport cannot be
presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she
is not a common carrier but a private carrier because, as a customs broker and warehouseman, she
does not indiscriminately hold her services out to the public but only offers the same to select
parties with whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court dismissed a similar
contention and held the party to be a common carrier, thus
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity . . . Article
1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and one who offers services
or solicits business only from a narrow segment of the general population. We think that Article
1732 deliberately refrained from making such distinctions.
So understood, the concept of common carrier under Article 1732 may be seen to coincide neatly
with the notion of public service, under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, public service includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services. x x x [8]
There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners contention would
be to deprive those with whom she contracts the protection which the law affords
them notwithstanding the fact that the obligation to carry goods for her customers, as already noted,
is part and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. . . .
In Compania Maritima v. Court of Appeals, [9] the meaning of extraordinary diligence in the
vigilance over goods was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers
to render service with the greatest skill and foresight and to use all reasonable means to ascertain
the nature and characteristic of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires.
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
spoilage or wettage took place while the goods were in the custody of either the carrying vessel M/V
Hayakawa Maru, which transported the cargo to Manila, or the arrastre operator, to whom the goods
were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23, 1998
notwithstanding the fact that some of the containers were deformed, cracked, or otherwise
damaged, as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.[10]
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he
has no personal knowledge on whether the container vans were first stored in petitioners
warehouse prior to their delivery to the consignee. She likewise claims that after withdrawing the
container vans from the arrastre operator, her driver, Ricardo Nazarro, immediately delivered the
cargo to SMCs warehouse in Ermita, Manila, which is a mere thirty-minute drive from the Port Area
where the cargo came from. Thus, the damage to the cargo could not have taken place while these
were in her custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator, these
were covered by clean Equipment Interchange Report (EIR) and, when petitioners employees
withdrew the cargo from the arrastre operator, they did so without exception or protest either with
regard to the condition of container vans or their contents. The Survey Report pertinently reads
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier
#13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20 secure metal vans, covered by
clean EIRs. Except for slight dents and paint scratches on side and roof panels, these containers were
deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by Transorient
Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignees storage warehouse located at Tabacalera
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the
arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean Equipment
Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a
report to that effect made by the arrastre operator. The cargoes were withdrawn by the defendant-
appellant from the arrastre still in good order and condition as the same were received by the
former without exception, that is, without any report of damage or loss. Surely, if the container vans
were deformed, cracked, distorted or dented, the defendant-appellant would report it immediately
to the consignee or make an exception on the delivery receipt or note the same in the Warehouse
Entry Slip (WES). None of these took place. To put it simply, the defendant-appellant received the
shipment in good order and condition and delivered the same to the consignee damaged. We can
only conclude that the damages to the cargo occurred while it was in the possession of the
defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or
obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to
the contrary. No proof was proffered to rebut this legal presumption and the presumption of
negligence attached to a common carrier in case of loss or damage to the goods.[13]
Anent petitioners insistence that the cargo could not have been damaged while in her custody
as she immediately delivered the containers to SMCs compound, suffice it to say that to prove the
exercise of extraordinary diligence, petitioner must do more than merely show the possibility that
some other party could be responsible for the damage. It must prove that it used all reasonable
means to ascertain the nature and characteristic of goods tendered for [transport] and that [it]
exercise[d] due care in the handling [thereof]. Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s
in the container, is/are known to the carrier or his employees or apparent upon ordinary
observation, but he nevertheless accepts the same without protest or exception notwithstanding
such condition, he is not relieved of liability for damage resulting therefrom.[14] In this case,
petitioner accepted the cargo without exception despite the apparent defects in some of the
container vans. Hence, for failure of petitioner to prove that she exercised extraordinary diligence in
the carriage of goods in this case or that she is exempt from liability, the presumption of negligence
as provided under Art. 1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.
FIRST DIVISIO[G.R. No. 141910. August 6, 2002]
FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO TRUCKING CORPORATION
and LAMBERT M. EROLES, respondents.
DECISION
VITUG, J.:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30)
units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles,
from the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang, Metro
Manila, to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north
diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an
unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries,
Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of
the rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had
paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a
complaint for damages and breach of contract of carriage against GPS and its driver Lambert Eroles
with the Regional Trial Court, Branch 66, of Makati City. In its answer, respondents asserted that GPS
was the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged in
business as a common carrier. Respondents further claimed that the cause of damage was purely
accidental.
The issues having thus been joined, FGU presented its evidence, establishing the extent of
damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting its
evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to evidence
on the ground that petitioner had failed to prove that it was a common carrier.
The trial court, in its order of 30 April 1996,[1] granted the motion to dismiss, explaining thusly:
Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must prove his own
affirmative allegation, xxx.
In the instant case, plaintiff did not present any single evidence that would prove that defendant is a
common carrier.
xxxxxxxxx
Accordingly, the application of the law on common carriers is not warranted and the presumption of
fault or negligence on the part of a common carrier in case of loss, damage or deterioration of goods
during transport under 1735 of the Civil Code is not availing.
Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was
subrogated and the owner of the vehicle which transports the cargo are the laws on obligation and
contract of the Civil Code as well as the law on quasi delicts.
Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi
delict provides for some presumption of negligence but only upon the attendance of some
circumstances. Thus, Article 2185 provides:
Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle
has been negligent if at the time of the mishap, he was violating any traffic regulation.
Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation. Hence,
the presumption of negligence is not obtaining.
Considering that plaintiff failed to adduce evidence that defendant is a common carrier and
defendants driver was the one negligent, defendant cannot be made liable for the damages of the
subject cargoes.[2]
The subsequent motion for reconsideration having been denied,[3] plaintiff interposed an
appeal to the Court of Appeals, contending that the trial court had erred (a) in holding that the
appellee corporation was not a common carrier defined under the law and existing jurisprudence;
and (b) in dismissing the complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate
court, in its decision of 10 June 1999, [4] discoursed, among other things, that -
"x x x in order for the presumption of negligence provided for under the law governing common
carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the appellee is a
common carrier.Should the appellant fail to prove that the appellee is a common carrier, the
presumption would not arise; consequently, the appellant would have to prove that the carrier was
negligent.
"x x x x x x x x x
"Because it is the appellant who insists that the appellees can still be considered as a common
carrier, despite its `limited clientele, (assuming it was really a common carrier), it follows that it
(appellant) has the burden of proving the same. It (plaintiff-appellant) `must establish his case by a
preponderance of evidence, which means that the evidence as a whole adduced by one side is
superior to that of the other. (Summa Insurance Corporation vs. Court of Appeals, 243 SCRA
175). This, unfortunately, the appellant failed to do -- hence, the dismissal of the plaintiffs complaint
by the trial court is justified.
"x x x x x x x x x
"Based on the foregoing disquisitions and considering the circumstances that the appellee trucking
corporation has been `its exclusive contractor, hauler since 1970, defendant has no choice but to
comply with the directive of its principal, the inevitable conclusion is that the appellee is a private
carrier.
"x x x x x x x x x"x x x the lower court correctly ruled that 'the application of the law on common
carriers is not warranted and the presumption of fault or negligence on the part of a common carrier
in case of loss, damage or deterioration of good[s] during transport under [article] 1735 of the Civil
Code is not availing.' x x x.
"Finally, We advert to the long established rule that conclusions and findings of fact of a trial court
are entitled to great weight on appeal and should not be disturbed unless for strong and valid
reasons."[5]
Petitioner's motion for reconsideration was likewise denied; [6] hence, the instant
petition,[7] raising the following issues:
IWHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED UNDER
THE LAW AND EXISTING JURISPRUDENCE.
IIWHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER, MAY BE
PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT
SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION.
IIIWHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE.
On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be
amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc.,
rendering or offering its services to no other individual or entity, cannot be considered a common
carrier. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for hire or
compensation, offering their services to the public,[8] whether to the public in general or to a limited
clientele in particular, but never on an exclusive basis. [9] The true test of a common carrier is the
carriage of passengers or goods, providing space for those who opt to avail themselves of its
transportation service for a fee.[10] Given accepted standards, GPS scarcely falls within the term
common carrier.
The above conclusion nothwithstanding, GPS cannot escape from liability.
In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief.[11] The law, recognizing the obligatory
force of contracts,[12] will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof.[13] A breach
upon the contract confers upon the injured party a valid cause for recovering that which may have
been lost or suffered. The remedy serves to preserve the interests of the promisee that may include
his expectation interest, which is his interest in having the benefit of his bargain by being put in as
good a position as he would have been in had the contract been performed, or his reliance interest,
which is his interest in being reimbursed for loss caused by reliance on the contract by being put in
as good a position as he would have been in had the contract not been made; or his restitution
interest, which is his interest in having restored to him any benefit that he has conferred on the
other party.[14] Indeed, agreements can accomplish little, either for their makers or for society, unless
they are made the basis for action.[15] The effect of every infraction is to create a new duty, that is, to
make recompense to the one who has been injured by the failure of another to observe his
contractual obligation[16] unless he can show extenuating circumstances, like proof of his exercise of
due diligence (normally that of the diligence of a good father of a family or, exceptionally by
stipulation or by law such as in the case of common carriers, that of extraordinary diligence) or of
the attendance of fortuitous event, to excuse him from his ensuing liability.
Respondent trucking corporation recognizes the existence of a contract of carriage between it
and petitioners assured, and admits that the cargoes it has assumed to deliver have been lost or
damaged while in its custody. In such a situation, a default on, or failure of compliance with, the
obligation in this case, the delivery of the goods in its custody to the place of destination - gives rise
to a presumption of lack of care and corresponding liability on the part of the contractual obligor the
burden being on him to establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete proof of his negligence or fault, may
not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage
between petitioners principal and defendant, may not be held liable under the agreement. A contract
can only bind the parties who have entered into it or their successors who have assumed their
personality or their juridical position.[17] Consonantly with the axiom res inter alios acta aliis neque
nocet prodest, such contract can neither favor nor prejudice a third person. Petitioners civil action
against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would
require the claimant for damages to prove negligence or fault on the part of the defendant. [18]
A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant
liable where the thing which caused the injury complained of is shown to be under the latters
management and the accident is such that, in the ordinary course of things, cannot be expected to
happen if those who have its management or control use proper care. It affords reasonable evidence,
in the absence of explanation by the defendant, that the accident arose from want of care. [19] It is not
a rule of substantive law and, as such, it does not create an independent ground of liability. Instead, it
is regarded as a mode of proof, or a mere procedural convenience since it furnishes a substitute for,
and relieves the plaintiff of, the burden of producing specific proof of negligence. The maxim simply
places on the defendant the burden of going forward with the proof. [20] Resort to the doctrine,
however, may be allowed only when (a) the event is of a kind which does not ordinarily occur in the
absence of negligence; (b) other responsible causes, including the conduct of the plaintiff and third
persons, are sufficiently eliminated by the evidence; and (c) the indicated negligence is within the
scope of the defendant's duty to the plaintiff.[21] Thus, it is not applicable when an unexplained
accident may be attributable to one of several causes, for some of which the defendant could not be
responsible.[22]
Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the
parties.[23] Nevertheless, the requirement that responsible causes other than those due to defendants
conduct must first be eliminated, for the doctrine to apply, should be understood as being confined
only to cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa
contractual, as previously so pointed out, immediately attaches by a failure of the covenant or its
tenor. In the case of the truck driver, whose liability in a civil action is predicated on culpa
acquiliana, while he admittedly can be said to have been in control and management of the vehicle
which figured in the accident, it is not equally shown, however, that the accident could have been
exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur to work against
him.
If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the
movant shall be deemed to have waived the right to present evidence. [24] Thus, respondent
corporation may no longer offer proof to establish that it has exercised due care in transporting the
cargoes of the assured so as to still warrant a remand of the case to the trial court.
WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati
City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED only insofar as
respondent Lambert M. Eroles is concerned, but said assailed order of the trial court and decision of
the appellate court are REVERSED as regards G.P. Sarmiento Trucking Corporation which, instead, is
hereby ordered to pay FGU Insurance Corporation the value of the damaged and lost cargoes in the
amount of P204,450.00. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 149038 April 9, 2003
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner,
vs.
PKS SHIPPING COMPANY, respondent.
VITUG, J.:
The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R. CV
No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of the Regional
Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner
insurance corporation against respondent shipping company.
Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping
Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand (75,000) bags
of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC
insured the goods for its full value with petitioner Philippine American General Insurance Company
(Philamgen). The goods were loaded aboard the dumb barge Limar I belonging to PKS Shipping. On
the evening of 22 December 1988, about nine oclock, while Limar Iwas being towed by respondents
tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of Dumagasa Point, in
Zamboanga del Sur, bringing down with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly
made payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the
shipping company refused to pay, prompting Philamgen to file suit against PKS Shipping with the
Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have been caused
either by a fortuitous event, in which case the ship owner was not liable, or through the negligence of
the captain and crew of the vessel and that, under Article 587 of the Code of Commerce adopting the
"Limited Liability Rule," the ship owner could free itself of liability by abandoning, as it apparently so
did, the vessel with all her equipment and earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the
trial court. The appellate court ruled that evidence to establish that PKS Shipping was a common
carrier at the time it undertook to transport the bags of cement was wanting because the peculiar
method of the shipping companys carrying goods for others was not generally held out as a business
but as a casual occupation. It then concluded that PKS Shipping, not being a common carrier, was not
expected to observe the stringent extraordinary diligence required of common carriers in the care of
goods. The appellate court, moreover, found that the loss of the goods was sufficiently established as
having been due to fortuitous event, negating any liability on the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has committed a patent error in
ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject
cargo. The fact that respondent has a limited clientele, petitioner argues, does not militate against
respondents being a common carrier and that the only way by which such carrier can be held
exempt for the loss of the cargo would be if the loss were caused by natural disaster or calamity.
Petitioner avers that typhoon "APIANG" has not entered the Philippine area of responsibility and
that, even if it did, respondent would not be exempt from liability because its employees, particularly
the tugmaster, have failed to exercise due diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen
seeks is not a review on points or errors of law but a review of the undisputed factual findings of the
RTC and the appellate court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the question of
whether it is a private carrier or a common carrier and, in either case, to the other question of
whether or not it has observed the proper diligence (ordinary, if a private carrier, or extraordinary,
if a common carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are consistent
with those of the trial court, may not at liberty be reviewed by this Court in a petition for review
under Rule 45 of the Rules of Court.1The conclusions derived from those factual findings, however,
are not necessarily just matters of fact as when they are so linked to, or inextricably intertwined
with, a requisite appreciation of the applicable law. In such instances, the conclusions made could
well be raised as being appropriate issues in a petition for review before this Court. Thus, an issue
whether a carrier is private or common on the basis of the facts found by a trial court or the
appellate court can be a valid and reviewable question of law.
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public."
Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it
defines "public service" to be
"x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, subway motor vehicle, either for freight or passenger, or both, with
or without fixed route and whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship, or steamship line, pontines, ferries and
water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or
wireless communication systems, wire or wireless broadcasting stations and other similar
public services. x x x. (Underscoring supplied)."
The prevailing doctrine on the question is that enunciated in the leading case of De Guzman vs. Court
of Appeals.2Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public Service
Act, this Court has held:
"The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as `a sideline). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
`general public, i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1732 deliberately refrained from making such distinctions.
"So understood, the concept of `common carrier under Article 1732 may be seen to coincide
neatly with the notion of `public service, under the Public Service Act (Commonwealth Act
No. 1416, as amended) which at least partially supplements the law on common carriers set
forth in the Civil Code."
Much of the distinction between a "common or public carrier" and a "private or special carrier" lies All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability
in the character of the business, such that if the undertaking is an isolated transaction, not a part of for the loss of the DUMC cargo.
the business or occupation, and the carrier does not hold itself out to carry the goods for the general WHEREFORE, the petition is DENIED. No costs.
public or to a limited clientele, although involving the carriage of goods for a fee, 3 the person or SO ORDERED.
corporation providing such service could very well be just a private carrier. A typical case is that of a Davide, Jr., C.J., Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
charter party which includes both the vessel and its crew, such as in a bareboat or demise, where the
charterer obtains the use and service of all or some part of a ship for a period of time or a voyage or
voyages4 and gets the control of the vessel and its crew. 5 Contrary to the conclusion made by the
appellate court, its factual findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry such goods for a fee.
The regularity of its activities in this area indicates more than just a casual activity on its
part.6 Neither can the concept of a common carrier change merely because individual contracts are
executed or entered into with patrons of the carrier. Such restrictive interpretation would make it
easy for a common carrier to escape liability by the simple expedient of entering into those distinct
agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence
demanded of common carriers, Article 1733 of the Civil Code requires common carriers to observe
extraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them.7 The provisions of Article 1733,
notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of
the goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers; and
(5) Order or act of competent public authority.8
The appellate court ruled, gathered from the testimonies and sworn marine protests of the
respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barges
or the tugboats crew could have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots
resulting in the entry of water into the barges hatches. The official Certificate of Inspection of the
barge issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to
the seaworthiness of Limar I and should strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized
exceptions from the rule - (1) when the factual findings of the Court of Appeals and the trial court
are contradictory; (2) when the conclusion is a finding grounded entirely on speculation, surmises,
or conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of
the case and such findings are contrary to the admissions of both appellant and appellee; (6) when
the judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the Court
of Appeals failed to notice certain relevant facts which, if properly considered, would justify a
different conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings
of fact are conclusions without citation of the specific evidence on which they are based; and (10)
when the findings of fact of the Court of Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record would appear to be clearly extant in this
instance.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 147246 August 19, 2003
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents.
PUNO, J.:
On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and February 21,
2001 Resolution2 affirming with modification the April 6, 1994 Decision3 of the Regional Trial Court
of Manila which found petitioner liable to pay private respondent the amount of indemnity and
attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.354 was shipped by Marubeni American Corporation of Portland, Oregon on board the
vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling Corporation in
Manila, evidenced by Bill of Lading No. PTD/Man-4.5The shipment was insured by the private
respondent Prudential Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75
under Marine Cargo Risk Note RN 11859/90.6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody
of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee
as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by
Lighterage Receipt No. 03647 for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an
incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering
Island off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other
barges which arrived ahead of it while weathering out the storm that night. A few days after, the
barge developed a list because of a hole it sustained after hitting an unseen protuberance
underneath the water. The petitioner filed a Marine Protest on August 28, 1990.8 It likewise secured
the services of Gaspar Salvaging Corporation which refloated the barge. 9 The hole was then patched
with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf
on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to
strong current. To avoid the complete sinking of the barge, a portion of the goods was transferred to
three other barges.10
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in
the total loss of the remaining cargo.11 A second Marine Protest was filed on September 7, 1990.12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and
loaded on the three other barges.13 The total proceeds from the sale of the salvaged cargo
was P201,379.75.14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another
letter dated September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15Thereafter, as subrogee, it sought recovery of said amount from the petitioner,
but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the
amount of indemnity, attorney's fees and cost of suit. 16 Petitioner filed its answer with
counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its
Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia
Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc.
the sum of P4,104,654.22 with interest from the date complaint was filed on July 3, 1991
until fully satisfied plus 10% of the amount awarded as and for attorney's fees. Defendant's
counterclaim is hereby DISMISSED. With costs against defendant.18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate
court affirmed the decision of the trial court with modification. The dispositive portion of its decision
reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the
sense that the salvage value of P201,379.75 shall be deducted from the amount
of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate
court in a Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate
court, viz:19
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
HELD THAT PETITIONER IS A COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
AFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE BASIS OF THE
PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON CARRIERS, "THE LOSS OF THE
CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE FIVE (5)
CASES ENUMERATED."
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT
EFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE DILIGENCE
AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary
diligence in its care and custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and
publicly known route, maintains no terminals, and issues no tickets. It points out that it is not
obliged to carry indiscriminately for any person. It is not bound to carry goods unless it consents. In
short, it does not hold out its services to the general public.20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article 1732 cargo to further damage. A portion of the cross-examination of Alfredo Cunanan, cargo-surveyor of
of the Civil Code makes no distinction between one whose principal business activity is the carrying Tan-Gatue Adjustment Co., Inc., states:
of persons or goods or both, and one who does such carrying only as an ancillary activity. We also CROSS-EXAMINATION BY ATTY. DONN LEE:31
did not distinguish between a person or enterprise offering transportation service on a regular or xxx xxx xxx
scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. q - Can you tell us what else transpired after that incident?
Further, we ruled that Article 1732 does not distinguish between a carrier offering its services to a - After the first accident, through the initiative of the barge owners, they tried to pull
the general public, and one who offers services or solicits business only from a narrow segment of out the barge from the place of the accident, and bring it to the anchor terminal for safety,
the general population. then after deciding if the vessel is stabilized, they tried to pull it to the consignee's
In the case at bar, the principal business of the petitioner is that of lighterage and drayage22 and it warehouse, now while on route another accident occurred, now this time the barge totally
offers its barges to the public for carrying or transporting goods by water for compensation. hitting something in the course.
Petitioner is clearly a common carrier. In De Guzman, supra,23 we considered private respondent q - You said there was another accident, can you tell the court the nature of the second
Ernesto Cendaa to be a common carrier even if his principal occupation was not the carriage of accident?
goods for others, but that of buying used bottles and scrap metal in Pangasinan and selling these a - The sinking, sir.
items in Manila. q - Can you tell the nature . . . can you tell the court, if you know what caused the
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an sinking?
irregular rather than scheduled manner, and with an only limited clientele. A common carrier need a - Mostly it was related to the first accident because there was already a whole (sic) on
not have fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets. the bottom part of the barge.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of xxx xxx xxx
Appeals.24 The test to determine a common carrier is "whether the given undertaking is a part of the This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an incoming
business engaged in by the carrier which he has held out to the general public as his occupation typhoon. During the time that the barge was heading towards the consignee's wharf on September 5,
rather than the quantity or extent of the business transacted." 25 In the case at bar, the petitioner 1990, typhoon "Loleng" has already entered the Philippine area of responsibility. 32 A part of the
admitted that it is engaged in the business of shipping and lighterage, 26 offering its barges to the testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals:
public, despite its limited clientele for carrying or transporting goods by water for compensation.27 DIRECT-EXAMINATION BY ATTY. LEE:33
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise xxx xxx xxx
extraordinary diligence in its care and custody of the consignee's goods. q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods lie where she was instead of towing it?
transported by them.28 They are presumed to have been at fault or to have acted negligently if the a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the
goods are lost, destroyed or deteriorated.29 To overcome the presumption of negligence in the case consignee) as I have said was in a hurry for their goods to be delivered at their Wharf since
of loss, destruction or deterioration of the goods, the common carrier must prove that it exercised they needed badly the wheat that was loaded in PSTSI-3. It was needed badly by the
extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code consignee.
enumerates the instances when the presumption of negligence does not attach: q - And this is the reason why you towed the Barge as you did?
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the a - Yes, sir.
goods, unless the same is due to any of the following causes only: xxx xxx xxx
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; CROSS-EXAMINATION BY ATTY. IGNACIO:34
(2) Act of the public enemy in war, whether international or civil; xxx xxx xxx
(3) Act or omission of the shipper or owner of the goods; q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I
(4) The character of the goods or defects in the packing or in the containers; correct?
(5) Order or act of competent public authority. a - The next day, in the morning, we hired for additional two (2) tugboats as I have
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of stated.
its cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for q - Despite of the threats of an incoming typhoon as you testified a while ago?
the loss of the cargo. However, petitioner failed to prove that the typhoon is the proximate and only a - It is already in an inner portion of Pasig River. The typhoon would be coming and it
cause of the loss of the goods, and that it has exercised due diligence before, during and after the would be dangerous if we are in the vicinity of Manila Bay.
occurrence of the typhoon to prevent or minimize the loss. 30 The evidence show that, even before q - But the fact is, the typhoon was incoming? Yes or no?
the towing bits of the barge broke, it had already previously sustained damage when it hit a sunken a - Yes.
object while docked at the Engineering Island. It even suffered a hole. Clearly, this could not be solely q - And yet as a standard operating procedure of your Company, you have to secure a
attributed to the typhoon. The partly-submerged vessel was refloated but its hole was patched with sort of Certification to determine the weather condition, am I correct?
only clay and cement. The patch work was merely a provisional remedy, not enough for the barge to a - Yes, sir.
sail safely. Thus, when petitioner persisted to proceed with the voyage, it recklessly exposed the q - So, more or less, you had the knowledge of the incoming typhoon, right?
 a - Yes, sir.
q - And yet you proceeded to the premises of the GMC?
a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you
are already inside the vicinity or inside Pasig entrance, it is a safe place to tow upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape
liability for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls
short of due diligence required from a common carrier. More importantly, the officers/employees
themselves of petitioner admitted that when the towing bits of the vessel broke that caused its
sinking and the total loss of the cargo upon reaching the Pasig River, it was no longer affected by the
typhoon. The typhoon then is not the proximate cause of the loss of the cargo; a human factor, i.e.,
negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs
against petitioner.
SO ORDERED.
Panganiban, and Sandoval-Gutierrez, JJ., concur.
Corona, and Carpio-Morales, JJ., on official leave.
THIRD DIVISION
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera
SPOUSES DANTE CRUZ and G.R. No. 186312
LEONORA CRUZ, passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting
Petitioners, Present: of 18 passengers and four crew members, who were brought to Pisa Island. Eight passengers,
including petitioners son and his wife, died during the incident.
CARPIO MORALES, J.,
Chairperson,
BRION, At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for Mitsui
- versus - BERSAMIN, Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900.[3]
ABAD,* and Petitioners, by letter of October 26, 2000,[4] demanded indemnification from respondent for the
SUN HOLIDAYS, INC., VILLARAMA, JR., JJ.
death of their son in the amount of at least P4,000,000.
Respondent.
Promulgated:
June 29, 2010 Replying, respondent, by letter dated November 7, 2000,[5] denied any responsibility for the incident
which it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the
x-------------------------------------------------x
amount of P10,000 to petitioners upon their signing of a waiver.
DECISION
CARPIO MORALES, J.:
As petitioners declined respondents offer, they filed the Complaint, as earlier reflected, alleging that
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 [1]
against Sun respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail
Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and
from the death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September 11, Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000. [6]
2000 on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned and In its Answer,[7] respondent denied being a common carrier, alleging that its boats are not available
operated by respondent. to the general public as they only ferry Resort guests and crew members.Nonetheless, it claimed that
it exercised the utmost diligence in ensuring the safety of its passengers; contrary to petitioners
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by allegation, there was no storm on September 11, 2000as the Coast Guard in fact cleared the voyage;
virtue of a tour package-contract with respondent that included transportation to and from the and M/B Coco Beach III was not filled to capacity and had sufficient life jackets for its passengers. By
Resort and the point of departure in Batangas. way of Counterclaim, respondent alleged that it is entitled to an award for attorneys fees and
litigation expenses amounting to not less than P300,000.
Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors, gave his account of
the incident that led to the filing of the complaint as follows: Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four
conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the from the Coast Guard, (3) there is clearance from the captain and (4) there is clearance from the
Resort in the afternoon of September 10, 2000, but was advised to stay for another night because of Resorts assistant manager.[8] He added that M/B Coco Beach III met all four conditions on September
strong winds and heavy rains. 11, 2000,[9] but a subasco or squall, characterized by strong winds and big waves, suddenly occurred,
causing the boat to capsize.[10]
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed petitioners Complaint
petitioners son and his wife trekked to the other side of the Coco Beach mountain that was sheltered and respondents Counterclaim.
from the wind where they boarded M/B Coco Beach III, which was to ferry them to Batangas.
Petitioners Motion for Reconsideration having been denied by Order dated September 2,
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into 2005,[12] they appealed to the Court of Appeals.
the open seas, the rain and wind got stronger, causing the boat to tilt from side to side and the
captain to step forward to the front, leaving the wheel to one of the crew members. By Decision of August 19, 2008,[13] the appellate court denied petitioners appeal, holding,
among other things, that the trial court correctly ruled that respondent is a private carrier which is
The waves got more unwieldy. After getting hit by two big waves which came one after the only required to observe ordinary diligence; that respondent in fact observed extraordinary
other, M/B Coco Beach III capsized putting all passengers underwater. diligence in transporting its guests on board M/B Coco Beach III; and that the proximate cause of the
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the incident was a squall, a fortuitous event.
captain, Matute and the other passengers who reached the surface asked him what they could do to
save the people who were still trapped under the boat. The captain replied Iligtas niyo na lang ang Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
sarili niyo (Just save yourselves). 2009,[14] they filed the present Petition for Review.[15]

Petitioners maintain the position they took before the trial court, adding that respondent is
a common carrier since by its tour package, the transporting of its guests is an integral part of its
resort business. They inform that another division of the appellate court in fact held respondent
liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it
is a common carrier; that the Resorts ferry services for guests cannot be considered as ancillary to
its business as no income is derived therefrom; that it exercised extraordinary diligence as shown by
the conditions it had imposed before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on its part; and that the other case
wherein the appellate court held it liable for damages involved different plaintiffs, issues and
evidence.[16]
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing respondent as a
common carrier.
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as a
sideline). Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberately refrained from making
such distinctions.
So understood, the concept of common carrier under Article 1732 may be seen to
coincide neatly with the notion of public service, under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements
the law on common carriers set forth in the Civil Code. Under Section 13, paragraph
(b) of the Public Service Act, public service includes:
. . . every person that now or hereafter may own, operate, manage,
or control in the Philippines, for hire or compensation, with
general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common
carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without
fixed route and whatever may be its classification, freight or
carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine
repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply
and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations
and other similar public services . . .[18] (emphasis and
underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry services
in its resort operations is underscored by its having its own Coco Beach boats. And the tour packages
it offers, which include the ferry services, may be availed of by anyone who can afford to pay the
same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no
moment. It would be imprudent to suppose that it provides said services at a loss. The Court is
aware of the practice of beach resort operators offering tour packages to factor the transportation
fee in arriving at the tour package price. That guests who opt not to avail of respondents ferry
services pay the same amount is likewise inconsequential. These guests may only be deemed to have
overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining common carriers has deliberately
refrained from making distinctions on whether the carrying of persons or goods is the carriers
principal business, whether it is offered on a regular basis, or whether it is offered to the general
public. The intent of the law is thus to not consider such distinctions. Otherwise, there is no telling
how many other distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities of common
carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence for the safety of the passengers transported by
them, according to all the circumstances of each case. [19] They are bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances.[20]
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed
that the common carrier is at fault or negligent. In fact, there is even no need for the court to make
an express finding of fault or negligence on the part of the common carrier. This statutory
presumption may only be overcome by evidence that the carrier exercised extraordinary
diligence.[21]
Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of
voyage before it allowed M/B Coco Beach III to sail on September 11, 2000.Respondents position
does not impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone
warnings for shipping on September 10 and 11, 2000 advising of tropical depressions in Northern
Luzon which would also affect the province of Mindoro.[22] By the testimony of Dr. Frisco Nilo,
supervising weather specialist of PAGASA, squalls are to be expected under such weather
condition.[23]
A very cautious person exercising the utmost diligence would thus not brave such stormy weather
and put other peoples lives at risk. The extraordinary diligence required of common carriers
demands that they take care of the goods or lives entrusted to their hands as if they were their
own. This respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not impress
either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence,
or the failure of the debtors to comply with their obligations, must have been independent of human
will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if
foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible
for the debtors to fulfill their obligation in a normal manner; and (d) the obligor must have been free
from any participation in the aggravation of the resulting injury to the creditor.[24]
To fully free a common carrier from any liability, the fortuitous event must have been the proximate
and only cause of the loss. And it should have exercised due diligence to prevent or minimize the
loss before, during and after the occurrence of the fortuitous event.[25]
Respondent cites the squall that occurred during the voyage as the fortuitous event that
overturned M/B Coco Beach III. As reflected above, however, the occurrence of squalls was expected
under the weather condition of September 11, 2000. Moreover, evidence shows that M/B Coco Beach
III suffered engine trouble before it capsized and sank.[26]The incident was, therefore, not completely
free from human intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate that it exercised
due diligence to prevent or minimize the loss before, during and after the occurrence of the squall.
Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common carrier in breach
of its contract of carriage that results in the death of a passenger liable to pay the following: (1)
indemnity for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.[29]
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and
necessary living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death][30]
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at
death]) adopted in the American Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality.[31]
The second factor is computed by multiplying the life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses necessary in the creation of such earnings or income
and less living and other incidental expenses.[32] The loss is not equivalent to the entire earnings of
the deceased, but only such portion as he would have used to support his dependents or
heirs. Hence, to be deducted from his gross earnings are the necessary expenses supposed to be used
by the deceased for his own needs.[33]
In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency
Corp. v. Borja[34] teaches that when, as in this case, there is no showing that the living expenses
constituted the smaller percentage of the gross income, the living expenses are fixed at half of the
gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of
$900[35] which, when converted to Philippine peso applying the annual average exchange rate of $1
= P44 in 2000,[36] amounts to P39,600. Ruelitos net earning capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income -
reasonable and necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning Capacity = P8,316,000
Respecting the award of moral damages, since respondent common carriers breach of
contract of carriage resulted in the death of petitioners son, following Article 1764 vis--vis Article
2206 of the Civil Code, petitioners are entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of
common carriers, it is presumed to have acted recklessly, thus warranting the award too of
exemplary damages, which are granted in contractual obligations if the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.[37]
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as
moral damages and P100,000 as exemplary damages.[38]
Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be awarded where
exemplary damages are awarded. The Court finds that 10% of the total amount adjudged against
respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals [40] teaches that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for payment of interest in the concept of actual and compensatory
damages, subject to the following rules, to wit
 1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.

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

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

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

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

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET
ASIDE. Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the
following: (1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for
Ruelitos loss of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as exemplary
damages; (5) 10% of the total amount adjudged against respondent as attorneys fees; and (6) the
costs of suit.

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

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 101089. April 7, 1993.
ESTRELLITA M. BASCOS, petitioners,
vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.
Modesto S. Bascos for petitioner.
Pelaez, Adriano & Gregorio for private respondent.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER. Article
1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association
engaged in the business of carrying or transporting passengers or goods or both, by land, water or
air, for compensation, offering their services to the public." The test to determine a common carrier
is "whether the given undertaking is a part of the business engaged in by the carrier which he has
held out to the general public as his occupation rather than the quantity or extent of the business
transacted." . . . The holding of the Court in De Guzman vs. Court of Appeals is instructive. In referring
to Article 1732 of the Civil Code, it held thus: "The above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as a "sideline"). Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation service on a
regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguished between a carrier offering its services to the "general
public," i.e., the general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1732 deliberately
refrained from making such distinctions."
2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN
PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN PRESUMPTION
MADE ABSOLUTE. Common carriers are obliged to observe extraordinary diligence in the
vigilance over the goods transported by them. Accordingly, they are presumed to have been at fault
or to have acted negligently if the goods are lost, destroyed or deteriorated. There are very few
instances when the presumption of negligence does not attach and these instances are enumerated
in Article 1734. In those cases where the presumption is applied, the common carrier must prove
that it exercised extraordinary diligence in order to overcome the presumption . . . The presumption
of negligence was raised against petitioner. It was petitioner's burden to overcome it. Thus, contrary
to her assertion, private respondent need not introduce any evidence to prove her negligence. Her
own failure to adduce sufficient proof of extraordinary diligence made the presumption conclusive
against her.
3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER ABSOLVED
FROM LIABILITY. In De Guzman vs. Court of Appeals, the Court held that hijacking, not being
included in the provisions of Article 1734, must be dealt with under the provisions of Article 1735
and thus, the common carrier is presumed to have been at fault or negligent. To exculpate the carrier
from liability arising from hijacking, he must prove that the robbers or the hijackers acted with grave
or irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil Code
which provides: "Art. 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy . . . (6) That the common carrier's liability for acts
committed by thieves, or of robbers who do not act with grave or irresistible threat, violences or
force, is dispensed with or diminished"; In the same case, the Supreme Court also held that: "Under
Article 1745 (6) above, a common carrier is held responsible and will not be allowed to divest or
to diminish such responsibility even for acts of strangers like thieves or robbers, except where
such thieves or robbers in fact acted "with grave of irresistible threat, violence of force," We believe
and so hold that the limits of the duty of extraordinary diligence in the vigilance over the goods
carried are reached where the goods are lost as a result of a robbery which is attended by "grave or
irresistible threat, violence or force."
4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. In this case, petitioner
herself has made the admission that she was in the trucking business, offering her trucks to those
with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same.
5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. Petitioner presented
no other proof of the existence of the contract of lease. He who alleges a fact has the burden of
proving it.
6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS
WITNESSES. While the affidavit of Juanito Morden, the truck helper in the hijacked truck, was
presented as evidence in court, he himself was a witness as could be gleaned from the contents of
the petition. Affidavits are not considered the best evidence if the affiants are available as witnesses.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO BE.
Granting that the said evidence were not self-serving, the same were not sufficient to prove that the
contract was one of lease. It must be understood that a contract is what the law defines it to be and
not what it is called by the contracting parties.
DECISION
CAMPOS, JR., J p:
This is a petition for review on certiorari of the decision ** of the Court of Appeals in "RODOLFO A.
CIPRIANO, doing business under the name CIPRIANO TRADING ENTERPRISES plaintiff-appellee, vs.
ESTRELLITA M. BASCOS, doing business under the name of BASCOS TRUCKING, defendant-
appellant," C.A.-G.R. CV No. 25216, the dispositive portion of which is quoted hereunder:
"PREMISES considered, We find no reversible error in the decision appealed from, which is hereby
affirmed in toto. Costs against appellant." 1
The facts, as gathered by this Court, are as follows:
Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a
hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul
the latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the
warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE,
through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to
deliver 400 sacks of soya bean meal worth P156,404.00 from the Manila Port Area to Calamba,
Laguna at the rate of P50.00 per metric ton. Petitioner failed to deliver the said cargo. As a
consequence of that failure, Cipriano paid Jibfair Shipping Agency the amount of the lost goods in
accordance with the contract which stated that:
"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and non-
delivery or damages to the cargo during transport at market value, . . ." 3
Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually,
Cipriano filed a complaint for a sum of money and damages with writ of preliminary attachment 4
for breach of a contract of carriage. The prayer for a Writ of Preliminary Attachment was supported
by an affidavit 5 which contained the following allegations:
"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court,
whereby a writ of preliminary attachment may lawfully issue, namely:
"(e) in an action against a party who has removed or disposed of his property, or is about to do so,
with intent to defraud his creditors;"
5. That there is no sufficient security for the claim sought to be enforced by the present action;
6. That the amount due to the plaintiff in the above-entitled case is above all legal counterclaims;"
The trial court granted the writ of preliminary attachment on February 17, 1987.
In her answer, petitioner interposed the following defenses: that there was no contract of carriage
since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that
CIPTRADE was liable to petitioner in the amount of P11,000.00 for loading the cargo; that the truck
carrying the cargo was hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988;
that the hijacking was immediately reported to CIPTRADE and that petitioner and the police exerted
all efforts to locate the hijacked properties; that after preliminary investigation, an information for
robbery and carnapping were filed against Jose Opriano, et al.; and that hijacking, being a force
majeure, exculpated petitioner from any liability to CIPTRADE.
After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering the
latter to pay the former:
1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS
(P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per annum to be
counted from December 4, 1986 until fully paid;
2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and
3. The costs of the suit.
The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by
defendant is DENIED for being moot and academic.
SO ORDERED." 6
Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's judgment.
Consequently, petitioner filed this petition where she makes the following assignment of errors; to
wit:
"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL RELATIONSHIP
BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS AND NOT LEASE
OF CARGO TRUCK.
II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT COURT THAT
THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS
CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER LIABLE
THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY,
HIJACKING.
III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT THAT
PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT HAS BEEN
RENDERED MOOT AND ACADEMIC BY THE DECISION OF THE MERITS OF THE CASE." 7
The petition presents the following issues for resolution: (1) was petitioner a common carrier?; and
(2) was the hijacking referred to a force majeure?
The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in
her answer that she did business under the name A.M. Bascos Trucking and that said admission
dispensed with the presentation by private respondent, Rodolfo Cipriano, of proofs that petitioner
was a common carrier. The respondent Court also adopted in toto the trial court's decision that
petitioner was a common carrier, Moreover, both courts appreciated the following pieces of
evidence as indicators that petitioner was a common carrier: the fact that the truck driver of
petitioner, Maximo Sanglay, received the cargo consisting of 400 bags of soya bean meal as
evidenced by a cargo receipt signed by Maximo Sanglay; the fact that the truck helper, Juanito
Morden, was also an employee of petitioner; and the fact that control of the cargo was placed in
petitioner's care.
In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier,
she alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing
CIPTRADE, was lease of the truck. She cited as evidence certain affidavits which referred to the
contract as "lease". These affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She
further averred that Jesus Bascos confirmed in his testimony his statement that the contract was a
lease contract. 10 She also stated that: she was not catering to the general public. Thus, in her
answer to the amended complaint, she said that she does business under the same style of A.M.
Bascos Trucking, offering her trucks for lease to those who have cargo to move, not to the general
public but to a few customers only in view of the fact that it is only a small business. 11
We agree with the respondent Court in its finding that petitioner is a common carrier.
Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by land,
water or air, for compensation, offering their services to the public." The test to determine a
common carrier is "whether the given undertaking is a part of the business engaged in by the carrier
which he has held out to the general public as his occupation rather than the quantity or extent of
the business transacted." 12 In this case, petitioner herself has made the admission that she was in
the trucking business, offering her trucks to those with cargo to move. Judicial admissions are
conclusive and no evidence is required to prove the same. 13
But petitioner argues that there was only a contract of lease because they offer their services only to
a select group of people and because the private respondents, plaintiffs in the lower court, did not
object to the presentation of affidavits by petitioner where the transaction was referred to as a lease
contract.
Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is
instructive. In referring to Article 1732 of the Civil Code, it held thus:
"The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in
local idiom, as a "sideline"). Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1732 deliberately refrained from making such
distinctions."
Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts have
dismissed them as self-serving and petitioner contests the conclusion. We are bound by the
appellate court's factual conclusions. Yet, granting that the said evidence were not self-serving, the The presumption of negligence was raised against petitioner. It was petitioner's burden to overcome
same were not sufficient to prove that the contract was one of lease. It must be understood that a it. Thus, contrary to her assertion, private respondent need not introduce any evidence to prove her
contract is what the law defines it to be and not what it is called by the contracting parties. 15 negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the
Furthermore, petitioner presented no other proof of the existence of the contract of lease. He who presumption conclusive against her.
alleges a fact has the burden of proving it. 16
Likewise, We affirm the holding of the respondent court that the loss of the goods was not due to Having affirmed the findings of the respondent Court on the substantial issues involved, We find no
force majeure. reason to disturb the conclusion that the motion to lift/dissolve the writ of preliminary attachment
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods has been rendered moot and academic by the decision on the merits.
transported by them. 17 Accordingly, they are presumed to have been at fault or to have acted In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be sustained.
negligently if the goods are lost, destroyed or deteriorated. 18 There are very few instances when The petition is DISMISSED and the decision of the Court of Appeals is hereby AFFIRMED.
the presumption of negligence does not attach and these instances are enumerated in Article 1734. SO ORDERED.
19 In those cases where the presumption is applied, the common carrier must prove that it exercised Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.
extraordinary diligence in order to overcome the presumption.
In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from
liability for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that hijacking,
not being included in the provisions of Article 1734, must be dealt with under the provisions of
Article 1735 and thus, the common carrier is presumed to have been at fault or negligent. To
exculpate the carrier from liability arising from hijacking, he must prove that the robbers or the
hijackers acted with grave or irresistible threat, violence, or force. This is in accordance with Article
1745 of the Civil Code which provides:
"Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy;
xxx xxx xxx
(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violences or force, is dispensed with or diminished;"
In the same case, 21 the Supreme Court also held that:
"Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to
divest or to diminish such responsibility even for acts of strangers like thieves or robbers except
where such thieves or robbers in fact acted with grave or irresistible threat, violence or force. We
believe and so hold that the limits of the duty of extraordinary diligence in the vigilance over the
goods carried are reached where the goods are lost as a result of a robbery which is attended by
"grave or irresistible threat, violence or force."
To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus
Bascos' affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court and the Court
of Appeals have concluded that these affidavits were not enough to overcome the presumption.
Petitioner's affidavit about the hijacking was based on what had been told her by Juanito Morden. It
was not a first-hand account. While it had been admitted in court for lack of objection on the part of
private respondent, the respondent Court had discretion in assigning weight to such evidence. We
are bound by the conclusion of the appellate court. In a petition for review on certiorari, We are not
to determine the probative value of evidence but to resolve questions of law. Secondly, the affidavit
of Jesus Bascos did not dwell on how the hijacking took place. Thirdly, while the affidavit of Juanito
Morden, the truck helper in the hijacked truck, was presented as evidence in court, he himself was a
witness as could be gleaned from the contents of the petition. Affidavits are not considered the best
evidence if the affiants are available as witnesses. 25 The subsequent filing of the information for
carnapping and robbery against the accused named in said affidavits did not necessarily mean that
the contents of the affidavits were true because they were yet to be determined in the trial of the
criminal cases.
THIRD DIVISION
[G.R. No. 147079. December 21, 2004]
A.F. SANCHEZ BROKERAGE INC., petitioners, vs. THE HON. COURT OF APPEALS and FGU
INSURANCE CORPORATION, respondents.
DECISION
CARPIO MORALES, J.:
Before this Court on a petition for Certiorari is the appellate courts Decision[1] of August 10,
2000 reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati City, in
Civil Case No. 93-76B which dismissed the complaint of respondent FGU Insurance Corporation
(FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch
Airlines at Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal tablets,
14,000 Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor
of the consignee, Wyeth-Suaco Laboratories, Inc.[2] The Femenal tablets were placed in 124 cartons
and the Nordiol tablets were placed in 20 cartons which were packed together in one (1) LD3
aluminum container, while the Trinordial tablets were packed in two pallets, each of which
contained 30 cartons.[3]
Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine
Risk Note No. 4995 pursuant to Marine Open Policy No. 138.[4]
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport
(NAIA),[5] it was discharged without exception[6] and delivered to the warehouse of the Philippine
Skylanders, Inc. (PSI) located also at the NAIA for safekeeping.[7]
In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-
Suaco engaged the services of Sanchez Brokerage which had been its licensed broker since
1984.[8] As its customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes and
storage fees for the cargo and thereafter delivers it to Wyeth-Suaco.[9]
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage,
paid PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt No. 016992,[10] was
issued. On the receipt, another representative of Sanchez Brokerage, M. Sison, [11] acknowledged that
he received the cargoes consisting of three pieces in good condition.[12]
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the
cargoes[13] which were thereupon stripped from the aluminum containers [14] and loaded inside two
transport vehicles hired by Sanchez Brokerage.[15]
Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben
Alonso and Tony Akas,[16] employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a
marine and cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of
FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in
Antipolo City for quality control check.[17] The delivery receipt, bearing No. 07037 dated July 29,
1992, indicated that the delivery consisted of one container with 144 cartons of Femenal and
Nordiol and 1 pallet containing Trinordiol.[18]
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of
the cargoes by affixing his signature on the delivery receipt. [19] Upon inspection, however, he,
together with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal and
Nordiol tablets were in bad order.[20] He thus placed a note above his signature on the delivery
receipt stating that 44 cartons of oral contraceptives were in bad order. The remaining 160 cartons
of oral contraceptives were accepted as complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report[21] dated July
31, 1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were wetted
(sic).[22]
The Elite Surveyors later issued Certificate No. CS-0731-1538/92[23] attached to which was an
Annexed Schedule whereon it was indicated that prior to the loading of the cargoes to the brokers
trucks at the NAIA, they were inspected and found to be in apparent good condition. [24] Also noted
was that at the time of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell,
which could account for the wetting of the 44 cartons of Femenal and Nordiol tablets. [25]
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report [26] confirming that
38 x 700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister
packs of Nordiol tablets were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection[27] of 38 cartons of
Femenal and 3 cartons of Nordiol on the ground that they were delivered to Hizon Laboratories with
heavy water damaged (sic) causing the cartons to sagged (sic) emitting a foul order and easily
attracted flies.[28]
Wyeth-Suaco later demanded, by letter[29] of August 25, 1992, from Sanchez Brokerage the
payment of P191,384.25 representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim
against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its claim
under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt[30] in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco,
Sanchez Brokerage, by letter[31] of January 7, 1993, disclaimed liability for the damaged goods,
positing that the damage was due to improper and insufficient export packaging; that when the
sealed containers were opened outside the PSI warehouse, it was discovered that some of the loose
cartons were wet,[32] prompting its (Sanchez Brokerages) representative Morales to inform the
Import-Export Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes but that
the latter advised to still deliver them to Hizon Laboratories where an adjuster would assess the
damage.[33]
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court
of Makati City against the Sanchez Brokerage.
The trial court, by Decision[34] of July 29, 1996, dismissed the complaint, holding that the Survey
Report prepared by the Elite Surveyors is bereft of any evidentiary support and a mere product of
pure guesswork.[35]
On appeal, the appellate court reversed the decision of the trial court, it holding that the
Sanchez Brokerage engaged not only in the business of customs brokerage but also in the
transportation and delivery of the cargo of its clients, hence, a common carrier within the context of
Article 1732 of the New Civil Code.[36]
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in
good order and condition but were in a damaged state when delivered to Wyeth-Suaco, the appellate
court held that Sanchez Brokerage is presumed negligent and upon it rested the burden of proving
that it exercised extraordinary negligence not only in instances when negligence is directly proven
but also in those cases when the cause of the damage is not known or unknown. [37]
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The Decision of the
Court a quo is REVERSED. Another Decision is hereby rendered in favor of the Appellant and against
the Appellee as follows:
 1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181,
431.49, with interest thereupon at the rate of 6% per annum, from the date of
the Decision of the Court, until the said amount is paid in full;
2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00
as and by way of attorneys fees; and
3. The counterclaims of the Appellee are DISMISSED.[38]
Sanchez Brokerages Motion for Reconsideration having been denied by the appellate courts
Resolution of December 8, 2000 which was received by petitioner on January 5, 2001, it comes to
this Court on petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error
tantamount to abuse of discretion when it found petitioner a common carrier within the context of
Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which
petitioner should have taken was to file a petition for review on certiorari since the sole office of a
writ of certiorari is the correction of errors of jurisdiction including the commission of grave abuse
of discretion amounting to lack or excess of jurisdiction and does not include correction of the
appellate courts evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed
to overcome the presumption of negligence, it being documented that petitioner withdrew from the
warehouse of PSI the subject shipment entirely in good order and condition.[39]
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this
Court by filing a petition for review, which would be but a continuation of the appellate process over
the original case.[40]
The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5, 2001.
Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the appellate
courts decision had become final and executory. The filing by petitioner of a petition for certiorari on
March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove
not merely reversible error but also grave abuse of discretion amounting to lack or excess of
jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of
the trial court based on its finding that petitioner is liable for the damage to the cargo as a common
carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the
subject of an ordinary appeal.
Where the issue or question involves or affects the wisdom or legal soundness of the decision
not the jurisdiction of the court to render said decision the same is beyond the province of a petition
for certiorari.[41] The supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in
order to review the judgment of lower courts as to its intrinsic correctness, either upon the law or
the facts of the case.[42]
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself
testified that the services the firm offers include the delivery of goods to the warehouse of the
consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those upon
approval of the importer, we prepare the entry together for processing and claims
from customs and finally deliver the goods to the warehouse of the importer.[43]
Article 1732 does not distinguish between one whose principal business activity is the carrying
of goods and one who does such carrying only as an ancillary activity. [44] The contention, therefore,
of petitioner that it is not a common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as required by law is bereft
of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 1733 [45] of
the Civil Code, extraordinary diligence in the vigilance over the goods it transports according to all
the circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence.[46]
The concept of extra-ordinary diligence was explained in Compania Maritima v. Court of
Appeals:[47]
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for sale, carriage and delivery. It requires common carriers
to render service with the greatest skill and foresight and to use all reasonable means to ascertain
the nature and characteristics of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires.[48]
In the case at bar, it was established that petitioner received the cargoes from the PSI
warehouse in NAIA in good order and condition; [49] and that upon delivery by petitioner to Hizon
Laboratories Inc., some of the cargoes were found to be in bad order, as noted in the Delivery
Receipt[50] issued by petitioner, and as indicated in the Survey Report of Elite Surveyors [51]and the
Destruction Report of Hizon Laboratories, Inc.[52]
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits
that they were damaged due to the fault or negligence of the shipper for failing to properly pack
them and to the inherent characteristics of the goods [53]; and that it should not be faulted for
following the instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite
information conveyed to the latter that some of the cartons, on examination outside the PSI
warehouse, were found to be wet.[54]
While paragraph No. 4 of Article 1734[55] of the Civil Code exempts a common carrier from
liability if the loss or damage is due to the character of the goods or defects in the packing or in the
containers, the rule is that if the improper packing is known to the carrier or his employees or is
apparent upon ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for the resulting damage.[56]
If the claim of petitioner that some of the cartons were already damaged upon delivery to it
were true, then it should naturally have received the cargo under protest or with reservations duly
noted on the receipt issued by PSI. But it made no such protest or reservation.[57]
Moreover, as observed by the appellate court, if indeed petitioners employees only examined
the cargoes outside the PSI warehouse and found some to be wet, they would certainly have gone
back to PSI, showed to the warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage.[58] Or, petitioner would have presented, as
witness, the employees of the PSI from whom Morales and Domingo took delivery of the cargo to
prove that, indeed, part of the cargoes was already damaged when the container was allegedly
opened outside the warehouse.[59]
Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day.
Instead, it asserts that some of the cargoes were already wet on delivery by PSI outside the PSI
warehouse but such notwithstanding Calicdan directed Morales to proceed with the delivery to
Hizon Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29,
1992, he failed to specifically declare what time he received the call. As to whether the call was made
at the PSI warehouse when the shipment was stripped from the airport containers, or when the
cargoes were already in transit to Antipolo, it is not determinable. Aside from that phone call,
petitioner admitted that it had no documentary evidence to prove that at the time it received the
cargoes, a part of it was wet, damaged or in bad condition.[60]
The 4-page weather data furnished by PAGASA[61] on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral
contraceptives were damaged by rainwater while in transit to Antipolo City is more likely then.
Sanchez himself testified that in the past, there was a similar instance when the shipment of Wyeth-
Suaco was also found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived
at the NAIA were damaged and claimed by the Wyeth-Suaco without any question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco
did not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.[62]
Since petitioner received all the cargoes in good order and condition at the time they were
turned over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion
thereof was found to be in bad order, it was incumbent on petitioner to prove that it exercised
extraordinary diligence in the carriage of the goods. It did not, however. Hence, its presumed
negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, and Garcia, JJ., concur.
Corona, J., on leave.
FIRST DIVISION
[G.R. No. 138334. August 25, 2003]
ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL &
TOURS INTERNATIONAL, INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan
Travel and Tours International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed Jewels of Europe. The package tour included the countries of
England, Holland, Germany, Austria, Liechstenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because petitioners niece, Meriam Menor, was respondent companys
ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday to
deliver petitioners travel documents and plane tickets. Petitioner, in turn, gave Menor the full
payment for the package tour. Menor then told her to be at the Ninoy Aquino International Airport
(NAIA) on Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to
take the flight for the first leg of her journey from Manila to Hongkong. To petitioners dismay, she
discovered that the flight she was supposed to take had already departed the previous day. She
learned that her plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor
to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the British Pageant which
included England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked
anew to pay US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave
respondent US$300 or P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for Jewels of Europe and the
amount she owed respondent for the British Pageant tour. Despite several demands, respondent
company refused to reimburse the amount, contending that the same was non-
refundable.[1] Petitioner was thus constrained to file a complaint against respondent for breach of
contract of carriage and damages, which was docketed as Civil Case No. 92-133 and raffled to Branch
59 of the Regional Trial Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to join Jewels of Europe was due to
respondents fault since it did not clearly indicate the departure date on the plane ticket.Respondent
was also negligent in informing her of the wrong flight schedule through its employee Menor. She
insisted that the British Pageant was merely a substitute for the Jewels of Europe tour, such that the
cost of the former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner was
informed of the correct departure date, which was clearly and legibly printed on the plane ticket.
The travel documents were given to petitioner two days ahead of the scheduled trip.Petitioner had
only herself to blame for missing the flight, as she did not bother to read or confirm her flight
schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for Jewels of Europe,
considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd.,
which had already billed the same even if petitioner did not join the tour. Lotus European tour
organizer, Insight International Tours Ltd., determines the cost of a package tour based on a
minimum number of projected participants. For this reason, it is accepted industry practice to
disallow refund for individuals who failed to take a booked tour.[3]
Lastly, respondent maintained that the British Pageant was not a substitute for the package
tour that petitioner missed. This tour was independently procured by petitioner after realizing that
she made a mistake in missing her flight for Jewels of Europe. Petitioner was allowed to make a
partial payment of only US$300.00 for the second tour because her niece was then an employee of
the travel agency. Consequently, respondent prayed that petitioner be ordered to pay the balance of
P12,901.00 for the British Pageant package tour.
After due proceedings, the trial court rendered a decision,[4] the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty
Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos
(P53,989.43) with legal interest thereon at the rate of twelve percent (12%) per
annum starting January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00)
Pesos as and for reasonable attorneys fees;
3. Dismissing the defendants counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.[5]
The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut petitioners
testimony. However, petitioner should have verified the exact date and time of departure by looking
at her ticket and should have simply not relied on Menors verbal representation. The trial court thus
declared that petitioner was guilty of contributory negligence and accordingly, deducted 10% from
the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at
fault. However, the appellate court held that petitioner is more negligent than respondent because as
a lawyer and well-traveled person, she should have known better than to simply rely on what was
told to her. This being so, she is not entitled to any form of damages. Petitioner also forfeited her
right to the Jewels of Europe tour and must therefore pay respondent the balance of the price for the
British Pageant tour. The dispositive portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995
is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-
appellee to pay to the defendant-appellant the amount of P12,901.00, representing the balance of
the price of the British Pageant Package Tour, the same to earn legal interest at the rate of SIX
PERCENT (6%) per annum, to be computed from the time the counterclaim was filed until the
finality of this decision. After this decision becomes final and executory, the rate of TWELVE
PERCENT (12%) interest per annum shall be additionally imposed on the total obligation until
payment thereof is satisfied. The award of attorneys fees is DELETED. Costs against the plaintiff-
appellee.
SO ORDERED.[6]
Upon denial of her motion for reconsideration,[7] petitioner filed the instant petition under Rule
45 on the following grounds:
I
It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in
reversing and setting aside the decision of the trial court by ruling that the petitioner is not entitled
to a refund of the cost of unavailed Jewels of Europe tour she being equally, if not more, negligent
than the private respondent, for in the contract of carriage the common carrier is obliged to observe
utmost care and extra-ordinary diligence which is higher in degree than the ordinary diligence
required of the passenger. Thus, even if the petitioner and private respondent were both negligent,
the petitioner cannot be considered to be equally, or worse, more guilty than the private respondent.
At best, petitioners negligence is only contributory while the private respondent [is guilty] of gross
negligence making the principle of pari delicto inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe tour was not
indivisible and the amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages due her as a
result of breach of contract of carriage.[8]
Petitioner contends that respondent did not observe the standard of care required of a common
carrier when it informed her wrongly of the flight schedule. She could not be deemed more negligent
than respondent since the latter is required by law to exercise extraordinary diligence in the
fulfillment of its obligation. If she were negligent at all, the same is merely contributory and not the
proximate cause of the damage she suffered. Her loss could only be attributed to respondent as it
was the direct consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one place to
another for a fixed price.[9] Such person or association of persons are regarded as carriers and are
classified as private or special carriers and common or public carriers.[10] A common carrier is
defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business
of transporting either passengers or goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place to another since its covenant
with its customers is simply to make travel arrangements in their behalf. Respondents services as a
travel agency include procuring tickets and facilitating travel permits or visas as well as booking
customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent
company, this does not mean that the latter ipso facto is a common carrier. At most, respondent
acted merely as an agent of the airline, with whom petitioner ultimately contracted for her carriage
to Europe. Respondents obligation to petitioner in this regard was simply to see to it that petitioner
was properly booked with the airline for the appointed date and time. Her transport to the place of
destination, meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters service
of arranging and facilitating petitioners booking, ticketing and accommodation in the package
tour. In contrast, the object of a contract of carriage is the transportation of passengers or goods. It
is in this sense that the contract between the parties in this case was an ordinary one for services
and not one of carriage. Petitioners submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of
the degree of care required in the performance of the latters obligation under the contract. For
reasons of public policy, a common carrier in a contract of carriage is bound by law to carry
passengers as far as human care and foresight can provide using the utmost diligence of very
cautious persons and with due regard for all the circumstances. [11] As earlier stated, however,
respondent is not a common carrier but a travel agency. It is thus not bound under the law to
observe extraordinary diligence in the performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil
Code.[12] This connotes reasonable care consistent with that which an ordinarily prudent person
would have observed when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily prudent person would have
used in the same situation? If not, then he is guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent when she allegedly informed
petitioner of the wrong day of departure. Petitioners testimony was accepted as indubitable
evidence of Menors alleged negligent act since respondent did not call Menor to the witness stand to
refute the allegation. The lower court applied the presumption under Rule 131, Section 3 (e)[14] of
the Rules of Court that evidence willfully suppressed would be adverse if produced and thus
considered petitioners uncontradicted testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains
that petitioners assertion is belied by the evidence on record. The date and time of departure was
legibly written on the plane ticket and the travel papers were delivered two days in advance
precisely so that petitioner could prepare for the trip. It performed all its obligations to enable
petitioner to join the tour and exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners testimony could not give
rise to an inference unfavorable to the former. Menor was already working in France at the time of
the filing of the complaint,[15] thereby making it physically impossible for respondent to present her
as a witness. Then too, even if it were possible for respondent to secure Menors testimony, the
presumption under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for
obtaining Menors testimony belonged to both parties, considering that Menor was not just
respondents employee, but also petitioners niece. It was thus error for the lower court to invoke the
presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said
presumption would logically be inoperative if the evidence is not intentionally omitted but is simply
unavailable, or when the same could have been obtained by both parties.[16]
In sum, we do not agree with the finding of the lower court that Menors negligence concurred
with the negligence of petitioner and resultantly caused damage to the latter. Menors negligence was
not sufficiently proved, considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden
of proving it and a mere allegation cannot take the place of evidence. [17] If the plaintiff, upon whom
rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon
which he bases his claim, the defendant is under no obligation to prove his exception or defense. [18]
Contrary to petitioners claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure in
rendering its services to petitioner. As correctly observed by the lower court, the plane
ticket[19] issued to petitioner clearly reflected the departure date and time, contrary to petitioners
contention. The travel documents, consisting of the tour itinerary, vouchers and instructions, were
likewise delivered to petitioner two days prior to the trip. Respondent also properly booked
petitioner for the tour, prepared the necessary documents and procured the plane tickets. It
arranged petitioners hotel accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.
 Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised due
diligence in the conduct of her affairs, there would have been no reason for her to miss the flight.
Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon her
to take ordinary care of her concerns. This undoubtedly would require that she at least read the
documents in order to assure herself of the important details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for
damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in
his failure to exercise due care and prudence in the performance of the obligation as the nature of
the obligation so demands.[20] There is no fixed standard of diligence applicable to each and every
contractual obligation and each case must be determined upon its particular facts. The degree of
diligence required depends on the circumstances of the specific obligation and whether one has been
negligent is a question of fact that is to be determined after taking into account the particulars of
each case.[21]
The lower court declared that respondents employee was negligent. This factual finding,
however, is not supported by the evidence on record. While factual findings below are generally
conclusive upon this court, the rule is subject to certain exceptions, as when the trial court
overlooked, misunderstood, or misapplied some facts or circumstances of weight and substance
which will affect the result of the case.[22]
In the case at bar, the evidence on record shows that respondent company performed its duty
diligently and did not commit any contractual breach. Hence, petitioner cannot recover and must
bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of
Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent
the amount of P12,901.00 representing the balance of the price of the British Pageant Package Tour,
with legal interest thereon at the rate of 6% per annum, to be computed from the time the
counterclaim was filed until the finality of this Decision. After this Decision becomes final and
executory, the rate of 12% per annum shall be imposed until the obligation is fully settled, this
interim period being deemed to be by then an equivalent to a forbearance of credit. [23]
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.
THIRD DIVISION
ASIAN TERMINALS, INC., G.R. No. 171194
Petitioner, On July 19, 2000, V. Reyes Lazo withdrew, and petitioner released, the shipment and delivered it to
Present: Access Internationals warehouse in Binondo, Manila.[10] While the shipment was at Access
CARPIO, J.,* Internationals warehouse, the latter, together with its surveyor, Lloyds Agency, conducted an
CORONA,
- versus - Chairperson, inspection and noted that only twelve (12) boxes were accounted for, while fourteen (14) boxes
VELASCO, JR.,
NACHURA, and
were missing.[11] Access International thus filed a claim against petitioner and V. Reyes Lazo for the
PERALTA, JJ. missing shipment amounting to $34,993.28.[12]For failure to collect its claim, Access International
DAEHAN FIRE AND MARINE INSURANCE CO., LTD., Promulgated: sought indemnification from respondent in the amount of $45,742.81. [13] On November 8, 2000,
Respondent.
February 4, 2010 respondent paid the amount of the claim and Access International accordingly executed a
Subrogation Receipt in favor of the former.[14]
x------------------------------------------------------------------------------------x
On July 10, 2001, respondent, represented by Smith Bell, instituted the present case against
DECISION Dongnama, Uni-ship, Inc. (Uni-ship), petitioner, and V. Reyes Lazo before the RTC. [15] Respondent
NACHURA, J.:
alleged that the losses, shortages and short deliveries sustained by the shipment were caused by the
This is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Court of
joint fault and negligence of Dongnama, petitioner and V. Reyes Lazo.
Appeals (CA) September 14, 2005 Decision[1] and December 20, 2005 Resolution[2] in CA-G.R. CV No.
Dongnama and Uni-ship filed a Motion to Dismiss[16] on the grounds that Daehan lacked
83647. The assailed Decision reversed and set aside the Regional Trial Court (RTC) [3] August 4, 2004
legal capacity to sue and that the complaint stated no cause of action. The trial court, however,
Decision[4] in Civil Case No. 01-101309, while the assailed resolution denied petitioner Asian
denied the motion in an Order dated August 31, 2001.[17]
Terminals, Inc.s motion for reconsideration.
Thereafter, Dongnama and Uni-ship filed their Answer with Counterclaim and Cross-
The case stemmed from the following facts:
Claim Ad Cautelam denying any liability for the damages/losses sustained by the shipment, pointing
On July 8, 2000, Doosan Corporation (Doosan) shipped twenty-six (26) boxes of printed aluminum
out that it was on a Full Container Load, Said to Contain, and Shippers Load and Count bases, under
sheets on board the vessel Heung-A Dragon owned by Dongnama Shipping Co., Ltd.
which they had no means of verifying the contents of the containers. They also alleged that the
(Dongnama).[5] The shipment was covered by Bill of Lading No. DNALHMBUMN010010 [6] and
container van was properly discharged from the vessel with seals intact and no exceptions noted.
consigned to Access International, with address at No. 9 Parada St., San Juan, Metro Manila. Doosan
Moreover, they claimed that the losses occurred while the subject shipment was in the custody,
insured the subject shipment with respondent Daehan Fire and Marine Insurance Co., Ltd. under an
possession or control of the shipper, its trucker, the arrastre operator, or their representatives, or
all-risk marine cargo insurance policy,[7]payable to its settling agent in the Philippines, the Smith Bell
due to the consignees own negligence. They further questioned the absence of notice of loss within
& Co., Inc. (Smith Bell).
the three (3)-day period provided under the Carriage of Goods by Sea Act. Finally, they averred that
On July 12, 2000, the vessel arrived in Manila and the containerized van was discharged and
their liability, if there be any, should only be limited to US$500.00 per package or customary freight
unloaded in apparent good condition, as no survey and exceptions were noted in the Equipment
unit. [18]
Interchange Receipt (EIR) issued by petitioner.[8] The container van was stored in the Container Yard
of the Port. On July 18, 2000, Access International requested[9]from petitioner and the licensed
For its part, petitioner denied liability, claiming that it exercised due diligence in handling
Customs Broker, Victoria Reyes Lazo (V. Reyes Lazo), a joint survey of the shipment at the place of
and storing the subject container van. It, likewise, assailed the timeliness of the complaint, having
storage in the Container Yard, but no such inspection was conducted.
been filed beyond the fifteen (15)-day period under its Contract for Cargo Handling Services with the
Philippine Ports Authority (PPA). If at all, petitioner added, its liability should only be limited
to P5,000.00.[19]
In her Answer, V. Reyes Lazo questioned respondents capacity to sue in Philippine courts.
She accused respondent of engaging in a fishing expedition since the latter could not determine with
clarity the party at fault.[20]
On December 2, 2002, in their Joint Motion to Dismiss,[21] respondent, on one hand, and
Dongnama and Uni-ship, on the other, prayed that the complaint be dismissed against the latter,
alleging that they could not be held liable based on the EIR. The motion was granted on December 9,
2002.[22] Consequently, the case proceeded as against petitioner and V. Reyes Lazo.
As no amicable settlement was reached during the pretrial, trial on the merits ensued.
On August 4, 2004, the RTC dismissed the complaint for insufficiency of evidence.[23] It
found the complaint fatally flawed, having been signed by a person who had no authority from
complainant (respondent herein) corporation to act for and on behalf of the latter. [24] The RTC,
likewise, held that respondent failed to prove that the loss/damage of the subject cargoes was due to
the fault or negligence of petitioner or V. Reyes Lazo. It added that the cargoes were damaged when
they were already in Access Internationals possession, considering that an inspection was conducted
in the latters warehouse.[25]
On appeal, the CA reversed and set aside the RTC decision. The dispositive portion of the CA
decision reads:
WHEREFORE, premises considered, the present appeal is hereby
GRANTED. The appealed Decision dated August 4, 2004 of the Regional Trial Court
of Manila, Branch 21 in Civil Case No. 01-101309 is hereby REVERSED and SET
ASIDE. A new judgment is hereby entered ordering the defendants-appellees Asian
Terminals, Inc. and V. Reyes Lazo to pay, jointly and severally, the plaintiff-
appellant Daehan Fire & Marine Insurance Co., Ltd. the sums of P2,295,374.20 with
interest at the legal rate (6% per annum) from the date of the filing of the complaint
and P229,537.42 by way of attorneys fees.
No pronouncement as to costs.
SO ORDERED.[26]
Applying the principle of substantial compliance, the CA recognized the validity of respondents
complaint after the submission, albeit late, of the board resolution, indicating the authority of the
signatory to represent the corporation.[27] Pursuant to the Management Contract between petitioner
and the PPA, the former may not disclaim responsibility for the shortage of the subject cargoes while
the container van remained in its custody for seven (7) days, despite the withdrawal of the subject
shipment by the brokers representative without any complaint. Applying E. Razon, Inc. v. Court of
Appeals,[28] the CA refused to impose the P5,000.00 limitation, considering that petitioner was aware
of the value of the subject goods shown in the pertinent shipping documents. [29] The CA added that
petitioner could not disclaim any liability, having refused or ignored Access Internationals request
for a joint survey at the time when the goods were still in the possession and custody of the
former.[30] Lastly, V. Reyes Lazo was also made liable jointly and severally with petitioner in
negligently withdrawing the container van from the premises of the pier, notwithstanding Access
Internationals request for a joint survey.[31]
Aggrieved, petitioner comes before us in this petition for review on certiorari, raising the following
issues:
1. WHETHER OR NOT PETITIONER ATI IS LIABLE FOR THE LOSS TO THE SUBJECT
SHIPMENT NOTWITHSTANDING THE ACKNOWLEDGMENT BY THE CONSIGNEES
BROKER/REPRESENTATIVE IN THE EQUIPMENT INTERCHANGE RECEIPT THAT
THE SHIPMENT WAS RECEIVED IN GOOD ORDER AND WITHOUT EXCEPTION.
2. WHAT IS THE EXTENT OF PETITIONER ATIS LIABILITY, IF ANY?[32]
Simply put, we are tasked to determine the propriety of making petitioner, as arrastre
operator, liable for the loss of the subject shipment, and if so, the extent of its liability.
Petitioner denies liability for the loss of the subject shipment, considering that the
consignees representative signified receipt of the goods in good order without exception. This being
the case, respondent, as subrogee, is bound by such acknowledgment. As to the extent of its liability,
if there be any, petitioner insists that it be limited to P5,000.00 per package, as provided for in its
Management Contract with the PPA.[33]
We do not agree with petitioner.
Respondent, as insurer, was subrogated to the rights of the consignee, pursuant to the
subrogation receipt executed by the latter in favor of the former. The relationship, therefore,
between the consignee and the arrastre operator must be examined. This relationship is akin to that
existing between the consignee and/or the owner of the shipped goods and the common carrier, or
that between a depositor and a warehouseman.[34] In the performance of its obligations, an arrastre
operator should observe the same degree of diligence as that required of a common carrier and a
warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre operators

duty is to take good care of the goods and to turn them over to the party entitled to their
possession.[35]
The loss of 14 out of 26 boxes of printed aluminum sheets is undisputed. It is, likewise,
settled that Dongnama (the shipping company) and Uni-ship were absolved from liability because
respondent realized that they had no liability based on the EIR issued by Dongnama. This resulted in
the withdrawal of the complaint against them. What remained was the complaint against petitioner
as the arrastre operator and V. Reyes Lazo as the customs broker. Records show that the subject
shipment was discharged from the vessel and placed under the custody of petitioner for a period of
seven (7) days. Thereafter, the same was withdrawn from the container yard by the customs broker,
then delivered to the consignee. It was after such delivery that the loss of 14 boxes was
discovered. Hence, the complaint against both the arrastre operator and the customs broker.
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party devolves upon the
arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove that the
losses were not due to its negligence or to that of its employees. [36] To prove the exercise of diligence
in handling the subject cargoes, petitioner must do more than merely show the possibility that some
other party could be responsible for the loss or the damage. It must prove that it exercised due care
in the handling thereof.[37] Petitioner failed to do this. Instead, it insists that it be exonerated from
liability, because the customs brokers representative received the subject shipment in good order
and condition without exception. The appellate courts conclusion on this matter is instructive:
ATI may not disclaim responsibility for the shortage/pilferage of fourteen (14)
boxes of printed aluminum sheet while the container van remained in its custody
for seven (7) days (at the Container Yard) simply because the alleged
representative of the customs broker had withdrawn the shipment from its
premises and signed the EIR without any complaint. The signature of the
person/broker representative merely signifies that said person thereby frees the
ATI from any liability for loss or damage to the cargo so withdrawn while the same
was in the custody of such representative to whom the cargo was released. It does
not foreclose any remedy or right of the consignee to prove that any loss or damage
to the subject shipment occurred while the same was under the custody, control
and possession of the arrastre operator.[38]
Clearly, petitioner cannot be excused from culpability simply because another person could be
responsible for the loss. This is especially true in the instant case because, while the subject
shipment was in petitioners custody, Access International requested [39] that a joint survey be
conducted at the place of storage. And as correctly observed by the CA:
There is no dispute that it was the customs broker who in behalf of the consignee
took delivery of the subject shipment from the arrastre operator. However, the trial
court apparently disregarded documentary evidence showing that the consignee
made a written request on both the appellees ATI and V. Reyes Lazo for a joint
survey of the container van on July 18, 2000while the same was still in the
possession, control and custody of the arrastre operator at the Container Yard of
the pier. Both ATI and Lazo merely denied being aware of the letters (Exhibits M
and N). The fact remains that the consignee complained of short-delivery and while
inspection of the cargo was made only at its warehouse after delivery by the
customs broker, the arrastre ATI together with said broker both refused or ignored
the written request for a joint survey at the premises of the arrastre. Instead of
complying with the consignees demand, the broker withdrew and the arrastre
released the shipment the very next day, July 19, 2000 without even acting upon the
consignees request for a joint survey.[40]
Moreover, it was shown in the Survey Report prepared by Access Internationals surveyor
that petitioner was remiss in its obligations to handle the goods with due care and to ensure that
they reach the proper party in good order as to quality and quantity. Specifically, the Survey Report
states:
DELIVERY
On July 19, 2000, V. Reyes-Lazo (Licensed Customs Broker) effected delivery of the
1 x 20 Van Container from the Container Yard of said port to the Consignees
designated warehouse at No. 622 Asuncion Street, Binondo, Manila.
Prior to withdrawal from the said port, the Brokers representative noticed that the
padlock secured to the doors of the Van Container was forcibly pulled-out resulting
to its breakage. He then immediately informed the Arrastre Contractors (ATI) and
requested that Van Container be opened and inventory of its contents be made as
he suspected the contents might have been pilfered.
However, his request was denied averring that stripping of FCL Van Containers are
not allowed inside the Customs Zone. As all efforts exerted proved futile, he instead
bought new padlock and secured same to the Van. He then informed the Consignee
about the incident upon delivery of the Container at the Consignees designated
warehouse, who immediately requested for survey.[41]
Considering that both petitioner and V. Reyes Lazo were negligent in the performance of
their duties in the handling, storage and delivery of the subject shipment to the consignee, resulting
in the loss of 14 boxes of printed aluminum sheets, both shall be solidarily liable for such loss.
As to the extent of petitioners liability, we cannot sustain its contention that it be limited
to P5,000.00 per package. Petitioners responsibility and liability for losses and damages are set forth
in Section 7.01 of the Management Contract drawn between the PPA and the Marina Port Services,
Inc., petitioners predecessor-in-interest, to wit:
 CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES
Section 7.01. Responsibility and Liability for Losses and Damages; Exceptions. The
CONTRACTOR shall, at its own expense, handle all merchandise in all work
undertaken by it, hereunder, diligently and in a skillful, workman-like and efficient
manner. The CONTRACTOR shall be solely responsible as an independent
contractor, and hereby agrees to accept liability and to pay to the shipping
company, consignees, consignors or other interested party or parties for the loss,
damage or non-delivery of cargoes in its custody and control to the extent of the
actual invoice value of each package which in no case shall be more than FIVE
THOUSAND PESOS (P5,000.00) each, unless the value of the cargo shipment is
otherwise specified or manifested or communicated in writing together with the
declared Bill of Lading value and supported by a certified packing list to the
CONTRACTOR by the interested party or parties before the discharge or loading
unto vessel of the goods. This amount of Five Thousand Pesos (P5,000.00) per
package may be reviewed and adjusted by the AUTHORITY from time to time. The
CONTRACTOR shall not be responsible for the condition or the contents of any
package received, nor for the weight nor for any loss, injury or damage to the said
cargo before or while the goods are being received or remains in the piers, sheds,
warehouses or facility, if the loss, injury or damage is caused by force majeure or
other causes beyond the CONTRACTORS control or capacity to prevent or remedy;
PROVIDED that a formal claim together with the necessary copies of Bill of Lading,
Invoice, Certified Packing List and Computation arrived at covering the loss, injury
or damage or non-delivery of such goods shall have been filed with the
CONTRACTOR within fifteen (15) days from day of issuance by the CONTRACTOR of
a certificate of non-delivery; PROVIDED, however, that if said CONTRACTOR fails to
issue such certification within fifteen (15) days from receipt of a written request by
the shipper/consignee or his duly authorized representative or any interested
party, said certification shall be deemed to have been issued, and thereafter, the
fifteen (15) day period within which to file the claim commences; PROVIDED,
finally, that the request for certification of loss shall be made within thirty (30) days
from the date of delivery of the package to the consignee.
Customs as well as to petitioner for the proper assessment of the arrastre charges and other
fees. Such manifestation satisfies the condition of declaration of the actual invoices of the value of
the goods before their arrival, to overcome the limitation on the liability of the arrastre
operator.[43] Then, the arrastre operator, by reason of the payment to it of a commensurate charge
based on the higher declared value of the merchandise, could and should take extraordinary care of
the special or valuable cargo.[44] What would, indeed, be unfair and arbitrary is to hold the arrastre
operator liable for the full value of the merchandise after the consignee has paid the arrastre charges
only on a basis much lower than the true value of the goods.[45]
What is essential is knowledge beforehand of the extent of the risk to be undertaken by the arrastre
operator, as determined by the value of the property committed to its care. This defines its
responsibility for loss of or damage to such cargo and ascertains the compensation commensurate to
such risk assumed. Having been duly informed of the actual invoice value of the merchandise under
its custody and having received payment of arrastre charges based thereon, petitioner cannot
therefore insist on a limitation of its liability under the contract to less than the value of each lost
cargo.[46]
The stipulation requiring the consignee to inform the arrastre operator and to give advance notice of
the actual invoice value of the goods to be put in its custody is adopted for the purpose of
determining its liability, that it may obtain compensation commensurate to the risk it assumes, not
for the purpose of determining the degree of care or diligence it must exercise as a depositary or
warehouseman.[47]
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit. The Court of

xxxx Appeals September 14, 2005 Decision and December 20, 2005 Resolution in CA-G.R. CV No. 83647
are AFFIRMED.
The CONTRACTOR shall be solely responsible for any and all injury or
damage that may arise on account of the negligence or carelessness of the SO ORDERED.
CONTRACTOR, its agent or employees in the performance of the undertaking under
the Contract. Further, the CONTRACTOR hereby agrees to hold free the
AUTHORITY, at all times, from any claim that may be instituted by its employee by
reason of the provisions of the Labor Code, as amended.[42]
As clearly stated above, such limitation does not apply if the value of the cargo shipment is
communicated to the arrastre operator before the discharge of the cargoes.
It is undisputed that Access International, upon arrival of the shipment, declared the same
for taxation purposes, as well as for the assessment of arrastre charges and other fees. For the
purpose, the invoice, packing list and other shipping documents were presented to the Bureau of
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 157917 August 29, 2012
SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,
vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and the
COURT OF APPEALS Respondents.
DECISION
BERSAMIN, J.:
The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to
observe extraordinary diligence in the conduct of his business. He is presumed to be negligent when
death occurs to a passenger. His liability may include indemnity for loss of earning capacity even if
the deceased passenger may only be an unemployed high school student at the time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the
adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA) affirmed
with modification the decision rendered on December 3, 1999 by the Regional Trial Court (RTC),
Branch 260, in Paraaque City that had decreed them jointly and severally liable with Philippine
National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita Zarate (Zarates) for
the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a high school student of Don
Bosco Technical Institute (Don Bosco).
Antecedents
The Pereas were engaged in the business of transporting students from their respective residences
in Paraaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their business, the Pereas
used a KIA Ceres Van (van) with Plate No. PYA 896, which had the capacity to transport 14 students
at a time, two of whom would be seated in the front beside the driver, and the others in the rear,
with six students on either side. They employed Clemente Alfaro (Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereas to transport Aaron to and from Don Bosco. On
August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m. from the
Zarates residence. Aaron took his place on the left side of the van near the rear door. The van, with
its air-conditioning unit turned on and the stereo playing loudly, ultimately carried all the 14 student
riders on their way to Don Bosco. Considering that the students were due at Don Bosco by 7:15 a.m.,
and that they were already running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing the narrow
path underneath the Magallanes Interchange that was then commonly used by Makati-bound
vehicles as a short cut into Makati. At the time, the narrow path was marked by piles of construction
materials and parked passenger jeepneys, and the railroad crossing in the narrow path had no
railroad warning signs, or watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train),
operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange travelling
northbound. As the train neared the railroad crossing, Alfaro drove the van eastward across the
railroad tracks, closely tailing a large passenger bus. His view of the oncoming train was blocked
because he overtook the passenger bus on its left side. The train blew its horn to warn motorists of
its approach. When the train was about 50 meters away from the passenger bus and the van, Alano
applied the ordinary brakes of the train. He applied the emergency brakes only when he saw that a
collision was imminent. The passenger bus successfully crossed the railroad tracks, but the van
driven by Alfaro did not. The train hit the rear end of the van, and the impact threw nine of the 12
students in the rear, including Aaron, out of the van. Aaron landed in the path of the train, which
dragged his body and severed his head, instantaneously killing him. Alano fled the scene on board
the train, and did not wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
damages against Alfaro, the Pereas, PNR and Alano. The Pereas and PNR filed their respective
answers, with cross-claims against each other, but Alfaro could not be served with summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
That spouses Zarate were the legitimate parents of Aaron John L. Zarate;(1)
Spouses Zarate engaged the services of spouses Perea for the adequate and safe
transportation carriage of the former spouses' son from their residence in Paraaque to his
school at the Don Bosco Technical Institute in Makati City;(2)
During the effectivity of the contract of carriage and in the implementation thereof, Aaron,
the minor son of spouses Zarate died in connection with a vehicular/train collision which
occurred while Aaron was riding the contracted carrier Kia Ceres van of spouses Perea,
then driven and operated by the latter's employee/authorized driver Clemente Alfaro,
which van collided with the train of PNR, at around 6:45 A.M. of August 22, 1996, within the
vicinity of the Magallanes Interchange in Makati City, Metro Manila, Philippines;(3)
At the time of the vehicular/train collision, the subject site of the vehicular/train collision
was a railroad crossing used by motorists for crossing the railroad tracks;(4)
During the said time of the vehicular/train collision, there were no appropriate and safety
warning signs and railings at the site commonly used for railroad crossing;(5)
At the material time, countless number of Makati bound public utility and private vehicles
used on a daily basis the site of the collision as an alternative route and short-cut to
Makati;(6)
The train driver or operator left the scene of the incident on board the commuter train
involved without waiting for the police investigator;(7)
The site commonly used for railroad crossing by motorists was not in fact intended by the
railroad operator for railroad crossing at the time of the vehicular collision;(8)
PNR received the demand letter of the spouses Zarate;(9)
PNR refused to acknowledge any liability for the vehicular/train collision;(10)
The eventual closure of the railroad crossing alleged by PNR was an internal arrangement
between the former and its project contractor; and(11)
The site of the vehicular/train collision was within the vicinity or less than 100 meters from
the Magallanes station of PNR.(12)
B. ISSUES
(1) Whether or not defendant-driver of the van is, in the performance of his functions, liable
for negligence constituting the proximate cause of the vehicular collision, which resulted in
the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Perea being the employer of defendant Alfaro
are liable for any negligence which may be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the operator of the
railroad system is liable for negligence in failing to provide adequate safety warning signs
and railings in the area commonly used by motorists for railroad crossings, constituting the
proximate cause of the vehicular collision which resulted in the death of the plaintiff
spouses' son;
 (4) Whether or not defendant spouses Perea are liable for breach of the contract of
carriage with plaintiff-spouses in failing to provide adequate and safe transportation for the
latter's son;
(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary
damages, and attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette Perea observed the
diligence of employers and school bus operators;
(7) Whether or not defendant-spouses are civilly liable for the accidental death of Aaron
John Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating the commuter train
involved in the accident, in allowing or tolerating the motoring public to cross, and its
failure to install safety devices or equipment at the site of the accident for the protection of
the public;
(9) Whether or not defendant PNR should be made to reimburse defendant spouses for any
and whatever amount the latter may be held answerable or which they may be ordered to
pay in favor of plaintiffs by reason of the action;
(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts
claimed by the latter in their Complaint by reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and
exemplary damages and attorney's fees.2
The Zarates claim against the Pereas was upon breach of the contract of carriage for the safe
transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil Code.
In their defense, the Pereas adduced evidence to show that they had exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, by making sure that Alfaro had
been issued a drivers license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro Perea had sometimes
accompanied Alfaro in the vans trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had been the reckless
crossing of the van whose driver had not first stopped, looked and listened; and that the narrow path
traversed by the van had not been intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision,3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendants ordering them to jointly and severally pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorneys fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereas motion for reconsideration, 4 reiterating that the
cooperative gross negligence of the Pereas and PNR had caused the collision that led to the death of
Aaron; and that the damages awarded to the Zarates were not excessive, but based on the
established circumstances.
The CAs Ruling
Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways jointly and severally
liable together with defendant-appellants spouses Teodorico and Nanette Perea and
defendant-appellant Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron
Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses
despite overwhelming documentary evidence on record, supporting the case of defendants-
appellants Philippine National Railways.
The Pereas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral
and exemplary damages and attorneys fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereas against the Philippine
National Railways and in not holding the latter and its train driver primarily responsible for the
incident.
The trial court erred in awarding excessive damages and attorneys fees.
The trial court erred in awarding damages in the form of deceaseds loss of earning capacity in the
absence of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to P 2,500,000.00; and deleted the attorneys fees because the RTC did
not state the factual and legal bases, to wit:6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260 of
Paraaque City is AFFIRMED with the modification that the award of Actual Damages is reduced
to P59,502.76; Moral Damages is reduced to P 2,500,000.00; and the award for Attorneys Fees is
Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aarons earning capacity, taking cognizance of the ruling in
Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company, 7 wherein the Court gave the
heirs of Cariaga a sum representing the loss of the deceaseds earning capacity despite Cariaga being
only a medical student at the time of the fatal incident. Applying the formula adopted in the
American Expectancy Table of Mortality:
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life expectancy
from age of 21 (the age when he would have graduated from college and started working for his own
livelihood) instead of 15 years (his age when he died). Considering that the nature of his work and
his salary at the time of Aarons death were unknown, it used the prevailing minimum wage
of P 280.00/day to compute Aarons gross annual salary to be P110,716.65, inclusive of the
thirteenth month pay. Multiplying this annual salary by Aarons life expectancy of 39.3 years, his
gross income would aggregate to P 4,351,164.30, from which his estimated expenses in the sum
of P2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net income. Due to Aarons
computed net income turning out to be higher than the amount claimed by the Zarates,
only P 2,109,071.00, the amount expressly prayed for by them, was granted.
On April 4, 2003, the CA denied the Pereas motion for reconsideration.8
Issues
In this appeal, the Pereas list the following as the errors committed by the CA, to wit:
I. The lower court erred when it upheld the trial courts decision holding the petitioners jointly and
severally liable to pay damages with Philippine National Railways and dismissing their cross-claim
against the latter.
II. The lower court erred in affirming the trial courts decision awarding damages for loss of earning
capacity of a minor who was only a high school student at the time of his death in the absence of
sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of damages awarded, assuming
petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the Pereas and the PNR,
basing their claim against the Pereas on breach of contract of carriage and against the PNR on
quasi-delict.
The RTC found the Pereas and the PNR negligent. The CA affirmed the findings.
We concur with the CA.
To start with, the Pereas defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a
drivers license and that he had not been involved in any vehicular accident prior to the fatal
collision with the train; that they even had their own son travel to and from school on a daily basis;
and that Teodoro Perea himself sometimes accompanied Alfaro in transporting the passengers to
and from school. The RTC gave scant consideration to such defense by regarding such defense as
inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereas
operated as a common carrier; and that their standard of care was extraordinary diligence, not the
ordinary diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has been usually regarded as a
private carrier,9primarily because he only caters to some specific or privileged individuals, and his
operation is neither open to the indefinite public nor for public use, the exact nature of the operation
of a school bus service has not been finally settled. This is the occasion to lay the matter to rest.
A carrier is a person or corporation who undertakes to transport or convey goods or persons from
one place to another, gratuitously or for hire. The carrier is classified either as a private/special
carrier or as a common/public carrier.10 A private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as ready to act for all who may desire
his or its services, undertakes, by special agreement in a particular instance only, to transport goods
or persons from one place to another either gratuitously or for hire. 11 The provisions on ordinary
contracts of the Civil Code govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In contrast, a common
carrier is a person, corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering such
services to the public.12 Contracts of common carriage are governed by the provisions on common
carriers of the Civil Code, the Public Service Act,13 and other special laws relating to transportation. A
common carrier is required to observe extraordinary diligence, and is presumed to be at fault or to
have acted negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.14
In relation to common carriers, the Court defined public use in the following terms in United States
v. Tan Piaco,15viz:
"Public use" is the same as "use by the public". The essential feature of the public use is not confined
to privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted
quality that gives it its public character. In determining whether a use is public, we must look not
only to the character of the business to be done, but also to the proposed mode of doing it. If the use
is merely optional with the owners, or the public benefit is merely incidental, it is not a public use,
authorizing the exercise of the jurisdiction of the public utility commission. There must be, in
general, a right which the law compels the owner to give to the general public. It is not enough that
the general prosperity of the public is promoted. Public use is not synonymous with public interest.
The true criterion by which to judge the character of the use is whether the public may enjoy it by
right or only by permission.
In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided any
distinction between a person or an enterprise offering transportation on a regular or an isolated
basis; and has not distinguished a carrier offering his services to the general public, that is, the
general community or population, from one offering his services only to a narrow segment of the
general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code coincides
neatly with the notion of public service under the Public Service Act, which supplements the law on
common carriers found in the Civil Code. Public service, according to Section 13, paragraph (b) of the
Public Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientle, whether permanent or occasional, and done
for the general business purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations and other similar public
services. x x x.17
Given the breadth of the aforequoted characterization of a common carrier, the Court has considered
as common carriers pipeline operators,18 custom brokers and warehousemen,19 and barge
operators20 even if they had limited clientle.
As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of the
business actually transacted, or the number and character of the conveyances used in the activity,
but whether the undertaking is a part of the activity engaged in by the carrier that he has held out to
the general public as his business or occupation. If the undertaking is a single transaction, not a part
of the general business or occupation engaged in, as advertised and held out to the general public,
the individual or the entity rendering such service is a private, not a common, carrier. The question
must be determined by the character of the business actually carried on by the carrier, not by any
secret intention or mental reservation it may entertain or assert when charged with the duties and
obligations that the law imposes.21
Applying these considerations to the case before us, there is no question that the Pereas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers over established roads
by the method by which the business was conducted; and (c) transporting students for a fee. Despite
catering to a limited clientle, the Pereas operated as a common carrier because they held
themselves out as a ready transportation indiscriminately to the students of a particular school
living within or near where they operated the service and for a fee.
The common carriers standard of care and vigilance as to the safety of the passengers is defined by
law. Given the nature of the business and for reasons of public policy, the common carrier is bound
"to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case."22 Article 1755 of
the Civil Code specifies that the common carrier should "carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances." To successfully fend off liability in an action upon the death or
injury to a passenger, the common carrier must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at fault or acted negligently would
stand.23 No device, whether by stipulation, posting of notices, statements on tickets, or otherwise,
may dispense with or lessen the responsibility of the common carrier as defined under Article 1755
of the Civil Code. 24
And, secondly, the Pereas have not presented any compelling defense or reason by which the Court
might now reverse the CAs findings on their liability. On the contrary, an examination of the records
shows that the evidence fully supported the findings of the CA.
As earlier stated, the Pereas, acting as a common carrier, were already presumed to be negligent at
the time of the accident because death had occurred to their passenger. 25 The presumption of
negligence, being a presumption of law, laid the burden of evidence on their shoulders to establish
that they had not been negligent.26 It was the law no less that required them to prove their
observance of extraordinary diligence in seeing to the safe and secure carriage of the passengers to
their destination. Until they did so in a credible manner, they stood to be held legally responsible for
the death of Aaron and thus to be held liable for all the natural consequences of such death.
There is no question that the Pereas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family in the
selection and supervision of their driver was not legally sufficient. According to Article 1759 of the
Civil Code, their liability as a common carrier did not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employee. This was the
reason why the RTC treated this defense of the Pereas as inappropriate in this action for breach of
contract of carriage.
The Pereas were liable for the death of Aaron despite the fact that their driver might have acted
beyond the scope of his authority or even in violation of the orders of the common carrier. 27 In this
connection, the records showed their drivers actual negligence. There was a showing, to begin with,
that their driver traversed the railroad tracks at a point at which the PNR did not permit motorists
going into the Makati area to cross the railroad tracks. Although that point had been used by
motorists as a shortcut into the Makati area, that fact alone did not excuse their driver into taking
that route. On the other hand, with his familiarity with that shortcut, their driver was fully aware of
the risks to his passengers but he still disregarded the risks. Compounding his lack of care was that
loud music was playing inside the air-conditioned van at the time of the accident. The loudness most
probably reduced his ability to hear the warning horns of the oncoming train to allow him to
correctly appreciate the lurking dangers on the railroad tracks. Also, he sought to overtake a
passenger bus on the left side as both vehicles traversed the railroad tracks. In so doing, he lost his
view of the train that was then coming from the opposite side of the passenger bus, leading him to
miscalculate his chances of beating the bus in their race, and of getting clear of the train. As a result,
the bus avoided a collision with the train but the van got slammed at its rear, causing the fatality.
Lastly, he did not slow down or go to a full stop before traversing the railroad tracks despite
knowing that his slackening of speed and going to a full stop were in observance of the right of way
at railroad tracks as defined by the traffic laws and regulations. 28He thereby violated a specific traffic
regulation on right of way, by virtue of which he was immediately presumed to be negligent.29
The omissions of care on the part of the van driver constituted negligence, 30 which, according to
Layugan v. Intermediate Appellate Court,31 is "the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would not do, 32 or as Judge
Cooley defines it, (t)he failure to observe for the protection of the interests of another person, that
degree of care, precaution, and vigilance which the circumstances justly demand, whereby such
other person suffers injury."33
The test by which to determine the existence of negligence in a particular case has been aptly stated
in the leading case of Picart v. Smith,34 thuswise:
The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case is
not determined by reference to the personal judgment of the actor in the situation before him. The
law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence
and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must of
course be always determined in the light of human experience and in view of the facts involved in
the particular case. Abstract speculation cannot here be of much value but this much can be
profitably said: Reasonable men govern their conduct by the circumstances which are before them
or known to them. They are not, and are not supposed to be, omniscient of the future. Hence they can
be expected to take care only when there is something before them to suggest or warn of danger.
Could a prudent man, in the case under consideration, foresee harm as a result of the course actually
pursued? If so, it was the duty of the actor to take precautions to guard against that harm.
Reasonable foresight of harm, followed by the ignoring of the suggestion born of this prevision, is
always necessary before negligence can be held to exist. Stated in these terms, the proper criterion
for determining the existence of negligence in a given case is this: Conduct is said to be negligent
when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to
another was sufficiently probable to warrant his foregoing the conduct or guarding against its
consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereas driver was entirely negligent when he
traversed the railroad tracks at a point not allowed for a motorists crossing despite being fully
aware of the grave harm to be thereby caused to his passengers; and when he disregarded the
foresight of harm to his passengers by overtaking the bus on the left side as to leave himself blind to
the approach of the oncoming train that he knew was on the opposite side of the bus.
Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate Court, 35 where the
Court held the PNR solely liable for the damages caused to a passenger bus and its passengers when
its train hit the rear end of the bus that was then traversing the railroad crossing. But the
circumstances of that case and this one share no similarities. In Philippine National Railways v.
Intermediate Appellate Court, no evidence of contributory negligence was adduced against the
owner of the bus. Instead, it was the owner of the bus who proved the exercise of extraordinary
diligence by preponderant evidence. Also, the records are replete with the showing of negligence on
the part of both the Pereas and the PNR. Another distinction is that the passenger bus in Philippine
National Railways v. Intermediate Appellate Court was traversing the dedicated railroad crossing
when it was hit by the train, but the Pereas school van traversed the railroad tracks at a point not
intended for that purpose.
At any rate, the lower courts correctly held both the Pereas and the PNR "jointly and severally"
liable for damages arising from the death of Aaron. They had been impleaded in the same complaint
as defendants against whom the Zarates had the right to relief, whether jointly, severally, or in the
alternative, in respect to or arising out of the accident, and questions of fact and of law were
common as to the Zarates.36 Although the basis of the right to relief of the Zarates (i.e., breach of
contract of carriage) against the Pereas was distinct from the basis of the Zarates right to relief
against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held
jointly and severally liable by virtue of their respective negligence combining to cause the death of
Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence despite the school van
of the Pereas traversing the railroad tracks at a point not dedicated by the PNR as a railroad
crossing for pedestrians and motorists, because the PNR did not ensure the safety of others through
the placing of crossbars, signal lights, warning signs, and other permanent safety barriers to prevent
vehicles or pedestrians from crossing there. The RTC observed that the fact that a crossing guard
had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was
aware of the risks to others as well as the need to control the vehicular and other traffic there. Verily,
the Pereas and the PNR were joint tortfeasors.
2.
Was the indemnity for loss of
Aarons earning capacity proper?
The RTC awarded indemnity for loss of Aarons earning capacity. Although agreeing with the RTC on
the liability, the CA modified the amount. Both lower courts took into consideration that Aaron,
while only a high school student, had been enrolled in one of the reputable schools in the Philippines
and that he had been a normal and able-bodied child prior to his death. The basis for the
computation of Aarons earning capacity was not what he would have become or what he would
have wanted to be if not for his untimely death, but the minimum wage in effect at the time of his
death. Moreover, the RTCs computation of Aarons life expectancy rate was not reckoned from his
age of 15 years at the time of his death, but on 21 years, his age when he would have graduated from
college.
We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.
Yet, the Pereas submit that the indemnity for loss of earning capacity was speculative and
unfounded.1wphi1 They cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity for
victim Jussi Leinos loss of earning capacity as a pilot for being speculative due to his having
graduated from high school at the International School in Manila only two years before the shooting,
and was at the time of the shooting only enrolled in the first semester at the Manila Aero Club to
pursue his ambition to become a professional pilot. That meant, according to the Court, that he was
for all intents and purposes only a high school graduate.
We reject the Pereas submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi Leino
was not akin to that of Aaron here. The CA and the RTC were not speculating that Aaron would be
some highly-paid professional, like a pilot (or, for that matter, an engineer, a physician, or a lawyer).
Instead, the computation of Aarons earning capacity was premised on him being a lowly minimum
wage earner despite his being then enrolled at a prestigious high school like Don Bosco in Makati, a
fact that would have likely ensured his success in his later years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings should not be taken against
his parents and in favor of the defendants whose negligence not only cost Aaron his life and his right
to work and earn money, but also deprived his parents of their right to his presence and his services
as well. Our law itself states that the loss of the earning capacity of the deceased shall be the liability
of the guilty party in favor of the heirs of the deceased, and shall in every case be assessed and
awarded by the court "unless the deceased on account of permanent physical disability not caused
by the defendant, had no earning capacity at the time of his death." 38 Accordingly, we emphatically
hold in favor of the indemnification for Aarons loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time or earnings but for
loss of the deceaseds power or ability to earn money.39
This favorable treatment of the Zarates claim is not unprecedented. In Cariaga v. Laguna Tayabas
Bus Company and Manila Railroad Company,40 fourth-year medical student Edgardo Carriagas
earning capacity, although he survived the accident but his injuries rendered him permanently
incapacitated, was computed to be that of the physician that he dreamed to become. The Court
considered his scholastic record sufficient to justify the assumption that he could have finished the
medical course and would have passed the medical board examinations in due time, and that he
could have possibly earned a modest income as a medical practitioner. Also, in People v.
Sanchez,41the Court opined that murder and rape victim Eileen Sarmienta and murder victim Allan
Gomez could have easily landed good-paying jobs had they graduated in due time, and that their jobs
would probably pay them high monthly salaries from P 10,000.00 to P 15,000.00 upon their
graduation. Their earning capacities were computed at rates higher than the minimum wage at the
time of their deaths due to their being already senior agriculture students of the University of the
Philippines in Los Baos, the countrys leading educational institution in agriculture.
3.
Were the amounts of damages excessive?
The Pereas plead for the reduction of the moral and exemplary damages awarded to the Zarates in
the respective amounts of P 2,500,000.00 and P 1,000,000.00 on the ground that such amounts were
excessive.
The plea is unwarranted.
The moral damages of P 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates deep
mental anguish over their sons unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it would help the Zarates
obtain the means, diversions or amusements that would alleviate their suffering for the loss of their
child. At any rate, reducing the amount as excessive might prove to be an injustice, given the passage
of a long time from when their mental anguish was inflicted on them on August 22, 1996.
Anent the P 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only to
render effective the desired example for the public good. As a common carrier, the Pereas needed
to be vigorously reminded to observe their duty to exercise extraordinary diligence to prevent a
similarly senseless accident from happening again. Only by an award of exemplary damages in that
amount would suffice to instill in them and others similarly situated like them the ever-present need
for greater and constant vigilance in the conduct of a business imbued with public interest.
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated on
November 13, 2002; and ORDER the petitioners to pay the costs of suit.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8095 March 31, 1915
F.C. FISHER, plaintiff,
vs.
YANGCO STEAMSHIP COMPANY, J.S. STANLEY, as Acting Collector of Customs of the
Philippine Islands, IGNACIO VILLAMOR, as Attorney-General of the Philippine Islands,
and W.H. BISHOP, as prosecuting attorney of the city of Manila, respondents.
Haussermann, Cohn and Fisher for plaintiff.
Office of the Solicitor-General Harvey for respondents.
CARSON, J.:
The real question involved in these proceedings is whether the refusal of the owners and officers
of a steam vessel, duly licensed to engage in the coastwise trade of the Philippine Islands and
engaged in that trade as a common carrier, to accept for carriage "dynamite, powder or other
explosives" from any and all shippers who may offer such explosives for carriage can be held to
be a lawful act without regard to any question as to the conditions under which such explosives
are offered to carriage, or as to the suitableness of the vessel for the transportation of such
explosives, or as to the possibility that the refusal to accept such articles of commerce in a
particular case may have the effect of subjecting any person or locality or the traffic in such
explosives to an undue, unreasonable or unnecessary prejudice or discrimination.
Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco Steamship
Company, the owner of a large number of steam vessels, duly licensed to engage in the
coastwise trade of the Philippine Islands; that on or about June 10, 1912, the directors of the
company adopted a resolution which was thereafter ratified and affirmed by the shareholders of
the company, "expressly declaring and providing that the classes of merchandise to be carried
by the company in its business as a common carrier do not include dynamite, powder or other
explosives, and expressly prohibiting the officers, agents and servants of the company from
offering to carry, accepting for carriage said dynamite, powder or other explosives;" that
thereafter the respondent Acting Collector of Customs demanded and required of the company
the acceptance and carriage of such explosives; that he has refused and suspended the
issuance of the necessary clearance documents of the vessels of the company unless and until
the company consents to accept such explosives for carriage; that plaintiff is advised and
believes that should the company decline to accept such explosives for carriage, the respondent
Attorney-General of the Philippine Islands and the respondent prosecuting attorney of the city of
Manila intend to institute proceedings under the penal provisions of sections 4, 5, and 6 of Act
No. 98 of the Philippine Commission against the company, its managers, agents and servants, to
enforce the requirements of the Acting Collector of Customs as to the acceptance of such
explosives for carriage; that notwithstanding the demands of the plaintiff stockholder, the
manager, agents and servants of the company decline and refuse to cease the carriage of such
explosives, on the ground that by reason of the severity of the penalties with which they are
threatened upon failure to carry such explosives, they cannot subject themselves to "the ruinous
consequences which would inevitably result" from failure on their part to obey the demands and
requirements of the Acting Collector of Customs as to the acceptance for carriage of explosives;
that plaintiff believes that the Acting Collector of Customs erroneously construes the provisions of
Act No. 98 in holding that they require the company to accept such explosives for carriage
notwithstanding the above mentioned resolution of the directors and stockholders of the
company, and that if the Act does in fact require the company to carry such explosives it is to that
extent unconstitutional and void; that notwithstanding this belief of complainant as to the true
meaning of the Act, the questions involved cannot be raised by the refusal of the company or its
agents to comply with the demands of the Acting Collector of Customs, without the risk of
irreparable loss and damage resulting from his refusal to facilitate the documentation of the
company's vessels, and without assuming the company to test the questions involved by refusing
to accept such explosives for carriage.
The prayer of the complaint is as follows:
Wherefore your petitioner prays to this honorable court as follows:
First. That to the due hearing of the above entitled action be issued a writ of prohibition
perpetually restraining the respondent Yangco Steamship Company, its appraisers,
agents, servants or other representatives from accepting to carry and from carrying, in
steamers of said company dynamite, powder or other explosive substance, in
accordance with the resolution of the board of directors and of the shareholders of said
company.
Second. That a writ of prohibition be issued perpetually enjoining the respondent J.S.
Stanley as Acting Collector of Customs of the Philippine Islands, his successors,
deputies, servants or other representatives, from obligating the said Yangco Steamship
Company, by any means whatever, to carry dynamite, powder or other explosive
substance.
Third. That a writ of prohibition be issued perpetually enjoining the respondent Ignacio
Villamor as Attorney-General of the Philippine Islands, and W.H. Bishop as prosecuting
attorney of the city of Manila, their deputies representatives or employees, from accusing
the said Yangco Steamship Company, its officers, agents or servants, of the violation of
Act No. 98 by reason of the failure or omission of the said company to accept for
carriage out to carry dynamite powder or other explosive.
Fourth. That the petitioner be granted such other remedy as may be meet and proper.
To this complaint the respondents demurred, and we are of opinion that the demurrer must be
sustained, on the ground that the complaint does not set forth facts sufficient to constitute a
cause of action.
It will readily be seen that plaintiff seeks in these proceedings to enjoin the steamship company
from accepting for carriage on any of its vessels, dynamite, powder or other explosives, under
any conditions whatsoever; to prohibit the Collector of Customs and the prosecuting officers of
the government from all attempts to compel the company to accept such explosives for carriage
on any of its vessels under any conditions whatsoever; and to prohibit these officials from any
attempt to invoke the penal provisions of Act No. 98, in any case of a refusal by the company or
its officers so to do; and this without regard to the conditions as to safety and so forth under
which such explosives are offered for carriage, and without regard also to any question as to the
suitableness for the transportation of such explosives of the particular vessel upon which the
shipper offers them for carriage; and further without regard to any question as to whether such
conduct on the part of the steamship company and its officers involves in any instance an undue,
unnecessary or unreasonable discrimination to the prejudice of any person, locality or particular
kind of traffic.
There are no allegations in the complaint that for some special and sufficient reasons all or
indeed any of the company's vessels are unsuitable for the business of transporting explosives;
or that shippers have declined or will in future decline to comply with such reasonable regulations
and to take such reasonable precautions as may be necessary and proper to secure the safety of
the vessels of the company in transporting such explosives. Indeed the contention of petitioner is
that a common carrier in the Philippine Islands may decline to accept for carriage any shipment
of merchandise of a class which it expressly or impliedly declines to accept from all shippers
alike, because as he contends "the duty of a common carrier to carry for all who offer arises from
the public profession he has made, and limited by it."
In support of this contention counsel cites for a number of English and American authorities,
discussing and applying the doctrine of the common law with reference to common carriers. But
it is unnecessary now to decide whether, in the absence of statute, the principles on which the
American and English cases were decided would be applicable in this jurisdiction. The duties and
liabilities of common carriers in this jurisdiction are defined and fully set forth in Act No. 98 of the
Philippine Commission, and until and unless that statute be declared invalid or unconstitutional,
we are bound by its provisions.
Sections 2, 3 and 4 of the Act are as follows:
SEC. 2. It shall be unlawful for any common carrier engaged in the transportation of
passengers or property as above set forth to make or give any unnecessary or
unreasonable preference or advantage to any particular person, company, firm,
corporation or locality, or any particular kind of traffic in any respect whatsoever, or to
subject any particular person, company, firm, corporation or locality, or any particular
kind of traffic, to undue or unreasonable prejudice or discrimination whatsoever, and
such unjust preference or discrimination is also hereby prohibited and declared to be
unlawful.
SEC. 3. No common carrier engaged in the carriage of passengers or property as
aforesaid shall, under any pretense whatsoever, fail or refuse to receive for carriage, and
as promptly as it is able to do so without discrimination, to carry any person or property
offering for carriage, and in the order in which such persons or property are offered for
carriage, nor shall any such common carrier enter into any arrangement, contract or
agreement with any other person or corporation whereby the latter is given an exclusive
or preferential or monopolize the carriage any class or kind of property to the exclusion
or partial exclusion of any other person or persons, and the entering into any such
arrangement, contract or agreement, under any form or pretense whatsoever, is hereby
prohibited and declared to be unlawful.
SEC. 4. Any willful violation of the provisions of this Act by any common carrier engaged
in the transportation of passengers or property as hereinbefore set forth is hereby
declared to be punishable by a fine not exceeding five thousand dollars money of the
United States, or by imprisonment not exceeding two years, or both, within the discretion
of the court.
The validity of this Act has been questioned on various grounds, and it is vigorously contended
that in so far as it imposes any obligation on a common carrier to accept for carriage
merchandise of a class which he makes no public profession to carry, or which he has expressly
or impliedly announced his intention to decline to accept for carriage from all shippers alike, it
is ultra vires, unconstitutional and void.
We may dismiss without extended discussion any argument or contention as to the invalidity of
the statute based on alleged absurdities inherent in its provisions or on alleged unreasonable or
impossible requirements which may be read into it by a strained construction of its terms.
We agree with counsel for petitioner that the provision of the Act which prescribes that, "No
common carrier ... shall, under any pretense whatsoever, fail or refuse to receive for carriage ...
to carry any person or property offering for carriage," is not to be construed in its literal sense
and without regard to the context, so as to impose an imperative duty on all common carriers to
accept for carriage, and to carry all and any kind of freight which may be offered for carriage
without regard to the facilities which they may have at their disposal. The legislator could not
have intended and did not intend to prescribe that a common carrier running passenger
automobiles for hire must transport coal in his machines; nor that the owner of a tank steamer,
expressly constructed in small watertight compartments for the carriage of crude oil must accept
common carrier must accept and carry contraband articles, such as opium, morphine, cocaine, or
the like, the mere possession of which is declared to be a criminal offense; nor that common
carriers must accept eggs offered for transportation in paper parcels or any merchandise
whatever do defectively packed as to entail upon the company unreasonable and unnecessary
care or risks.
Read in connection with its context this, as well as all the other mandatory and prohibitory
provisions of the statute, was clearly intended merely to forbid failures or refusals to receive
persons or property for carriage involving any "unnecessary or unreasonable preference or
advantage to any particular person, company, firm, corporation, or locality, or any particular kind
of traffic in any respect whatsoever," or which would "subject any particular person, company,
firm, corporation or locality, or any particular kind of traffic to any undue or unreasonable
prejudice or discrimination whatsoever."
The question, then, of construing and applying the statute, in cases of alleged violations of its
provisions, always involves a consideration as to whether the acts complained of had the effect
of making or giving an "unreasonable or unnecessary preference or advantage" to any person,
locality or particular kind of traffic, or of subjecting any person, locality, or particular kind of traffic
to any undue or unreasonable prejudice or discrimination. It is very clear therefore that the
language of the statute itself refutes any contention as to its invalidity based on the alleged
unreasonableness of its mandatory or prohibitory provisions.
So also we may dismiss without much discussion the contentions as to the invalidity of the
statute, which are based on the alleged excessive severity of the penalties prescribed for
violation of its provisions. Upon general principles it is peculiarly and exclusively within the
province of the legislator to prescribe the pains and penalties which may be imposed upon
persons convicted of violations of the laws in force within his territorial jurisdiction. With the
exercise of his discretion in this regard where it is alleged that excessive fines or cruel and
unusual punishments have been prescribed, and even in such cases the courts will not presume
to interfere in the absence of the clearest and most convincing argument and proof in support of
such contentions. (Weems vs. United States, 217 U.S., 349; U.S. vs.Pico, 18 Phil. Rep., 386.)
We need hardly add that there is no ground upon which to rest a contention that the penalties
prescribed in the statute under consideration are either excessive or cruel and unusual, in the
sense in which these terms are used in the organic legislation in force in the Philippine Islands.
But it is contended that on account of the penalties prescribed the statute should be held invalid
upon the principles announced in Ex parte Young (209 U.S., 123, 147, 148); Cotting vs. Goddard
(183 U.S., 79, 102); Mercantile Trust Co. vs. Texas Co. (51 Fed., 529); Louisville Ry. vs. McCord
(103 Fed., 216); Cons. Gas Co. vs. Mayer (416 Fed., 150). We are satisfied however that the
reasoning of those cases is not applicable to the statute under consideration. The principles
announced in those decisions are fairly indicated in the following citations found in petitioner's
brief:
But when the legislature, in an effort to prevent any inquiry of the validity of a particular statute,
so burdens any challenge thereof in the courts that the party affected is necessarily constrained
to submit rather than take the chances of the penalties imposed, then it becomes a serious
question whether the party is not deprived of the equal protection of the laws.
(Cotting vs. Goddard, 183 U. S., 79, 102.)
It may therefore be said that when the penalties for disobedience are by fines so
enormous and imprisonment so severe as to intimidate the company and its officers from
resorting to the courts to test the validity of the legislation, the result is the same as if the
law in terms prohibited the company from seeking judicial construction of laws which
deeply affect its rights.
 It is urged that there is no principle upon which to base the claim that a person is entitled
to disobey a statute at least once, for the purpose of testing its validity, without subjecting
himself to the penalties for disobedience provided by the statute in case it is valid. This is
not an accurate statement of the case. Ordinarily a law creating offenses in the nature of
misdemeanors or felonies relates to a subject over which the jurisdiction of the
legislature is complete in any event. In the case, however, of the establishment of certain
rates without any hearing, the validity of such rates necessarily depends upon whether
they are high enough to permit at least some return upon the investment (how much it is
not now necessary to state), and an inquiry as to that fact is a proper subject of judicial
investigation. If it turns out that the rates are too low for that purpose, then they are
illegal. Now, to impose upon a party interested the burden of obtaining a judicial decision
of such a question (no prior hearing having been given) only upon the condition that, if
unsuccessful, he must suffer imprisonment and pay fines, as provided in these acts, is,
in effect, to close up all approaches to the courts, and thus prevent any hearing upon the
question whether the rates as provided by the acts are not too low, and therefore invalid.
The distinction is obvious between a case where the validity of the act depends upon the
existence of a fact which can be determined only after investigation of a very
complicated and technical character, and the ordinary case of a statute upon a subject
requiring no such investigation, and over which the jurisdiction of the legislature is
complete in any event.
We hold, therefore, that the provisions of the acts relating to the enforcement of the
rates, either for freight or passengers, by imposing such enormous fines and possible
imprisonment as a result of an unsuccessful effort to test the validity of the laws
themselves, are unconstitutional on their face, without regard to the question of the
insufficiency of those rates. (Ex parte Young, 209 U.S., 123 147, 148.)
An examination of the general provisions of our statute, of the circumstances under which it was
enacted, the mischief which it sought to remedy and of the nature of the penalties prescribed for
violations of its terms convinces us that, unlike the statutes under consideration in the above
cited cases, its enactment involved no attempt to prevent common carriers "from resorting to the
courts to test the validity of the legislation;" no "effort to prevent any inquiry" as to its validity. It
imposes no arbitrary obligation upon the company to do or to refrain from doing anything. It
makes no attempt to compel such carriers to do business at a fixed or arbitrarily designated rate,
at the risk of separate criminal prosecutions for every demand of a higher or a different rate. Its
penalties can be imposed only upon proof of "unreasonable," "unnecessary" and "unjust"
discriminations, and range from a maximum which is certainly not excessive for willful, deliberate
and contumacious violations of its provisions by a great and powerful corporation, to a minimum
which may be a merely nominal fine. With so wide a range of discretion for a contention on the
part of any common carrier that it or its officers are "intimidated from resorting to the courts to
test the validity" of the provisions of the statute prohibiting such "unreasonable," "unnecessary"
and "unjust" discriminations, or to test in any particular case whether a given course of conduct
does in fact involve such discrimination. We will presume, for the purpose of declaring the statute
invalid, that there is so real a danger that the Courts of First Instance and this court on appeal will
abuse the discretion thus conferred upon us, as to intimidate any common carrier, acting in good
faith, from resorting to the courts to test the validity of the statute. Legislative enactments,
penalizing unreasonable discriminations, unreasonable restraints of trade, and unreasonable
conduct in various forms of human activity are so familiar and have been so frequently sustained
in the courts, as to render extended discussion unnecessary to refute any contention as to the
invalidity of the statute under consideration, merely it imposes upon the carrier the obligation of
adopting one of various courses of conduct open to it, at the risk of incurring a prescribed penalty
in the event that the course of conduct actually adopted by it should be held to have involved an
unreasonable, unnecessary or unjust discrimination. Applying the test announced in Ex
parte Young, supra, it will be seen that the validity of the Act does not depend upon "the
existence of a fact which can be determined only after investigation of a very complicated and
technical character," and that "the jurisdiction of the legislature" over the subject with which the
statute deals "is complete in any event." There can be no real question as to the plenary power
of the legislature to prohibit and to penalize the making of undue, unreasonable and unjust
discriminations by common carriers to the prejudice of any person, locality or particular kind of
traffic. (See Munn vs.Illinois, 94 U.S., 113, and other cases hereinafter cited in support of this
proposition.)
Counsel for petitioner contends also that the statute, if construed so as to deny the right of the
steamship company to elect at will whether or not it will engage in a particular business, such as
that of carrying explosives, is unconstitutional "because it is a confiscation of property, a taking of
the carrier's property without due process of law," and because it deprives him of his liberty by
compelling him to engage in business against his will. The argument continues as follows:
To require of a carrier, as a condition to his continuing in said business, that he must
carry anything and every thing is to render useless the facilities he may have for the
carriage of certain lines of freight. It would be almost as complete a confiscation of such
facilities as if the same were destroyed. Their value as a means of livelihood would be
utterly taken away. The law is a prohibition to him to continue in business; the alternative
is to get out or to go into some other business the same alternative as was offered in
the case of the Chicago & N.W. Ry. vs. Dey (35 Fed. Rep., 866, 880), and which was
there commented on as follows:
"Whatever of force there may be in such arguments, as applied to mere personal
property capable of removal and use elsewhere, or in other business, it is wholly
without force as against railroad corporations, so large a proportion of whose
investment is in the soil and fixtures appertaining thereto, which cannot be
removed. For a government, whether that government be a single sovereign or
one of the majority, to say to an individual who has invested his means in so
laudable an enterprise as the construction of a railroad, one which tends so
much to the wealth and prosperity of the community, that, if he finds that the
rates imposed will cause him to do business at a loss, he may quit business, and
abandon that road, is the very irony of despotism. Apples of Sodom were fruit of
joy in comparison. Reading, as I do, in the preamble of the Federal Constitution,
that it was ordained to "establish justice," I can never believe that it is within the
property of an individual invested in and used for a purpose in which even the
Argus eyes of the police power can see nothing injurious to public morals, public
health, or the general welfare. I read also in the first section of the bill of rights of
this state that "all men are by nature free and equal, and have certain inalienable
rights, among which are those of enjoying and defending life and liberty,
acquiring, possessing, and protecting property, and pursuing and obtaining
safety and happiness;" and I know that, while that remains as the supreme law
of the state, no legislature can directly or indirectly lay its withering or destroying
hand on a single dollar invested in the legitimate business of transportation."
(Chicago & N.W. Ry. vs. Dey, 35 Fed. Rep., 866, 880.)
It is manifest, however, that this contention is directed against a construction of the statute,
which, as we have said, is not warranted by its terms. As we have already indicated, the statute
does not "require of a carrier, as a condition to his continuing in said business, that he must carry
anything and everything," and thereby "render useless the facilities he may have for the carriage
of certain lines of freight." It merely forbids failures or refusals to receive persons or property for
carriage which have the effect of giving an "unreasonable or unnecessary preference or
advantage" to any person, locality or particular kind of traffic, or of subjecting any person, locality
or particular kind of traffic to any undue or unreasonable prejudice or discrimination.
Counsel expressly admits that the statute, "as a prohibition against discrimination is a fair,
reasonable and valid exercise of government," and that "it is necessary and proper that such
discrimination be prohibited and prevented," but he contends that "on the other hand there is no
reasonable warrant nor valid excuse for depriving a person of his liberty by requiring him to
engage in business against his will. If he has a rolling boat, unsuitable and unprofitable for
passenger trade, he may devote it to lumber carrying. To prohibit him from using it unless it is
fitted out with doctors and stewards and staterooms to carry passengers would be an invalid
confiscation of this property. A carrier may limit his business to the branches thereof that suit his
convenience. If his wagon be old, or the route dangerous, he may avoid liability for loss of
passengers' lives and limbs by carrying freight only. If his vehicles require expensive pneumatic
tires, unsuitable for freight transportation, ha may nevertheless carry passengers. The only
limitation upon his action that it is competent for the governing authority to impose is to require
him to treat all alike. His limitations must apply to all, and they must be established limitations. He
cannot refuse to carry a case of red jusi on the ground that he has carried for others only jusi that
he was green, or blue, or black. But he can refuse to carry redjusi, if he has publicly professed
such a limitation upon his business and held himself out as unwilling to carry the same for
anyone."
To this it is sufficient answer to say that there is nothing in the statute which would deprive any
person of his liberty "by requiring him to engage in business against his will." The prohibitions of
the statute against undue, unnecessary or unreasonable regulations which the legislator has
seen fit to prescribe for the conduct of the business in which the carrier is engaged of his own
free will and accord. In so far as the self-imposed limitations by the carrier upon the business
conducted by him, in the various examples given by counsel, do not involve an unreasonable or
unnecessary discrimination the statute would not control his action in any wise whatever. It
operates only in cases involving such unreasonable or unnecessary preferences or
discriminations. Thus in the hypothetical case suggested by the petitioner, a carrier engaged in
the carriage of green, blue or black jusi, and duly equipped therefor would manifestly be guilty of
"giving an unnecessary and unreasonable preference to a particular kind of traffic" and of
subjecting to "an undue and reasonable prejudice a particular kind of traffic," should he decline to
carry red jusi, to the prejudice of a particular shipper or of those engaged in the manufacture of
that kind of jusi, basing his refusal on the ground of "mere whim or caprice" or of mere personal
convenience. So a public carrier of passengers would not be permitted under this statute to
absolve himself from liability for a refusal to carry a Chinaman, a Spaniard, an American, a
Filipino, or a mestizo by proof that from "mere whim or caprice or personal scruple," or to suit his
own convenience, or in the hope of increasing his business and thus making larger profits, he
had publicly announced his intention not to carry one or other of these classes of passengers.
The nature of the business of a common carrier as a public employment is such that it is clearly
within the power of the state to impose such just and reasonable regulations thereon in the
interest of the public as the legislator may deem proper. Of course such regulations must not
have the effect of depriving an owner of his property without due process of law, nor of
confiscating or appropriating private property without just compensation, nor of limiting or
prescribing irrevocably vested rights or privileges lawfully acquired under a charter or franchise.
But aside from such constitutional limitations, the determination of the nature and extent of the
regulations which should be prescribed rests in the hands of the legislator.
Common carriers exercise a sort of public office, and have duties to perform in which the public
is interested. Their business is, therefore, affected with a public interest, and is subject of public
regulation. (New Jersey Steam Nav. Co. vs. Merchants Bank, 6 How., 344, 382; Munn vs. Illinois,
94 U.S., 113, 130.) Indeed, this right of regulation is so far beyond question that it is well settled
that the power of the state to exercise legislative control over railroad companies and other
carriers "in all respects necessary to protect the public against danger, injustice and oppression"
may be exercised through boards of commissioners. (New York etc. R. Co. vs. Bristol, 151 U.S.,
556, 571; Connecticut etc. R. Co. vs. Woodruff, 153 U.S., 689.)
Regulations limiting of passengers the number of passengers that may be carried in a particular
vehicle or steam vessel, or forbidding the loading of a vessel beyond a certain point, or
prescribing the number and qualifications of the personnel in the employ of a common carrier, or
forbidding unjust discrimination as to rates, all tend to limit and restrict his liberty and to control to
some degree the free exercise of his discretion in the conduct of his business. But since the
Granger cases were decided by the Supreme Court of the United States no one questions the
power of the legislator to prescribe such reasonable regulations upon property clothed with a
public interest as he may deem expedient or necessary to protect the public against danger,
injustice or oppression. (Munn vs. Illinois, 94 U.S., 113, 130; Chicago etc. R. Co. vs. Cutts, 94
U.S., 155; Budd vs. New York, 143 U.S., 517; Cotting vs. Goddard, 183 U.S., 79.) The right to
enter the public employment as a common carrier and to offer one's services to the public for hire
does not carry with it the right to conduct that business as one pleases, without regard to the
interest of the public and free from such reasonable and just regulations as may be prescribed
for the protection of the public from the reckless or careless indifference of the carrier as to the
public welfare and for the prevention of unjust and unreasonable discrimination of any kind
whatsoever in the performance of the carrier's duties as a servant of the public.
Business of certain kinds, including the business of a common carrier, holds such a peculiar
relation to the public interest that there is superinduced upon it the right of public regulation.
(Budd vs. New York, 143 U.S., 517, 533.) When private property is "affected with a public
interest it ceases to be juris privati only." Property becomes clothed with a public interest when
used in a manner to make it of public consequence and affect the community at large. "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 be controlled by the public for the
common good, to the extent of the interest he has thus created. He may withdraw his grant by
discontinuing the use, but so long as he maintains the use he must submit to control."
(Munn vs. Illinois, 94 U.S., 113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S., 174; Budd vs. New
York, 143 U.S., 517; Louisville etc. Ry. Co. vs. Kentucky, 161 U.S., 677, 695.)
Of course this power to regulate is not a power to destroy, and limitation is not the equivalent of
confiscation. Under pretense of regulating fares and freight the state can not require a railroad
corporation to carry persons or property without reward. Nor can it do that which in law amounts
to a taking of private property for public use without just compensation, or without due process of
law. (Chicago etc. R. Co. vs. Minnesota, 134 U.S., 418; Minneapolis Eastern R.
Co. vs. Minnesota, 134 U.S., 467.) But the judiciary ought not to interfere with regulations
established and palpably unreasonable as to make their enforcement equivalent to the taking of
property for public use without such compensation as under all the circumstances is just both to
the owner and to the public, that is, judicial interference should never occur unless the case
presents, clearly and beyond all doubt, such a flagrant attack upon the rights of property under
the guise of regulations as to compel the court to say that the regulation in question will have the
effect to deny just compensation for private property taken for the public use. (Chicago etc. R.
Co. vs. Wellman, 143 U.S., 339; Smyth vs. Ames, 169 U.S., 466, 524; Henderson Bridge
Co. vs. Henderson City, 173 U.S., 592, 614.)
Under the common law of England it was early recognized that common carriers owe to the
public the duty of carrying indifferently for all who may employ them, and in the order in which
application is made, and without discrimination as to terms. True, they were allowed to restrict
their business so as to exclude particular classes of goods, but as to the kinds of property which
the carrier was in the habit of carrying in the prosecution of his business he was bound to serve
all customers alike (State vs. Cincinnati etc. R. Co., 47 Ohio St., 130, 134, 138; Louisville etc. Ry.
Co. vs. Quezon City Coal Co., 13 Ky. L. Rep., 832); and it is to be observed in passing that these
common law rules are themselves regulations controlling, limiting and prescribing the conditions
under which common carriers were permitted to conduct their business. (Munn vs. Illinois, 94 U.
S., 113, 133.)
It was found, in the course of time, that the correction of abuses which had grown up with the
enormously increasing business of common carriers necessitated the adoption of statutory
regulations controlling the business of common carriers, and imposing severe and drastic
penalties for violations of their terms. In England, the Railway Clauses Consolidation Act was
enacted in 1845, the Railway and Canal Traffic Act in 1854, and since the passage of those Acts
much additional legislation has been adopted tending to limit and control the conduct of their
business by common carriers. In the United States, the business of common carriers has been
subjected to a great variety of statutory regulations. Among others Congress enacted "The
Interstate Commerce Act" (1887) and its amendments, and the Elkins Act as amended (1906);
and most if not all of the States of the Union have adopted similar legislation regulating the
business of common carriers within their respective jurisdictions. Unending litigation has arisen
under these statutes and their amendments, but nowhere has the right of the state to prescribe
just and reasonable regulations controlling and limiting the conduct of the business of common
carriers in the public interest and for the general welfare been successfully challenged, though of
course there has been wide divergence of opinion as to the reasonableness, the validity and
legality of many of the regulations actually adopted.
The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or
unreasonable discriminations by common carriers may be maintained upon the same reasoning
which justified the enactment by the Parliament of England and the Congress of the United
States of the above mentioned statutes prohibiting and penalizing the granting of certain
preferences and discriminations in those countries. As we have said before, we find nothing
confiscatory or unreasonable in the conditions imposed in the Philippine statute upon the
business of common carriers. Correctly construed they do not force him to engage in any
business his will or to make use of his facilities in a manner or for a purpose for which they are
not reasonably adapted. It is only when he offers his facilities as a common carrier to the public
for hire, that the statute steps in and prescribes that he must treat all alike, that he may not pick
and choose which customer he will serve, and, specifically, that he shall not make any undue or
unreasonable preferences or discriminations whatsoever to the prejudice not only of any person
or locality but also of any particular kind of traffic.
The legislator having enacted a regulation prohibiting common carriers from giving unnecessary
or unreasonable preferences or advantages to any particular kind of traffic or subjecting any
particular kind of traffic to any undue or unreasonable prejudice or discrimination whatsoever, it is
clear that whatever may have been the rule at the common law, common carriers in this
jurisdiction cannot lawfully decline to accept a particular class of goods for carriage, to the
prejudice of the traffic in those goods, unless it appears that for some sufficient reason the
discrimination against the traffic in such goods is reasonable and necessary. Mere whim or
prejudice will not suffice. The grounds for the discrimination must be substantial ones, such as
will justify the courts in holding the discrimination to have been reasonable and necessary under
all circumstances of the case.
The prayer of the petition in the case at bar cannot be granted unless we hold that the refusal of
the defendant steamship company to accept for carriage on any of its vessels "dynamite,
gunpowder or other explosives" would in no instance involve a violation of the provisions of this
statute. There can be little doubt, however, that cases may and will arise wherein the refusal of a
vessel "engaged in the coastwise trade of the Philippine Islands as a common carrier" to accept
such explosives for carriage would subject some person, company, firm or corporation, or
locality, or particular kind of traffic to a certain prejudice or discrimination. Indeed it cannot be
doubted that the refusal of a "steamship company, the owner of a large number of vessels"
engaged in that trade to receive for carriage any such explosives on any of its vessels would
subject the traffic in such explosives to a manifest prejudice and discrimination. The only
question to be determined therefore is whether such prejudice or discrimination might in any
case prove to be undue, unnecessary or unreasonable.
This of course is, in each case, a question of fact, and we are of the opinion that the facts alleged
in the complaint are not sufficient to sustain a finding in favor of the contentions of the petitioner.
It is not alleged in the complaint that "dynamite, gunpowder and other explosives" can in no
event be transported with reasonable safety on board steam vessels engaged in the business of
common carriers. It is not alleged that all, or indeed any of the defendant steamship company's
vessels are unsuited for the carriage of such explosives. It is not alleged that the nature of the
business in which the steamship company is engaged is such as to preclude a finding that a
refusal to accept such explosives on any of its vessels would subject the traffic in such
explosives to an undue and unreasonable prejudice and discrimination.
Plaintiff's contention in this regard is as follows:
In the present case, the respondent company has expressly and publicly renounced the
carriage of explosives, and expressly excluded the same terms from the business it
conducts. This in itself were sufficient, even though such exclusion of explosives were
based on no other ground than the mere whim, caprice or personal scruple of the carrier.
It is unnecessary, however, to indulge in academic discussion of a moot question, for the
decision not a carry explosives rests on substantial grounds which are self-evident.
We think however that the answer to the question whether such a refusal to carry explosives
involves an unnecessary or unreasonable preference or advantage to any person, locality or
particular kind of traffic or subjects any person, locality or particular to traffic to an undue or
unreasonable prejudice and discrimination is by no means "self-evident," and that it is a question
of fact to be determined by the particular circumstances of each case.
The words "dynamite, powder or other explosives" are broad enough to include matches, and
other articles of like nature, and may fairly be held to include also kerosene oil, gasoline and
similar products of a highly inflammable and explosive character. Many of these articles of
merchandise are in the nature of necessities in any country open to modern progress and
advancement. We are not fully advised as to the methods of transportation by which they are
made commercially available throughout the world, but certain it is that dynamite, gunpowder,
matches, kerosene oil and gasoline are transported on many vessels sailing the high seas.
Indeed it is a matter of common knowledge that common carriers throughout the world transport
enormous quantities of these explosives, on both land and sea, and there can be little doubt that
a general refusal of the common carriers in any country to accept such explosives for carriage
would involve many persons, firms and enterprises in utter ruin, and would disastrously affect the
interests of the public and the general welfare of the community.
It would be going to far to say that a refusal by a steam vessel engaged in the business of
transporting general merchandise as a common carrier to accept for carriage a shipment of
matches, solely on the ground of the dangers incident to the explosive quality of this class of
merchandise, would not subject the traffic in matches to an unnecessary, undue or unreasonable
prejudice and discrimination without proof that for some special reason the particular vessel is
not fitted to carry articles of that nature. There may be and doubtless are some vessels engaged
in business as common carriers of merchandise, which for lack of suitable deck space or storage
rooms might be justified in declining to carry kerosene oil, gasoline, and similar products, even
when offered for carriage securely packed in cases; and few vessels are equipped to transport
those products in bulk. But in any case of a refusal to carry such products which would subject
any person, locality or the traffic in such products would be necessary to hear evidence before
making an affirmative finding that such prejudice or discrimination was or was not unnecessary,
undue or unreasonable. The making of such a finding would involve a consideration of the
suitability of the vessel for the transportation of such products ; the reasonable possibility of
danger or disaster resulting from their transportation in the form and under the conditions in
which they are offered for carriage; the general nature of the business done by the carrier and, in
a word, all the attendant circumstances which might affect the question of the reasonable
necessity for the refusal by the carrier to undertake the transportation of this class of
merchandise.
But it is contended that whatever the rule may be as to other explosives, the exceptional power
and violence of dynamite and gunpowder in explosion will always furnish the owner of a vessel
with a reasonable excuse for his failure or refusal to accept them for carriage or to carry them on
board his boat. We think however that even as to dynamite and gunpowder we would not be
justified in making such a holding unaided by evidence sustaining the proposition that these
articles can never be carried with reasonable safety on any vessel engaged in the business of a
common carrier. It is said that dynamite is so erratic an uncontrollable in its action that it is
impossible to assert that it can be handled with safety in any given case. On the other hand it is
contended that while this may be true of some kinds of dynamite, it is a fact that dynamite can be
and is manufactured so as to eliminate any real danger from explosion during transportation.
These are of course questions of fact upon which we are not qualified to pass judgment without
the assistance of expert witnesses who have made special studies as to the chemical
composition and reactions of the different kinds of dynamite, or attained a thorough knowledge of
its properties as a result of wide experience in its manufacture and transportation.
As we construe the Philippine statute, the mere fact that violent and destructive explosions can
be obtained by the use of dynamite under certain conditions would not be sufficient in itself to
justify the refusal of a vessel, duly licensed as a common carrier of merchandise, to accept it for
carriage, if it can be proven that in the condition in which it is offered for carriage there is no real
danger to the carrier, nor reasonable ground to fear that his vessel or those on board his vessel
will be exposed to unnecessary and unreasonable risk in transporting it, having in mind the
nature of his business as a common carrier engaged in the coastwise trade in the Philippine
Islands, and his duty as a servant of the public engaged in a public employment. So also, if by
the exercise of due diligence and the taking of unreasonable precautions the danger of
explosions can be practically eliminated, the carrier would not be justified in subjecting the traffic
in this commodity to prejudice or discrimination by proof that there would be a possibility of
danger from explosion when no such precautions are taken.
The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and
general welfare of the people of these Islands. If dynamite, gunpowder and other explosives are
to continue in general use throughout the Philippines, they must be transported by water from
port to port in the various islands which make up the Archipelago. We are satisfied therefore that
the refusal by a particular vessel, engaged as a common carrier of merchandise in the coastwise
trade of the Philippine Islands, to accept any or all of these explosives for carriage would
constitute a violation of the prohibitions against discriminations penalized under the statute,
unless it can be shown by affirmative evidence that there is so real and substantial a danger of
disaster necessarily involved in the carriage of any or all of these articles of merchandise as to
render such refusal a due or a necessary or a reasonable exercise of prudence and discretion on
the part of the shipowner.
The complaint in the case at bar lacking the necessary allegations under this ruling, the demurrer
must be sustained on the ground that the facts alleged do not constitute a cause of action.
A number of interesting questions of procedure are raised and discussed in the briefs of counsel.
As to all of these questions we expressly reserve our opinion, believing as we do that in
sustaining the demurrer on the grounds indicated in this opinion we are able to dispose of the
real issue involved in the proceedings without entering upon the discussion of the nice questions
which it might have been necessary to pass upon had it appeared that the facts alleged in the
complaint constitute a cause of action.
We think, however, that we should not finally dispose of the case without indicating that since the
institution of these proceedings the enactment of Acts No. 2307 and No. 2362 (creating a Board
of Public Utility Commissioners and for other purposes) may have materially modified the right to
institute and maintain such proceedings in this jurisdiction. But the demurrer having been
formallly submitted for judgment before the enactment of these statutes, counsel have not been
heard in this connection. We therefore refrain from any comment upon any questions which
might be raised as to whether or not there may be another adequate and appropriate remedy for
the alleged wrong set forth in the complaint. Our disposition of the question raised by the
demurrer renders that unnecessary at this time, though it may not be improper to observe that a
careful examination of those acts confirms us in the holding upon which we base our ruling on
this demurrer, that is to say "That whatever may have been the rule at the common law, common
carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for
carriage, to the prejudice of the traffic in those goods, unless it appears that for some sufficient
reason the discrimination against the traffic in such goods is reasonable and necessary. Mere
prejudice or whim will not suffice. The grounds of the discrimination must be substantial ones,
such as will justify the courts in holding the discrimination to have been reasonable and
necessary under all the circumstances of the case."
Unless an amended complaint be filed in the meantime, let judgment be entered ten days
hereafter sustaining the demurrer and dismissing the complaint with costs against the
complainant, and twenty days thereafter let the record be filed in the archives of original actions
in this court. So ordered.
Arellano, C.J., and Trent, J., concur.
Torres and Johnson, JJ., concur in the result.
Separate Opinions
MORELAND, J., concurring.
I may briefly say, although the nature of the action is stated at length in the foregoing opinion,
that it is an action by a shareholder of the Yangco Steamship Co. against the company itself and
certain officials of the Insular Government for an injunction against the company prohibiting it
from carrying dynamite on its ships and preventing the defendant officials from compelling the
company to do so under Act No. 98.
A demurrer was filed to the complaint raising the question not only of its sufficiency in general,
but putting in issue also the right of the plaintiff to maintain the action under the allegations of his
complaint.
It should be noted that all of the boats of the defendant company, under the allegations of the
complaint, are boatswhich carry passengers as well as freight, and that the holding of the opinion
which I am discussing compelspassenger ships to carry dynamite and all other high explosives
when offered for shipment. (See paragraph 3 of the complaint.)
I base my opinion for a dismissal of the complaint on the ground that the plaintiff has not alleged
in his complaint a single one of the grounds, apart from that of being a stockholder, necessary for
him to allege to maintain a shareholder's action.
In the case of Hawes vs. Oakland (104 U.S., 450) it was said relative to the right of a stockholder
to bring an action which should regularly be bought by the company of which he is a stockholder:
We understand that doctrine to be that, to enable a stockholder in a corporation to
sustain in a court of equity in his own name, a suit founded on a right of action existing in
the corporation itself, and in which the corporation itself is the appropriate plaintiff, there
must exist as the foundation of the suit:
Some action or threatened action of the managing board of directors or trustees of the
corporation, which is beyond the authority conferred on them by their character or other
source of organization;
Or such a fraudulent transaction, completed or contemplated by the acting managers, in
connection with some other party, or among themselves, or with other shareholders as
will in serious injury to the corporation, or to the interest of the other shareholders;
Or where the board of directors, or a majority of them, are acting for their own interest, in
a manner destructive of the corporation itself, or of the rights of the other shareholders;
Or where the majority of shareholders themselves are oppressively and illegally pursuing
a course in the name of the corporation, which is in violation of the rights of the other
shareholders, and which can only be restrained by the aid of a court of equity.
It was also said: "In this country the cases outside of the Federal Courts are not numerous, and
while they admit the right of a stockholder to sue in cases where the corporation is the proper
party to bring the suit, they limit this right to cases where the directors are guilty of a fraud or a
breach of trust, or are proceeding ultra vires."
Further on in the same case we find: "Conceding appellant's construction of the company's
charter to be correct, there is nothing which forbids the corporation from dealing with the city in
the manner it has done. That city conferred on the company valuable rights by special ordinance;
namely, the use of the streets for the laying of its pipes, and the privilege of furnishing water to
the whole population.
It may be the exercise of the highest wisdom, to let the city use the water in the manner
complained of. The directors are better able to act understandingly on this subject than a
stockholder residing in New York. The great body of the stockholders residing in Oakland or
other places in California may take this view of it, and be content to abide by the action of their
directors."
This case is conclusive of the right of the plaintiff in the case at bar to maintain the action. The
complaint is devoid of allegations necessary to sustain a complaint by a shareholder.
The contention of the plaintiff based upon the case of Ex parte Young (209 U.S. 123) is not
sustained by that case. The decision there requires precisely the same allegations in the
complaint as does the case of Hawes vs. Oakland. Not one of those allegations appears in the
complaint in the case at bar except the allegation that the plaintiff is a stockholder.
Indeed, not only does the complaint lack allegations essential to its sufficiency, but it contains
allegations which affirmatively show the plaintiff is not entitled to maintain the action. I do not stop
to enumerate them all. I call attention to one only, namely the allegation that the company, by its
authorized officials, has acted in strict conformity with the plaintiff's wishes and has refused to
accept dynamite for carriage. This allegation shows that the plaintiff has been able to obtain his
remedy and accomplish his purpose within the corporation itself, and it is sufficient, therefore,
under the case of Hawes vs. Oakland and that of Ex parte Young, to require that the demurrer be
sustained.
I am opposed to a decision of this case on the merits.
In the first place, there has been no adequate discussion of the merits by the parties.
Substantially all of the brief of the government was devoted to what may be called the technical
defects of the complaint, such as I have referred to above. Indeed, it is doubtful if any portion of
the brief can be said to be directly a discussion of the merits.
In the second place, there is no real pending in this court. It is clear from the complaint that the
case is a collusive one (not in any improper sense) between the plaintiff and the defendant
company. There is no reason found in the complaint why the company should not have brought
the action itself, every member of the board of directors and every stockholder, according to the
allegations of the complaint, being in absolute accord with the contentions of the plaintiff on the
proposition that the company should not carry dynamite, and having passed unanimously
resolutions to that effect. Moreover, there has been no violation of Act No. 98. No shipper, or any
other person, has offered dynamite to the defendant company for shipment, and, accordingly, the
defendant company has not refused t o accept dynamite for carriage. Nor have the defendant
government officials begun proceedings, or threatened to bring proceedings, against the
defendant company in any given case. According to the allegations of the complaint, the parties
are straw parties and the case a straw case.
In the third place, Act No. 98, under which this proceeding is brought and under which, it is
alleged, the defendant public officers are threatening to enforce, has been repealed, in so far as
it affects public service corporations, by Act No. 2307, as amended by Act No. 2362. More than
that; not only has the law been repealed, but proceedings of this character have been placed, in
the first instance, under the exclusive jurisdiction of the Board of Public Utilities. I am unable to
see why this court should, under the facts of this case, undertake to render a decision on the
merits when the Act under which it is brought has been repealed and the jurisdiction to render a
decision on the subject matter involved has been turned over to another body. As I have said
before, it was unnecessary to a decision of this case to touch the merits in any way; and I am
opposed to an attempt to lay down a doctrine on a subject which is within the exclusive
jurisdiction of another body created by law expressly for the purpose of removing such cases as
this from the jurisdiction of the courts.
I am of the opinion that the complaint should be dismissed, but upon grounds apart from the
merits. If the merits of the case were alone to govern, I should be distinctly in favor of the
plaintiff's contention so far as it relates to the carriage of dynamite on ships carrying passengers;
and, while I am opposed to a decision on the merits of this case, nevertheless, the merits having
been brought into the case by the opinion of some of my brethren, I desire to refer briefly to the
jurisprudence of the subject.
So far as my researches go, the proposition that passenger boats must carry dynamite and other
high explosives is without support in the decisions of any English speaking country. I have been
unable to find a case anywhere which lays down such a doctrine. Indeed, I have been unable to
find a case which holds that freight boats must carry dynamite or other high explosives. Every
case that I have been able to find states a contrary doctrine; and neither in courts nor in text
books is there even a hint supporting the contention of my brethren. The opinion cites no
authorities to support it; and I am constrained to believe that, in any opinion so elaborately
written, cases to support its thesis would have been cited if any such existed.
On page 372, Vol. 6 of Cyc., will be found the following: "Common carriers owe to the public the
duty of carrying indifferently for all who may employ them, and in the order in which the
application is made, and without discrimination as to terms. They may, however, restrict their
business so as to exclude particular classes of goods, and they are not bound to receive
dangerous articles, such as nitro-glycerine, dynamite, gunpowder, oil of vitriol, matches, etc."
In the case of California Powder Works vs. Atlantic and Pacific R. R. Co. (113 Cal., 329), it was
said: "Nor are the exemptions contained in the contract of the shipping order void for lack of
consideration. The defendant was not obliged to received and transport the powder at all. A
common carrier is not bound to receive ... dangerous articles, as nitro-glycerine, dynamite,
gunpowder, aqua fortis, oil of vitriol, matches, etc."
This, so far as I can learn, is the universal doctrine. The California case is reproduced in 36
L.R.A., 648 and has appended to it a note. It is well known that the L.R.A. cites in its notes all of
the cases reasonably obtainable relative to the subject matter of the case which it annotates. The
note in L.R.A. with reference to the California case cites a considerable number of authorities
holding that a carrier of goods is not obliged to receive dynamite or other dangerous explosives
for carriage. It does not cite or refer to a case which holds the contrary.
The reporter of the L.R.A, at the beginning of the note with reference to the California case, says:
"The law upon this question is to be drawn from inference or from dicta rather than from decided
cases. California Powder Works vs.Atlantic & Pacific R. R. Co. seems to be the first case to have
squarely decided that the carrier is not bound to transport dangerous articles, although there has
been what may be regarded as a general understanding that such is the fact."
In Hutchinson on Carriers (sec. 145), it is said, relative to the necessity of a carrier receiving for
carriage dynamite or other dangerous explosives: "He may, for instance, lawfully refuse to
receive them (the goods) if they are improperly packed or if they are otherwise in an unfit
condition for carriage. Or he may show that the goods offered were of a dangerous character,
which might subject him or his vehicle, or strangers or his passengers, or his other freight, to the
risk of injury."
In a note to the text the author says: "Nor is he bound to accept such articles as nitro-glycerine,
dynamite, gunpowder, oil of vitriol and the like."
In Elliot on Railroads (vol. 4, p. 151), appears the following: "Again, goods may properly be
refused which are tendered in an unfit condition for transportation, or which are dangerous, or
which are reasonably believed to be dangerous."
In the case of Boston & Albany Railroad Co. vs. Shanly (107 Mass., 568), the court said at page
576: "Both the dualin and the exploders are thus alleged to be explosive and dangerous articles.
Each of them was sent without giving notice of its character to the plaintiffs, and they were
ignorant in respect to it. The rule of law on this subject is in conformity with the dictates of
common sense and justice, and is well established. One who has in his possession a dangerous
article, which he desires to send to another, am send it by a common carrier if he will take it; but
it is his duty to give him notice of its character, so that he may either refuse to take it, or be
enabled, if he takes it, to make suitable provision against the danger."
This case cites three English cases as follows, Williams vs. East India Co. (3 East, 192);
Brass vs. Maitland (6 El. & Bl. 470; Farrant vs. Barnes (11 C.B. [N.S.], 553).
In the case of Porcher vs. Northeastern R. Co. (14 Rich. L., 181), the court quoted with approval
the following from Story on Bailments: "If he (the carrier) refuses to take charge of the goods
because his coach is full or because they are of a nature which will at the time expose them
to extraordinary danger or to popular rage, or because he has no convenient means of carrying
such goods with security, etc., these will furnish reasonable grounds for his refusal,and will, if
true, be a sufficient legal defense to a suit for the non-carriage of the goods."
In the case of Fish vs. Chapman (2 Ga., 349), the court said: "A common carrier is bound to
convey the goods of any person offering to pay his hire, unless his carriage be already full, or
the risk sought to be imposed upon him extraordinary, or unless the goods be of a sort which he
cannot convey or is not in the habit of conveying."
In the case of Farrant vs. Barnes, above cited, the court said that the shipper "knowing the
dangerous character of the article and omitting to give notice of it to the carrier so that he might
exercise his discretion as to whether he would take it or not was guilty of a clear breach of duty."
To the same effect, generally, are Jackson vs. Rodgers (2 Show., 327); Riley vs. Horne (5 Bing.,
217); Lane vs. Cotton (1 Ld. Raym., 646); Edwards vs. Sheratt (1 East, 604); Elsee vs. Gatward
(5 T. R., 143); Dwight vs. Brewster (1 Pick., 50); Jencks vs. Coleman (2 Summ., 221); Story on
Bail., 322, 323; Patton vs. Magrath (31 Am. Dec., 552).
In Story on Bailments (sec. 508), is found the following: "If a carrier refuses to take charge of
goods because his coach is full; or because the goods are of a nature which will at the time
expose them to extraordinary danger; ... these will furnish reasonable grounds for his refusal;
and will, if true, be a sufficient legal defense to a suit for the non-carriage of the goods."
It will be noted that all of these cases holding that a common carrier is not obliged to receive a
dangerous substance, such as dynamite and other high explosives, refer exclusively to carriers
of merchandise and not to carriers of passengers. If the authorities are uniform in holding that
companies carrying freight are not obliged to accept dangerous explosives for carriage, there can
be no question as to what the rule would be with reference to a carrier of passengers.
Far from requiring passenger boats to accept dynamite and other high explosives for carriage,
the attitude of the people of the United States and of various States is shown by their statutes.
The laws of the United States and of many of the States prohibit passengers boats and
passenger trains from carrying dangerous explosives. Sections 232, 233, 234, 2345 and 236 of
the Criminal Code of the United States (Compiled Stat., 1901), read:
SEC. 232. It shall be unlawful to transport, carry, or convey, any dynamite, gunpowder,
or other explosive, between a place in a foreign country and a place within or subject to
the jurisdiction of the United States, or between a place in any State, Territory, or District
of the United States, or place non-contiguous to but subject to the jurisdiction thereof,
and a place in any other State, Territory, or District of the United States, or place non-
contiguous to but subject to the jurisdiction thereof, on any vessel or vehicle of any
description operated by a common carrier, which vessel or vehicle is carrying
passengers for hire: . . ..
SEC. 233. The Interstate Commerce Commission shall formulate regulations for the safe
transportation of explosives, which shall be binding all common carriers engaged in
interstate or foreign commerce which transport explosives by land. Said commission, of
its own motion, or upon application made by any interested party, may make changes or
modifications in such regulations, made desirable by new information or altered
conditions. Such regulations shall be in accord with the best known practicable means
for securing in transit, covering the packing, marking, loading, handling while in transit,
and the precautions necessary to determine whether the material when offered is in
proper condition to transport.
Such regulations, as well as all changes or modifications thereof, shall take effect after
ninety days after their formulation and publication commission and shall be in effect until
reversed, set aside, or modified.
SEC. 234. It shall be unlawful to transport, carry, or convey, liquid nitroglycerin, fulminate
in bulk "in dry condition, or other like explosive, between a place in a foreign country and
a place within or subject to the jurisdiction of the United States, or between a place in
one State, Territory, or District of the United States, or place non-contiguous to but
subject to the jurisdiction thereof, and a place in any other State, Territory, or District of
the United States, or place non-contiguous to but subject to the jurisdiction thereof, on
any vessel or vehicle of any description operated by a common carrier in the
transportation of passengers or articles of commerce by land or water.
 SEC. 235. Every package containing explosives or other dangerous articles when
presented to a common carrier for shipment shall have plainly marked on the outside
thereof the contents thereof; and it shall be unlawful for any person to deliver, or cause
to be delivered, to any common carrier engaged in interstate or foreign commerce by
land or water, for interstate or foreign transportation, or to carry upon any vessel or
vehicle engaged in interstate or foreign transportation, any explosive, or other dangerous
article, under any false or deceptive marking, description, invoice, shipping order, or
other declaration, or without informing the agent of such carrier of the true character
thereof, at or before the time such delivery or carriage is made. Whoever shall knowingly
violate, or cause to be violated any provision of this section, or of the three sections last
preceding, or any regulation made by the Interstate Commerce Commission in
pursuance thereof, shall be fined not more than two thousand dollars, or imprisoned not
more than eighteen months, or both.
SEC. 236. When the death or bodily injury of any person is caused by the explosion of
any article named in the four sections last preceding, while the same is being placed
upon any vessel or vehicle to be transported in violation thereof, or while the same is
being so transported, or while the same is being removed from such vessel or vehicle,
the person knowingly placing, or aiding or permitting the placing of such articles upon
any such vessel or vehicle, to be so transported, shall be imprisoned not more than ten
years.
Human ingenuity has been continuously exercised for ages to make sea travel safe, that men
might sail the seas with as little risk as possible; that they might rely upon the quality of the ship
and the character and experiences of the sailors who manned her; that they might feel that the
dangers of the deep had been reduced to the minimum. Not only this; the abilities of legislators
have been taxed to the same end; to frame that would ensure seaworthy ships, safe appliances,
and reliable officers and crews; to curb the avarice of those who would subordinate the safety of
passengers to a desire for freight; and to so regulate travel by sea that all might safely confide
their property and their lives to the ships sailing under the flag of their country. Can a decision
which requires passenger ships to carry dynamite and all high explosives be made to harmonize
with this purpose? What is there in the Philippine Islands to justify the requirement that
passenger ships carry dynamite, while in the United States the carrying of dynamite by
passenger ships is a crime? Why should passengers in the Philippine Islands be subjected to
conditions which are abhorent in the United States? Why compel shipowners in the Philippine
Islands to perform acts which, if done in the United States, would send them to the penitentiary?
I do not believe that we should require passengers to travel on ships carrying, perhaps, many
tons of nitro-glycerine, dynamite or gunpowder in their holds; nor do I believe that any public
official should do anything calculated to add to the calamity of fire, collision, or shipwreck the
horrors of explosion.
ARAULLO, J., dissenting:
I do not agree with the decision of the majority of this court in this case, first, because one of the
grounds of the demurrer to the complaint the first one is that of lack of legal capacity to sue
on the part of the plaintiff and nothing is said in the decision regarding this very important point. It
is one which ought to have received special attention, even before the other alleged in the
demurrer that the complaint does not state facts sufficient to constitute a cause of action, and the
only one that received any consideration in the decision in question. Second, because
notwithstanding that in the decision no consideration was paid to the alleged lack of legal
capacity on the part of the plaintiff, he is, reason of the demurrer being sustained, authorized to
present an amended complaint within ten days, an authorization which could not and should not
have on the part of said plaintiff was not lacking.
DECISION OF MARCH 31, 1915.
CARSON, J.:
This case is again before us upon a demurrer interposed by the respondent officials of the
Philippine Government to an amended complaint filed after publication of our decision sustaining
the demurrer to the original complaint.
In our former opinion, entered November 5, 1914, we sustained the demurrer on the ground that
the original complaint did not set forth facts sufficient to constitute a cause of action. In that
decision we held that the statute (Act No. 98) the validity of which was attacked by counsel por
plaintiff was, when rightly construed, a valid and constitutional enactment, and ruled:
That whatever may have been the rule at the common law, common carriers in this jurisdiction
cannot lawfully decline to accept a particular class in those goods, unless it appears that for
some sufficient reason the discrimination against the traffic in such goods is reasonable and
necessary. Mere prejudice or whim will not suffice. The grounds of the discrimination must be
substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all the circumstances of the case.
xxx xxx xxx
The traffic in dynamite, gunpowder and other explosives is vitally essential to the
material and general welfare of the people of these Islands. If dynamite, gunpowder and
other explosives are to continue in general use throughout the Philippines, they must be
transported by water from port to port in the various islands which make up the
Archipelago. We are satisfied therefore that the refusal by a particular vessel, engaged
as a common carrier of merchandise in the coastwise trade of the Philippine Islands, to
accept any or all of these explosives for carriage would constitute a violation of the
prohibitions against discriminations penalized under the statue, unless it can be shown
by affirmative evidence that there is so real and substantial a danger of disaster
necessarily involved in the carriage of any or all of these articles of merchandise as to
render such refusal a due or a necessary or a reasonable exercise of prudence and
discretion on the part of the ship owner.
Resting our judgment on these rulings we held that the allegations of the complaint, which in
substance alleged merely that the respondent officials were coercing the respondent steamship
company to carry explosives upon some of their vessels, under authority of, and in reliance upon
the provisions of the Act, did not set forth facts constituting a cause of action; or in other words,
that the allegations of the complaint even if true, would sustain a finding that the respondent
officials were acting "without or in excess of their jurisdiction" and lawful authority in the
premises.
The amended complaint filed on November 14, 1914, is substantially identical with the original
complaint, except that it charges the respondent officials, as of the date of the amended
complaint, with the unlawful exercise of the authority or intent to exercise unlawful authority
which should be restrained, and substitutes the names of the officers now holding the offices of
Collector of Customs, Attorney-General and prosecuting attorney for those of the officials holding
those offices at the date of the filing of the original complaint; and except further that it adds the
following allegations:
That each and every one of the vessels of the defendant company is dedicated and
devoted to the carriage of passengers between various ports in the Philippine Islands,
and each of said vessels, on all of said voyages between the said ports, usually and
ordinarily does carry a large number of such passengers.
 That dynamite, powder, and other explosives are dangerous commodities that cannot be
handled and transported in the manner and from in which ordinary commodities are
handled and transported. That no degree of care, preparation and special arrangement
in the handling and transportation of dynamite, powder and other explosives will wholly
eliminate the risk and danger of grave peril and loss therefrom, and that the highest
possible degree of care, preparation of said commodities is only capable of reducing the
degree of said danger and peril. That each and every one of the vessels of the defendant
company is wholly without special means for the handling, carriage, or transportation of
dynamite, powder and other explosives and such special means therefor which would
appreciably and materially reduce the danger and peril therefrom cannot be installed in
said vessels without a costs and expense unto said company that is unreasonable and
prohibitive.
As we read them, the allegations of the original complaint were intended to raise and did in fact
raise, upon demurrer, a single question which, if ruled upon favorably to the contention of
plaintiff, would, doubtless, have put an end to this litigation and to the dispute between the
plaintiff stockholder of the steamship company and the officials of the Philippine Government out
of which it has arisen.
In their brief, counsel for plaintiff, in discussing their right to maintain an action for a writ of
prohibition, relied upon the authority of Ex parte Young (209 U. S. [123] 163, 165), and asserted
that:
Upon the authority, therefore, of Ex parte Young, supra, the merits of the question
pending between petitioner and respondents in this action is duly presented to this court
by the complaint of petitioner and general demurrer of respondents thereto. That
question, in plain terms, is as follows:
Is the respondent Yangco Steamship Company legally required to accept for carriage
and carry "any person or property offering for carriage?"
"The petitioner contends that the respondent company is a common carrier of only such
articles of freight as they profess to carry and hold themselves out as carrying;" and in
discussing the legal capacity of plaintiff to maintain this action, counsel in their printed
brief asserted that "here we have no address to the court to determine whether a
minority or a majority shall prevail in the corporate affairs; here we ask plainly and
unmistakably who shall fix the limits of the corporate business the shareholders and
directors of the corporation, or certain officials of the government armed with an
unconstitutional statute?
Counsel for plaintiff contended that under the guaranties of the Philippine Bill of Rights a
common carrier in the Philippine Islands may arbitrarily decline to accept for carriage any
shipment or merchandise of a class which it expressly or impliedly declines to accept from all
shippers alike; that "the duty of a common carrier to carry for all who offer arises from the public
profession he has made, and is limited by it;" that under this doctrine the respondent steamship
company might lawfully decline to accept for carriage "dynamite, powder or other explosives,"
without regard to any question as to the conditions under which such explosives are offered for
carriage, or as to the suitableness of its vessels for the transportation of such explosives, or as to
the possibility that the refusal to accept such articles of commerce in a particular case might have
the effect of subjecting any person, locality or the traffic in such explosives to an undue,
unreasonable or unnecessary prejudice or discrimination: and in line with these contentions
counsel boldly asserted that Act No. 98 of the Philippine Commission is invalid and
unconstitutional in so far as it announces a contrary doctrine or lays down a different rule. The
pleader who drew up the original complaint appears to have studiously avoided the inclusion in
that complaint of any allegation which might raise any other question. In doing so he was strictly
within his rights, and having in mind the object sought to be attained, the original complaint is a
model of skillful pleading, well calculated to secure the end in view, that is to say, a judgment on
the precise legal issue which the pleader desired to raise as to the construction and validity of the
statute, which would put an end to the controversy, if that issue were decided in his favor.
Had the contentions of plaintiff as to the unconstitutionality of the statute been well founded, a
writ of prohibition from this court would have furnished an effective and appropriate remedy for
the alleged wrong. The issue presented by the pleadings on the original complaint, involving a
question as to the validity of a statute and affecting, as it did, the shipping and public interests of
the whole Islands, and submitting be complicated question or series of questions of fact, was of
such a nature that this court could not properly deny the right of the plaintiff to invoke its
jurisdiction in original proceedings. We deemed it our duty therefore to resolve the real issue
raised by the demurrer, and since we are of opinion that the contentions of counsel for plaintiff
were not well founded, and since a ruling to that effect necessarily resulted in an order sustaining
the demurrer, we did not deem it necessary or profitable to consider questions of practice or
procedure which it might have been necessary to decide under a contrary ruling as to the
principal question raised by the pleadings; nor did we stop to consider whether the "subject
matter involved" in the controversy might properly be submitted to the Board of Public Utility
Commissioners, because upon the authority of Ex parte Young (supra) we are satisfied as to the
jurisdiction and competency of this court to deal with the real issues raised by the pleadings on
the original complaint, and because, furthermore, the Act of the Philippine Legislature creating
the Board of Public Utility Commissioners could not deprive this court of jurisdiction already
invoked in prohibition proceedings instituted for the purpose of restraining the respondent official
as of the Government from the alleged unlawful exercise of authority under color of an invalid
and without jurisdiction in the premises.
The amended complaint, however, presents for adjudication in original prohibition proceedings in
this court questions of a wholly different character from those submitted in the original complaint.
In so far as it reiterates the allegation s of the former complaint to the effect that the respondent
officials are unlawfully coercing the steamship company by virtue and under color of the
provisions of an invalid or unconstitutional statute, it is manifest, of course, that the amended
complaint is no less subject to criticism than was the original complaint. If, therefore, the action
can be maintained upon its allegations that those officials are coercing the company to carry
explosives on vessels which, as a matter of fact, are not suitably equipped for that purpose, and
which from the nature of the business in which they are engaged should not be required to carry
explosives.
It will readily be seen, under our former opinion, that these allegations raise no question as to the
validity or constitutionality of any statute; that the real question which plaintiff seeks to submit to
this court in original prohibition proceedings is whether the respondent officials of the
Government are correctly exercising the discretion and authority with which they have been
clothed; and that his contention in the amended complaint is not, as it was in the original
complaint, that these officials are acting without authority and in reliance upon an invalid and
unconstitutional statute, but rather that they are exercising their authority improvidently, unwisely
or mistakenly.
Under the provisions of sections 226 and 516 of the Code of Civil Procedure jurisdiction in
prohibition proceedings is conferred upon the courts when the complaint alleges "the
proceedings of any inferior tribunal, corporation, board, or person, whether exercising functions
judicial or ministerial, were without or in excess of the jurisdiction of such tribunal, corporation,
board or person." It is manifest therefore that the allegations of the amended complaint, even if
true, will not sustain the issuance of a writ of prohibition without further amendment unless they
be construed to in effect a charge that the respondent officials are abusing the discretion
conferred upon them in the exercise of their authority in such manner that the acts complained of
should be held to be without or in excess of their jurisdiction.
It may well be doubted whether the doctrine of the case Ex parte Young (supra), relied upon by
the plaintiff in his argument be invoked in support of a right of action predicated upon such
premises; so also, since the acts complained of in the amended complaint are alleged to have
been done at a date subsequent to the enactment of the statutes creating the Board of Public
Utility Commissioners, it may well be doubted whether the courts should entertain prohibition
proceedings seeking to restrain alleged abuses of discretion on the part of officers and officials of
the Government, and of public service corporations with regard to the rules under which such
corporations are operated, until and unless redress for the alleged wrong has been sought at the
hands of the Board.
The question of the construction and validity of the statute having been disposed of in our ruling
on the demurrer to the original complaint, it must be apparent that of the allegations of the
amended complaint are sufficient to maintain the plaintiff's action for a writ of prohibition, a
question as to which we expressly reserve our opinion, the action should be brought in one of the
Courts of First Instance.
Twenty days hereafter let the complaint de dismissed at the costs of the plaintiff, unless in the
meantime it is amended so as to disclose a right upon the part of the plaintiff to invoke the
original jurisdiction of this court without first proceeding in one of the Courts of First Instance. So
ordered.
Arellano, C.J., Torres, and Trent, JJ., concur.

We do not deem it expedient or necessary, however, to consider or decide any of these

questions at this time, because we are of opinion that we should not permit our original
jurisdiction to be set in motion upon the allegations of the amended complaint.
It is true that this court is clothed with original jurisdiction in prohibition proceedings (sec. 516, Act
No. 190). But this jurisdiction is concurrent with the original jurisdiction of the various Courts of
First Instance throughout the Islands, except in cases where the writ runs to restrain those courts
themselves, when of course it is exclusive; and we are satisfied that it could have been the
intention of the legislator to require this court to assume original jurisdiction in all cases wherein
the plaintiff elects to invoke it. Such a practice might result in overwhelming this court with the
duty of entertaining and deciding original proceedings which from their nature could much better
be adjudicated in the trial courts; and in unnecessarily diverting the time and attention of the
court from its important appellate functions to the settlement of controversies of no especial
interest to the public at large, in the course of which it might become necessary to take testimony
and to make findings touching complicated and hotly contested issues of fact.
We are of opinion and so hold that unless special reasons appear therefor, this court should
decline to permit its original jurisdiction to be invoked in prohibition proceedings, and this
especially when the adjudication of the issues raised involves the taking of evidence and the
making of findings touching controverted facts, which, as a rule, can be done so much better in
the first instance by a trial court than an appellate court organized as is ours.
Spelling on Injunctions and Other Extraordinary Remedies (vol. 2, p. 1493), in discussing the
cases in which the appellate courts in the United States permit their original jurisdiction to be
invoked where that jurisdiction is concurrent with that of some inferior court, says:
Of the plan of concurrent jurisdiction West Virginia may be taken as an illustration. The
Supreme Court of Appeals of that State has concurrent original jurisdiction with the
circuit courts in cases of prohibition, but by a rule adopted by the former court it will not
take such original jurisdiction unless reasons appear therefor.

We deemed it proper to assume jurisdiction to adjudicate and decide the issues raised by the
rulings on the original complaint, involving as they did a question as to the validity of a public
statute of vital interest to shippers and shipowners generally as also to the public at large,
presenting for determination no difficult or complicated questions of fact: but we are satisfied that
we should decline to take jurisdiction of the matters relied upon in the amended complaint in
support of plaintiff's prayer for the writ.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8686 July 30, 1915
THE UNITED STATES, plaintiff-appellee,
vs.
PASCUAL QUINAJON and EUGENIO QUITORIANO, defendants-appellants.
Irineo Javier for appellants.
Attorney-General Villamor for appellee.
JOHNSON, J.:
The defendants were charged with a violation of the provisions of Act No. 98. A complaint was
presented in the court of the justice of the peace on the 11th day of November, 1912. A preliminary
examination was had and the defendants were held for trial in the Court of First Instance of the
province of Ilocos Norte.
On the 17th day of November, 1912, the prosecuting attorney of the Province of Ilocos Norte
presented the following complaint:
The undersigned charges Pascual Quinajon and Eugenio Quitoriano, residents of the
municipality of Paoay, Ilocos Norte, P.I., with violating Act No. 98 of the Civil Commission,
within the jurisdiction of this court, as follows:
That the aforementioned accused are now and have been engaged for more than four years
prior to this date in the transportation of passengers and merchandise in the port of
Currimao that is, in the loading and unloading of passengers and merchandise by means
of virayes from the shore the steamers that anchor in the said port, and vice versa.
That the said accused have been regularly charging 6 centavos for the unloading and loading
of each package of merchandise of cargo, large or small, heavy or light, off or on the
steamers that anchor in the said port of Currimao, and that the unloading is understood to
be from the steamer to the storage warehouses.
That, in the months of June, July, and September, 1912, the said accused, by means of
their virayes and employees, did unload in the port of Currimao aforementioned 5,986 sacks of rice
belonging to the provincial government of Ilocos Norte, P.I., that had come from Manila, P.I., which
sacks were unloaded from the steamers in which they had been shipped and were carried to the
storage warehouses in which they were deposited; that the said accused did willfully, unlawfully,
and criminally demand and collect from the provincial treasurer for the unloading of each one of the
said sacks of rice 10 centavos which, as set forth in the preceding paragraph, they have been
regularly charging for such services in the unloading of the same kind of merchandise and under
virtually the same circumstances and conditions; that the total sum of the payments so made by the
provincial treasurer amounted to P598.60 for the aforesaid 5,986 sacks of rice, the provincial
government of Ilocos Norte, P.I., being thereby damaged in the sum of 359.16, inasmuch as it should
have paid only 239.44, in accordance with the said rate of 6 centavos for each package.
Acts committed in violation of the said Act No. 98 of the Civil Commission.
Upon that complaint the defendants were duly arraigned, tried, found guilty of the crime charged,
and sentenced by the Honorable Dionisio Chanco, judge, to pay a fine of $100 (P200) and costs, and
to return to the provincial government of the Province of Ilocos Norte the sum of P359.16.
From that sentence each of the defendants appealed to this court. In this court they allege that the
lower court committed the following errors:
1. The court erred in holding that the accused had been regularly collecting 6 centavos for
the loading or the unloading of each sack rice from steamers in the port of Currimao.
2. The court erred in holding that the defendants established preferential privileges and
made discriminations in favor of certain shippers, against the provincial government of
Ilocos Norte, in the loading or unloading of merchandise on to or from the steamers in the
port of Currimao.
3. The court erred, further, in sentencing the accused to pay to the provincial government of
Ilocos Norte the sum of P359.16.
The first assignment of error presents a question of fact only. The appellants allege that the lower
court committed an error in its conclusions of fact. They allege that the lower court committed an
error in deciding that they had regularly charged 6 centavos for each sack of rice loaded or unloaded
at the port of Currimao. The decision of the lower court contains the following statement of facts:
It is proven that the defendants, acting as representatives of the Union Obrera, established at
the port of Currimao, Ilocos Norte, and engaged by means of virayes as common carriers of
passengers and in loading and unloading freight from steamers anchoring at said port, to
the shore or to the warehouses, and vice versa, have regularly collected, during the last four
years, 6 centavos for each sack of rice loaded or unloaded by said association.
It is likewise proven that the same defendants, representing the same association, collected
from the provincial government of Ilocos Norte 10 centavos for each of the 5,986 sacks of
rice which they unloaded from the steamers during the months of June, July, and September,
as property belonging to the said government, a price which differed from the usual, charge
of 6 centavos made to others shippers of said commodity.
The provincial fiscal presented as witnesses in support of the information the Chinese
merchants Cu Chatco, Cu Joco, Sy Yacco, Lim Anco, and Francisco Castro, who testified that
they paid to the defendants for loading and unloading supplies from the steamers at
Currimao 6 centavos for each package of any kind of supplies, large or small, heavy or light.
The two first named, Cu Chatco and Cu Joco, testified, furthermore, that formerly they paid
transportation charges for the loading and discharge of their supplies from the steamers
according to the weight and size of each package, for which purpose a classification was
previously made by weighing and measuring said packages or merchandise. Cu Joco does
not remember how much was paid at that time for each package, but Cu Chatco states that
10 centavos was paid for the transportation of each sack of rice weighing 60 kilos or more.
The two above-named witnesses, Cu Chatco and Cu Joco, add that as the task of weighing
and measuring was very annoying to the Chinese merchants at Laoag, Ilocos Norte, they
suggested to the defendants and entered into an agreement with them, to pay by the lot the
transportation charges covering loaded onto or unloaded from the steamers, at the rate of 6
centavos for each package, heavy or light, large or small.
We have made a careful examination of the evidence adduced during the trial of the cause, and
conclude that said facts are substantially sustained thereby. The evidence clearly shows that the
defendant collected 6 centavos for each package, of whatever kind of merchandise, large or small,
heavy or light, from those merchants only with whom they had a special contract. From other
merchants, with whom they had not made said special contract, as well as the Province of Ilocos
Norte, they collected a different rate. The evidence shows that they collected from the Province of
Ilocos Norte 10 centavos for each sack of rice which they unloaded from the steamers during the
months of June, July, and September. There seems to be no reason for reversing or modifying the
conclusions of the lower court based upon said finding of facts. The effect of collecting a different
amount from different persons for exactly analogous or similar service performed by the defendants
will be discussed when we come to a discussion of the law applicable to the foregoing facts.
The second assignment of error, to wit, that "the lower court committed an error in holding that the
defendants established preferential privileges in favor of certain shippers," presents the question
whether or not the defendants and appellants, in view of the foregoing facts, have violated the transportation of passengers or carrier subject to the provisions of this Act
provisions of said Act No. 98. property as above set forth to make to make or give any undue or unreasonable
The facts, as they are disclosed by the record and the findings of the lower court, may be stated or give any unnecessary or unreasonable preference or advantage to any particular
concretely as follows: (1) The defendants, as common carriers, charged and collected from preference or advantage to any particular person, company, firm, corporation, or
some shippers and merchants, a certain price for each package of merchandise, loaded or unloaded, person, company, firm, corporation or locality, or any particular description of
according to a certain schedule. (See Exhibit A.) The prices fixed in the schedule depended upon the locality, or any particular kind of traffic traffic, in any respect whatsoever, or to
size and weight of the package. (2) The defendants entered into a special contract in any respect whatsoever, or to subject subject any particular person, company,
with certain merchants, under and by virtue of the terms of which they charged and collected, for any particular person, company, firm, firm, corporation, or locality, or any
loading merchandise in said port, the sum of 6 centavos for each package, without reference to its corporation or locality, or any particular particular description of traffic, to any
size or weight. kind of traffic, to any undue or undue or unreasonable prejudice or
It is contended that it cost any more to load or unload the rice for the province than it did for the unreasonable prejudice or discrimination disadvantage in any respect whatsoever.
merchants with whom the special contract was made. There is no proof that the conditions were whatsoever, and such unjust preference
different. There is no proof that the services rendered by the defendants for the different parties or discrimination is also hereby prohibited
were unlike or even not contemporaneous. The defendants justify their acts by the fact that they and declared to be unlawful.
handled all the merchandise of some merchants, whether the packages were large or small, at the Said Act No. 98 is "An Act to regulate commerce in the Philippine Islands." Its purpose, so far as it is
same price. possible, is to compel common carriers to render to all persons exactly the same or analogous
Under these facts, the question is squarely presented whether or not the defendants are guilty of a service for exactly the same price, to the end that there may be no unjust advantage or unreasonable
violation of the spirit or the letter of said Act No. 98. Said Act No. 98 was largely borrowed from the discrimination. It applies to persons or corporation engaged as common carriers of passengers or
Act of Congress of February 4, 1887. The language of the two Acts, so far as they relate to the present property. A common carrier is a person or corporation whose regular business is to carry
case, is practically the same. Said Act of Congress has been construed by the Federal courts of the passengers or property for all persons who may choose to employ and renumerate him. A common
United States in several decisions. In view of the United States to said Act of Congress. carrier is a person or corporation who undertakes to carry goods or persons for hire. The appellants
The similarity of Act No. 98 and the Act of Congress may be seen in the following quotations: admit that they are common carriers. The only question presented is whether or not, under the facts,
(Sec. 1, Act No. 98.) (Sec. 2, Act of Congress, Feb. 4, 1887.) they have violated the Act regulating commerce in the Philippine Islands.
No person or corporation engaged The law provides that no common carrier shall directly or indirectly, by any special rate, rebate,
as a common carrier of passengers or That if any common carrier subject drawback, or other device, charge, demand collect, or receive from any person or persons, a greater
property shall directly or indirectly by to the provisions of this Act shall, or less compensation for any service rendered in the transportation of passengers or property,
any special rate, rebate, drawback or directly or indirectly, by any special between points in the Philippine Islands, than he charges, demands, collects, or receives from any
other device, charge, demand, collect rate, rebate, drawback, or other device, other person or persons, for doing a like or contemporaneous service, under substantially similar
or receive from any person or persons, charge, demand, collect, or receive from conditions or circumstances.
a greater or less compensation for any any person or persons a greater or The law prohibits any common carrier from making or giving any unnecessary or unreasonable
service rendered, or to be rendered in less compensation for any service preference or advantage to any particular person, company, firm, corporation or locality, or any
the transportation of passengers or rendered , or to be rendered, in the particular kind of traffic, or to subject any particular person, company, firm, corporation, or locality,
property on land or water between any transportation of passengers or or any particular kind of traffic, to any undue or unreasonable prejudice or discrimination
points in the Philippine Islands than property, subject to the provisions of whatsoever.
such common carrier charges, demands, this Act, than it charges, demands, It will be noted that the law requires common carriers to carry for all persons, either passengers or
collects or receives from any other person collects, or receives from any other property, for exactly the same charge for a like or contemporaneous service in the transportation of
or persons for doing for him a like or person or persons for doing like kind of traffic under substantially similar circumstances or conditions. The law prohibits
contemporaneous service in the for him or them a like and common carriers from subjecting any person, etc., or locality, or any particular kind of traffic, to any
transportation of a like kind of traffic contemporaneous service in the undue or unreasonable prejudice or discrimination whatsoever. The law does not require that the
under substantially similar circumstances transportation of a like kind of same charge shall be made for the carrying of passengers or property, unless all the conditions are
and conditions, and any such unjust traffic under substantially similar alike and contemporaneous. It is not believed that the law prohibits the charging of a different rate
discrimination is hereby prohibited and circumstances and conditions, such for the carrying of passengers or property when the actual cost of handling and transporting the
declared to be unlawful. common carrier shall be deemed guilty same is different. it is not believed that the law intended to require common carriers to carry
of unjust discrimination, which is hereby the same kind of merchandise, even at the same price, under different and unlike conditions and
prohibited and declared to be unlawful. where the actual cost is different. The actual cost of handling and transporting the same quantity of
(Sec. 2, Act No. 98.) (Sec. 3, Act of Congress, Feb. 4, 1887.) rice, for example, might be different, depending upon the form of package or other conditions. It
It shall be unlawful for any would cost more to handle and transport rice packed in open boxes or baskets, for example, than it
common carrier engaged in the That it shall be unlawful for any common would to handle and transport the same quantity of rice neatly packed in sacks. It would cost more
to handle and transport hemp, when it is unbaled and loose, than it would when it is baled. It might
cost more to handle and transport household goods uncrated than when they are crated. It is not
believed that the law prohibits the charging of a different price for handling and shipping
merchandise when the shipper exercises greater care in preparing the same for shipment, thereby
reducing the actual cost of handling and transporting. If the shipper puts his merchandise in a
condition which costs less to handle and transport, he is certainly entitled to a better rate. The
difference in the charge to different merchants or shippers must be based upon the actual cost of
handling and transporting. The law does not require common carriers to perform different services
for the same price, unless the actual cost is the same. It is when the price charged is for the purpose
of favoring persons or localities or particular kinds of merchandise, that the law intervenes and
prohibits. It is favoritism and discrimination which the law prohibits. The difference in charge must
not be made to favor one merchant, or shipper, or locality, to the disadvantage of another merchant,
or shipper, or locality. If the services are alike and contemporaneous, discrimination in the price
charged is prohibited. For the purposes of the law, it is not sufficient always to say that merchandise
is alike, simply because it is of a like kind or quantity. The quantity, kind, and quality may be exactly
the same, and yet not be alike, so far as the cost of transportation is concerned. Examples have been
given above. Many others might be given. A and B are each shippers of bananas between the same
points. A delivers his bananas to the carrier in separate bundles or bunches, without a wrapper or
any kind of protection, while B delivers exactly the same number of bunches of bananas, but they are
neatly packed in a few boxes or baskets. It does not require much argument to convince men
conversant with the shipping of merchandise, in such a case, that the actual cost of handling and
shipping would be different and would, therefore, not be "alike," although contemporaneous,
perhaps. Neither is it believed that shipments may be rendered unlike by the fact that the total
shipment is composed of different kinds or classes of merchandise. For example, A is a shipper of
rice and hemp and B is a shipper of rice alone. Both A and B prepare their rice for shipment in
exactly the same form of package. It is not believed that the carrier is permitted, under the law, to
carry A's rice for a less price than he carries B's rice, simply because A is also a shipper of hemp. A
difference in the charge for handling and transporting may only be made when the difference is
based upon actual cost. The actual cost may depend upon quantity. A man who ships freight by the
car-load, by reason of the actual cost of handling and shipping, may be entitled, under certain
conditions, to a better rate than the man who ships a single article or package of the same class or
kind of merchandise. A train-load of cattle might be shipped from Dagupan to Manila, for example, at
less cost per head than it would cost to ship just a few head, less than a car-load. The actual cost of
each shipment must necessarily depend upon and be settled by its own proof. This rule, however,
does not prohibit the making of general schedules, providing they are made applicable to all. The
difference in the charge made by the common carrier cannot be made for the purpose of favoring
any person or locality, to the prejudice or disadvantage of another person or locality. A common
carrier may discriminate between shippers when the amount of goods shipped by one actually costs
less to handle and transport, but he cannot discriminate upon the ground simply that he carries all of
the goods of one shipper, while he does not carry all of the goods of another. The difference in the
charge must be the difference in the cost.
It is competent for a common carrier under the law, we believe, to enter into special agreements for
handling and transporting merchandise, whereby advantage may accrue to individuals, when it is
made clearly to appear that by such agreements the common carrier has only its interests and the
legitimate increase of its profits in view, and when the consideration given to the individual is for the
interest of the common carrier alone, and when the common carrier gives all shippers exactly the
same rate, under the same conditions.
The appellants justify the different charge upon the ground that they carried pianos and matches, for
the merchants with whom they had the special contracts, at the same price. It is not believed that a
merchant who happens to be a shipper of both pianos and matches, should have any advantage over
the merchant who ships pianos alone, unless there is some other actual additional cost in the one
case, which does not exist in the other. A common carrier can not discriminate upon the ground that
he carries all of the goods of one shipper, while he does not of another.
In the present case there is no pretense that it actually cost more to handle the rice for the province
than it did for the merchants with whom the special contracts were made. From the evidence it
would seem that there was a clear discrimination made against the province. Discrimination is the
thing which is specifically prohibited and punished under the law.
It is not believed that the law prohibits common carriers from making special rates for the handling
and transporting of merchandise, when the same are made for the purpose of increasing their
business, and to manage their important interests upon the same principles which are regarded as
sound, and adopted in other trades and pursuits. It is not believed that the law requires absolute
equality in all cases. Circumstances and conditions may make it injurious to the carrier. Absolute
equality, under certain circumstances and conditions, may give shippers an advantage over others. It
is only unjust, undue, and unreasonable discrimination which the law forbids. The law of equality is
in force only where the services performed in the different cases are substantially the same, and the
circumstances and conditions are similar. Many considerations may properly enter into the
agreement for the carriage or shipment rate, such as the quantity carried, its nature, its risks, the
expense of carriage at different periods of time, and the like. Numerous circumstances may
intervene, which bear upon the cost and expense of transportation, and it is but just to the carrier
that he be permitted to take these circumstances into consideration, in determining the rate or
amount of his compensation. A question of fact is raised in each case for the courts to decide.
The foregoing conclusions are based upon literally hundreds of decisions of the courts of different
states, and the Supreme Court of the United States, as well as those of England, which have
interpreted statutes analogous to the one under consideration.
In the third assignment of error the appellants allege that the lower court committed an error in
condemning them to pay or return to the provincial government the sum of P359.16. It is not exactly
clear from the decision of the lower court just how he arrived at that conclusion. Section 5 of Act No.
98 provides that any person or corporation, who may be damaged by reason of the doing by a
common carrier of any matters and things prohibited, shall be entitled to sue for and recover all
damages so incurred, etc. It would seem that the defendants and appellants had a right to charge the
provincial government 6 centavos for each sack of rice unloaded. They unloaded for the province
5,986 sacks, for which they charged the sum of P598.60. They had a right to collect 6 centavos, or the
sum of P359.16. The appellants therefore collected from the province more than they had a right to
collect, the difference between P598.60 and 359.16, or P239.44. They should be required, therefore,
to return to the province the excess which they collected, or the sum of P239.44. The judgment of the
lower court, therefore, should be modified in this respect. The defendants are hereby ordered to
return to the Province of Ilocos Norte the sum P239.44, for which sum a judgment is hereby ordered
to be entered against them, for which execution may issue when this judgment becomes final, in case
the same is not paid.
After a careful analysis of the facts, and the law applicable thereto, the judgment of the lower court,
as herein modified, should be and is hereby affirmed with costs. So ordered.
Arellano, C.J., Torres, Carson, and Araullo, JJ., concur.
Trent, J., dissents.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 131621 September 28, 1999
LOADSTAR SHIPPING CO., INC., petitioner,
vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.
DAVIDE, JR., C.J.:
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the
following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which
affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil
Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter
MIC) the amount of P6,067,178, with legal interest from the filing of the compliant until fully paid,
P8,000 as attorney's fees, and the costs of the suit; and (b) its resolution of 19 November
1997, 3 denying LOADSTAR's motion for reconsideration of said decision.
The facts are undisputed.1wphi1.nt
On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the
following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and the others ;and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC against various
risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was insured
by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on
its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off
Limasawa Island. As a result of the total loss of its shipment, the consignee made a claim with
LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in
full settlement of its claim, and the latter executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of
the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed that
PGAI be ordered to pay the insurance proceeds from the loss the vessel directly to MIC, said amount
to be deducted from MIC's claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no
cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped
as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the court of Appeals, which, however, agreed with the trial court and affirmed
its decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole
ground that there was a single shipper on that fateful voyage. The
court noted that the charter of the vessel was limited to the ship,
but LOADSTAR retained control over its crew. 4
2) As a common carrier, it is the Code of Commerce, not the Civil
Code, which should be applied in determining the rights and
liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on
the day of the voyage. If it had been seaworthy, it could have
withstood the "natural and inevitable action of the sea" on 20
November 1984, when the condition of the sea was moderate. The
vessel sank, not because of force majeure, but because it was not
seaworthy. LOADSTAR'S allegation that the sinking was probably
due to the "convergence of the winds," as stated by a PAGASA
expert, was not duly proven at the trial. The "limited liability" rule,
therefore, is not applicable considering that, in this case, there was
an actual finding of negligence on the part of the carrier. 5
4) Between MIC and LOADSTAR, the provisions of the Bill of
Lading do not apply because said provisions bind only the
shipper/consignee and the carrier. When MIC paid the shipper for
the goods insured, it was subrogated to the latter's rights as
against the carrier, LOADSTAR. 6
5) There was a clear breach of the contract of carriage when the
shipper's goods never reached their destination. LOADSTAR's
defense of "diligence of a good father of a family" in the training
and selection of its crew is unavailing because this is not a proper
or complete defense in culpa contractual.
6) "Art. 361 (of the Code of Commerce) has been judicially
construed to mean that when goods are delivered on board a ship
in good order and condition, and the shipowner delivers them to
the shipper in bad order and condition, it then devolves upon the
shipowner to both allege and prove that the goods were damaged
by reason of some fact which legally exempts him from liability."
Transportation of the merchandise at the risk and venture of the
shipper means that the latter bears the risk of loss or deterioration
of his goods arising from fortuitous events, force majeure, or the
inherent nature and defects of the goods, but not those caused by
the presumed negligence or fault of the carrier, unless otherwise
proved. 7
The errors assigned by LOADSTAR boil down to a determination of the following issues:
(1) Is the M/V "Cherokee" a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these
premises.
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not
issued certificate of public convenience, it did not have a regular trip or schedule nor a fixed route,
and there was only "one shipper, one consignee for a special cargo."
In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely
raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the
cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its
regular business. Moreover, the bills of lading in this case made no mention of any charter party but
only a statement that the vessel was a "general cargo carrier." Neither was there any "special
arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The
singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to
convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to
have been negligent, and the burden of proving otherwise devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November
1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by
the maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to
undertake a voyage. Its crew at the time was experienced, licensed and unquestionably competent.
With all these precautions, there could be no other conclusion except that LOADSTAR exercised the
diligence of a good father of a family in ensuring the vessel's seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due
to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November
1984, the weather was fine until the next day when the vessel sank due to strong waves. MCI's
witness, Gracelia Tapel, fully established the existence of two typhoons, "WELFRING" and "YOLING,"
inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1 was declared
over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the convergence of
winds brought about by these two typhoons strengthened wind velocity in the area, naturally
producing strong waves and winds, in turn, causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as
what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk," LOADSTAR
was not liable for any loss or damage to the same. Therefore, the Court of Appeals erred in holding
that the provisions of the bills of lading apply only to the shipper and the carrier, and not to the
insurer of the goods, which conclusion runs counter to the Supreme Court's ruling in the case of St.
Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance Company of
Pittsburgh v. Stolt-Nielsen Phils., Inc. 10
Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted
beyond the period stated in the bills of lading for instituting the same suits based upon claims
arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from
the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery
was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo
was due toforce majeure, because the same concurred with LOADSTAR's fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must
be deemed waived.
Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at
fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage
notwithstanding its knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that
the carrier be issued a certificate of public convenience, and this public character is not altered by
the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo
or chartering the vessel to a special person becomes a private carrier that is not subject to the
provisions of the Civil Code. Any stipulation in the charter party absolving the owner from liability
for loss due to the negligence of its agent is void only if the strict policy governing common carriers
is upheld. Such policy has no force where the public at is not involved, as in the case of a ship totally
chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial
Supply, Inc. v. Court of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld
the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that
the factual settings are different. The records do not disclose that the M/V "Cherokee," on the date in
question, undertook to carry a special cargo or was chartered to a special person only. There was no
charter party. The bills of lading failed to show any special arrangement, but only a general provision
to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact that the
vessel was carrying a particular type of cargo for one shipper, which appears to be purely
coincidental, is not reason enough to convert the vessel from a common to a private carrier,
especially where, as in this case, it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common
carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals, 15 the Court
juxtaposed the statutory definition of "common carriers" with the peculiar circumstances of that
case, viz.:
The Civil Code defines "common carriers" in the following terms:
Art. 1732. Common carriers are persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as ancillary activity (in local idiom, as "a sideline". Article 1732 also carefully
avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1733
deliberately refrained from making such distinctions.
xxx xxx xxx
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and eventhough private
respondent's principal occupation was not the carriage of goods for others. There is
no dispute that private respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate
of public convenience, and concluded he was not a common carrier. This is palpable
error. A certificate of public convenience is not a requisite for the incurring of
liability under the Civil Code provisions governing common carriers. That liability
arises the moment a person or firm acts as a common carrier, without regard to
whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent
from the liabilities of a common carrier because he has not secured the necessary
certificate of public convenience, would be offensive to sound public policy; that
would be to reward private respondent precisely for failing to comply with
 applicable statutory requirements The business of a common carrier impinges Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of
directly and intimately upon the safety and well being and property of those Goods by Sea Act (COGSA) which provides for a one-year period of limitation on claims for loss of,
members of the general community who happen to deal with such carrier. The law or damage to, cargoes sustained during transit may be applied suppletorily to the case at bar. This
imposes duties and liabilities upon common carriers for the safety and protection of one-year prescriptive period also applies to the insurer of the goods. 22In this case, the period for
those who utilize their services and the law cannot allow a common carrier to filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year
render such duties and liabilities merely facultative by simply failing to obtain the period is null and void; 23 it must, accordingly, be struck down.
necessary permits and authorizations. WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the
Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.1wphi1.nt
embarked on its voyage on 19 November 1984. The vessel was not even sufficiently manned at the SO ORDERED.
time. "For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.
a sufficient number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied
in this case. The doctrine of limited liability does not apply where there was negligence on the part of
the vessel owner or agent. 17LOADSTAR was at fault or negligent in not maintaining a seaworthy
vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any
event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the
wind condition in the performance of its duties, LOADSTAR cannot hide behind the "limited liability"
doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in
utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co.,
Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases
that after paying the claim of the insured for damages under the insurance policy, the insurer is
subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in
turn, be recovered by the latter. Since the right of the assured in case of loss or damage to the goods
is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is
necessarily subject to the same limitations and restrictions. We do not agree. In the first place, the
cases relied on by LOADSTAR involved a limitation on the carrier's liability to an amount fixed in the
bill of lading which the parties may enter into, provided that the same was freely and fairly agreed
upon (Articles 1749-1750). On the other hand, the stipulation in the case at bar effectively reduces
the common carrier's liability for the loss or destruction of the goods to a degree less than
extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to
shipments made at "owner's risk." Such stipulation is obviously null and void for being contrary to
public policy." 20 It has been said:
Three kinds of stipulations have often been made in a bill of lading. The first one
exempting the carrier from any and all liability for loss or damage occasioned by its
own negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the
carrier to an agreed valuation unless the shipper declares a higher value and pays a
higher rate of. freight. According to an almost uniform weight of authority, the first
and second kinds of stipulations are invalid as being contrary to public policy, but
the third is valid and enforceable. 21
Since the stipulation in question is null and void, it follows that when MIC paid the shipper,
it was subrogated to all the rights which the latter has against the common carrier,
LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's
cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25599 April 4, 1968
HOME INSURANCE COMPANY, plaintiff-appellee,
vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.
William H. Quasha and Associates for plaintiff-appellee.
Ross, Selph, Salcedo and Associates for defendant-appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740
jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1
and 2, both dated January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San
Miguel Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on
March 7, 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo
was delivered to consignee San Miguel Brewery Inc., there were shortages amounting to P12,033.85,
causing the latter to lay claims against Luzon Stevedoring Corporation, Home Insurance Company
and the American Steamship Agencies, owner and operator of SS Crowborough.
Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 the
insurance value of the loss, as full settlement of the claim. Having been refused reimbursement by
both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance
Company, as subrogee to the consignee, filed against them on March 6, 1964 before the Court of First
Instance of Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney's fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in
the same quantity and quality that it had received the same from the carrier. It also claimed that
plaintiff's claim had prescribed under Article 366 of the Code of Commerce stating that the claim
must be made within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the provisions of the Charter
party referred to in the bills of lading, the charterer, not the shipowner, was responsible for any loss
or damage of the cargo. Furthermore, it claimed to have exercised due diligence in stowing the goods
and that as a mere forwarding agent, it was not responsible for losses or damages to the cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring
Corporation, having found the latter to have merely delivered what it received from the carrier in
the same condition and quality, and ordered American Steamship Agencies to pay plaintiff
P14,870.71 with legal interest plus P1,000 attorney's fees. Said court cited the following grounds:
(a) The non-liability claim of American Steamship Agencies under the charter party contract
is not tenable because Article 587 of the Code of Commerce makes the ship agent also civilly
liable for damages in favor of third persons due to the conduct of the captain of the carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is
against public policy under Article 1744 of the Civil Code;
(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at
fault or negligent under Article 1735 of the Civil Code unless they prove extraordinary
diligence, and they cannot by contract exempt themselves from liability resulting from their
negligence or that of their servants; and
(d) When goods are delivered to the carrier in good order and the same are in bad order at
the place of destination, the carrier is prima facie liable.
Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal
brings forth for determination this legal issue: Is the stipulation in the charter party of the owner's
non-liability valid so as to absolve the American Steamship Agencies from liability for loss?
The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the
bills of lading shall be governed by and subject to the terms and conditions of the charter party, if
any, otherwise, the bills of lading prevail over all the agreements. 2 On the of the bills are stamped
"Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party
dated London, Dec. 13, 1962."
A perusal of the charter party3 referred to shows that while the possession and control of the ship
were not entirely transferred to the charterer,4 the vessel was chartered to its full and complete
capacity (Exh. 3). Furthermore, the, charter had the option to go north or south or vice-
versa,5 loading, stowing and discharging at its risk and expense.6Accordingly, the charter party
contract is one of affreightment over the whole vessel rather than a demise. As such, the liability of
the shipowner for acts or negligence of its captain and crew, would remain in the absence of
stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to
the goods caused by personal want of due diligence on its part or its manager to make the vessel in
all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the
personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of
the vessel from any loss or damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner on board, for whose acts
the owner would ordinarily be liable except for said paragraph..
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587
of the Code of Commerce making the ship agent civilly liable for indemnities suffered by third
persons arising from acts or omissions of the captain in the care of the goods and Article 1744 of the
Civil Code under which a stipulation between the common carrier and the shipper or owner limiting
the liability of the former for loss or destruction of the goods to a degree less than extraordinary
diligence is valid provided it be reasonable, just and not contrary to public policy. The release from
liability in this case was held unreasonable and contrary to the public policy on common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.8 As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not against public policy, 9 and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter
party absolving the owner from liability for loss due to the negligence of its agent would be void only
if the strict public policy governing common carriers is applied. Such policy has no force where the
public at large is not involved, as in the case of a ship totally chartered for the use of a single party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the
charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title not a
contract, for the contract is the charter party.10 The consignee may not claim ignorance of said
charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated,
recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless
the same is due to personal acts or negligence of said owner or its manager, as distinguished from its
other agents or employees. In this case, no such personal act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from
liability to plaintiff. No costs. So ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Dizon J., took no part.
Concepcion, C.J., is on leave.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-61461 August 21, 1987
EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,
vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.
CARDINAL SHIPPING CORPORATION, petitioner,
vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS,
INC., respondents.
GANCAYCO, J.:
The question that is posed in these petitions for review is whether the sea can be considered as a
continuation of the highway. The corollary issue is whether a land transportation company can be
authorized to operate a ferry service or coastwise or interisland shipping service along its
authorized route as an incident to its franchise without the need of filing a separate application for
the same.
The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation
engaged in the land transportation business with PUB service for passengers and freight and various
certificates for public conveniences CPC to operate passenger buses from Metro Manila to Bicol
Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to Maritime
Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V "Black
Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and Allen,
Samar that will provide service to company buses and freight trucks that have to cross San Bernardo
Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due
course to the request on the basis of the following observations:
1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and
Epitacio San Pablo; MARINA policies on interisland shipping restrict the entry of
new operators to Liner trade routes where these are adequately serviced by
existing/authorized operators.
2. Market conditions in the proposed route cannot support the entry of additional
tonnage; vessel acquisitions intended for operations therein are necessarily limited
to those intended for replacement purposes only. 2
PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million
pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it
proposes to operate a ferry service to carry its passenger buses and freight trucks between Allen and
Matnog in connection with its trips to Tacloban City invoking the case of Javellana vs. Public Service
Commission. 3 PANTRANCO claims that it can operate a ferry service in connection with its franchise
for bus operation in the highway from Pasay City to Tacloban City "for the purpose of continuing the
highway, which is interrupted by a small body of water, the said proposed ferry operation is merely
a necessary and incidental service to its main service and obligation of transporting its passengers
from Pasay City to Tacloban City. Such being the case ... there is no need ... to obtain a separate
certificate for public convenience to operate a ferry service between Allen and Matnog to cater
exclusively to its passenger buses and freight trucks. 4
Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting
Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the
application for hearing on Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO
from operating the MV "Black Double" otherwise it will be cited to show cause why its CPC should
not be suspended or the pending application denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are
franchise holders of the ferry service in this area interposed their opposition. They claim they
adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked the
legal opinion from the Minister of Justice whether or not a bus company with an existing CPC
between Pasay City and Tacloban City may still be required to secure another certificate in order to
operate a ferry service between two terminals of a small body of water. On October 20, 1981 then
Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus
operators to secure a separate CPC to operate a ferryboat service holding as follows:
Further, a common carrier which has been granted a certificate of public
convenience is expected to provide efficient, convenient and adequate service to the
riding public. (Hocking Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE
521; Louiseville and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of
the public which has accepted the service of a public utility operator to demand that
the service should be conducted with reasonable efficiency. (Almario, supra, citing
73 C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a
ferry service to its Pasay Tacloban route, it merely does so in the discharge of its
duty under its current certificate of public convenience to provide adequate and
convenient service to its riders. Requiring said bus company to obtain another
certificate to operate such ferry service when it merely forms a part and
constitutes an improvement of its existing transportation service would simply
be duplicitous and superfluous. 7
Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of
its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the
same in this wise:
Let the original Certificate of public convenience granted to Pantranco South
Express Co., Inc. be amended to embody the grant of authority to operate a private
ferry boat service as one of the conditions for the grant of the certificate subject to
the condition that the ferryboat shall be for the exclusive use of Pantranco buses, its
passengers and freight trucks, and should it offer itself to the public for hire other
than its own passengers, it must apply for a separate certificate of public
convenience as a public ferry boat service, separate and distinct from its land
transport systems. 8
Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration
of said decision and San Pablo filed a supplemental motion for reconsideration that were denied by
the BOT on July 21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary
injunction 10 seeking the revocation of said decision, and pending consideration of the petition, the
issuance of a restraining order or preliminary injunction against the operation by PANTRANCO of
said ferry service. San Pablo raised the following issues:
A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE
PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC
SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION DATED
OCTOBER 23, 1981 WHICH MOTU PROPIOAMENDED RESPONDENT PANTRANCO'S
 PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A SHIPPING
SERVICE ON THE ROUTE MATNOG, SORSOGON ALLEN, SAMAR EVEN AS
THERE MUST BE A FORMAL APPLICATION FOR AMENDMENT AND SEPARATE
PROCEEDINGS HELD THEREFORE, ASSUMING AMENDMENT IS PROPER?
B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER
23, 1981, THAT THE SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON
ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO
SAMAR ISLAND IS A MERE FERRY OR CONTINUATION OF THE HIGHWAY IT
BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT 2 HOURS TRAVEL
TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT MERE BARGES, RAFTS OR
SMALL BOATS UTILIZED IN FERRY SERVICE?
C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT
PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT
A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT THE
MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF HIGHWAY)
EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS
TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?
D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT
PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF THE
LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT APPLY
THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE
MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL
UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR
FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION MAY BE
GRANTED UNDER BOT MARINA AGREEMENT OF AUGUST 10, 1976 AND
FEBRUARY 26, 1982?
E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO
AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY
SERVICED IF NOT ALREADY "SATURATED" WITH THE SERVICES OF TWO 12)
EXISTING OPERATORS PETITIONERS AND CARDINAL SHIPPING CORP.) IN
VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'? 11
By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues,
namely:
a. the decision did not conform to the procedures laid down by law for an
amendment of the original certificate of public convenience, and the authority to
operate a private ferry boat service to PANTRANCO was issued without
ascertaining the established essential requisites for such grant, hence, violative of
due process requirements;
b. the grant to PANTRANCO of authority to operate a ferryboat service as a private
carrier on said route contravenes existing government policies relative to the
rationalization of operations of all water transport utilities;
c. it contravenes the memorandum of agreement between MARINA and the Board
of Transportation; d. the grant of authority to operate a ferry service as a private
carrier is not feasible; it lessens PANTRANCO's liability to passengers and cargo to a
degree less than extraordinary diligence?
e. PANTRANCO is not a private carrier when it operates its ferry service;
f. it runs counter to the "old operator" doctrine; and
g. the operation by PANTRANCO of the ferry service cnstitutes undue competition.
The foregoing considerations constitutes the substantial errors committed by the
respondent Board which would more than amply justify review of the questioned
decision by this Honorable Court.12
Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the questioned BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a
part of the authority originally granted PANTRANCO in the following manner:
A ferry service, in law, is treated as a continuation of the highway from one side of
the water over which passes to the other side for transportation of passengers or of
travellers with their teams vehicles and such other property as, they may carry or
have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431). It
maybe said to be a necessary service of a specially constructed boat to carry
passengers and property across rivers or bodies of water from a place in one shore
to a point conveniently opposite on the other shore and continuation of the
highway making a connection with the thoroughfare at each terminal (U.S. vs.
Canadian Pac. N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of
transportation but also the use for that purpose of the respective landings with
outlets therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service
maybe a public ferry or a private ferry. A public ferry service is one which all the
public have the right to resort to and for which a regular fare is established and the
ferryman is a common carrier be inbound to take an who apply and bound to keep
his ferry in operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A
ferry (private) service is mainly for the use of the owner and though he may take
pay for ferriage, he does not follow it as a business. His ferry is not open to the
public at its demand and he may or may not keep it in operation (Hudspeth vs.
Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140 Ark 158; 215 S.W. 698).
The ferry boat service of Pantranco is a continuation of the highway traversed by its
buses from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through
San Bernardino Strait to Alien (Samar). It is a private carrier because it will be used
exclusively to transport its own buses, passengers and freight trucks traversing the
said route. It will cater exclusively to the needs of its own clientele (passengers on
board- Pantranco buses) and will not offer itself indiscriminately for hire or for
compensation to the general public. Legally therefore, Pantranco has the right to
operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog
(Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses,
passengers and freight trucks without the need of applying for a separate certificate
of public convenience or provisional authority. Since its operation is an integral
part of its land transport system, its original certificate of public convenience
should be amended to include the operation of such ferryboat for its own exclusive
use
In Javellana 14 this Court recited the following definition of ferry :
The term "ferry" implied the continuation by means of boats, barges, or rafts, of a
highway or the connection of highways located on the opposite banks of a stream or
other body of water. The term necessarily implies transportation for a short distance,
almost invariably between two points, which is unrelated to other transportation
.(Emphasis supplied)
The term "ferry" is often employed to denote the right or franchise granted by the
state or its authorized mandatories to continue by means of boats, an interrupted
 land highway over the interrupting waters and to charge toll for the use thereof by
the public. In this sense it has also been defined as a privilege, a liberty, to take
tolls for transporting passengers and goods across a lake or stream or some other
body of water, with no essential difference from a bridge franchise except as to the
mode of transportation, 22 Am. Jur. 553.
A "ferry" has been defined by many courts as "a public highway or thoroughfare
across a stream of water or river by boat instead of a bridge." (St. Clare Country v.
Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.)
The term ferry is often employed to denote the right or franchise granted by the
state or its authorized mandatories to continue by means of boats, an interrupted
land highway over the interrupting waters and to charge toll for the use thereof by
the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann.
Cas. 1914C 1179; etc.) (Emphasis supplied)
"Ferry" is service necessity for common good to reach point across a stream lagoon,
lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'
"Ferry" properly means a place of transit across a river or arm of the sea, but in law
it is treated as a franchise, and defined as the exclusive right to carry passengers
across a river, or arm of the sea, from one vill to another, or to connect a continuous
line of road leading from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C.
A. Wash. 73 F. 2d. 831, 832)'
Includes various waters: (1) But an arm of the sea may include various subordinate
descriptions of waters, where the tide ebbs and flows. It may be a river, harbor,
creek, basin, or bay; and it is sometimes used to designate very extensive reaches of
waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach
C.C. 1093). (2) In an early case the court said: "The distinction between rivers
navigable and not navigable, that is, where the sea does, or does not, ebb and flow,
is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called
arms of the sea, while the latter pass under the denomination of private or inland
rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis supplied)
In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality
of Gattaran vs. Elizaga 17 this Court considered as ferry service such water service that crosses
rivers.
However, in Javellana We made clear distinction between a ferry service and coastwise or
interisland service by holding that:
We are not unmindful of the reasons adduced by the Commission in considering the
motorboat service between Calapan and Batangas as ferry; but from our
consideration of the law as it stands, particularly Commonwealth Act No. 146,
known as the Public Service Act and the provisions of the Revised Administrative
Code regarding municipal ferries and those regarding the jurisdiction of the Bureau
of Customs over documentation, registration, licensing, inspection, etc. of
steamboats, motorboats or motor vessels, and the definition of ferry as above
quoted we have the impression and we are inclined to believe that the Legislature
intended ferry to mean the service either by barges or rafts, even by motor or steam
vessels, between the banks of a river or stream to continue the highway which is
interrupted by the body of water, or in some cases to connect two points on opposite
shores of an arm of the sea such as bay or lake which does not involve too great a
distance or too long a time to navigate But where the line or service involves crossing
the open sea like the body of water between the province of Batangas and the island of
Mindoro which the oppositors describe thus "the intervening waters between
Calapan and Batangas are wide and dangerous with big waves where small boat
barge, or raft are not adapted to the service," then it is more reasonable to
regard said line or service as more properly belonging to interisland or coastwise
trade. According to the finding of the Commission itself the distance between
Calapan is about 24 nautical miles or about 44.5 kilometers. We do not believe that
this is the short distance contemplated by the Legislature in referring to ferries
whether within the jurisdiction of a single municipality or ferries between two
municipalities or provinces. If we are to grant that water transportation between
Calapan and Batangas is ferry service, then there would be no reason for not
considering the same service between the different islands of the Philippines, such
as Boac Marinduque and Batangas; Roxas City of Capiz and Romblon; Cebu City,
Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao; and Dumaguete, Negros
Oriental and Oroquieta or Cagayan de Oro.
The Commission makes the distinction between ferry service and motorship in the
coastwise trade, thus:
A ferry service is distinguished from a motorship or motorboat service engaged in
the coastwise trade in that the latter is intended for the transportation of
passengers and/or freight for hire or compensation between ports or places in the
Philippines without definite routes or lines of service.
We cannot agree. The definiteness of the route of a boat is not the deciding factor. A
boat of say the William Lines, Inc. goes from Manila to Davao City via Cebu,
Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite route, and yet it
may not for that reason be regarded as engaged in ferry service. Again, a vessel of
the Compania Maritima makes the trip from Manila to Tacloban and back, twice a
week. Certainly, it has a definite route. But that service is not ferry service, but
rather interisland or coastwise trade.
We believe that it will be more in consonance with the spirit of the law to consider
steamboat or motorboat service between the different islands, involving more or less
great distance and over more or less turbulent and dangerous waters of the open sea,
to be coastwise or inter-island service. Anyway, whether said service between the
different islands is regarded as ferry service or coastwise trade service, as long as
the water craft used are steamboats, motorboats or motor vessels, the result will be
the same as far as the Commission is concerned. " 18 (Emphasis supplied)
This Court takes judicial notice of the fact, and as shown by an examination of the map of the
Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province
of Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San
Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance
between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in
about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As the
San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be
choppy and rough so that it will not be safe to navigate the same by small boats or barges but only by
such steamboats or vessels as the MV "Black Double. 19
Considering the environmental circumstances of the case, the conveyance of passengers, trucks and
cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland
shipping service. Under no circumstance can the sea between Matnog and Allen be considered a
continuation of the highway. While a ferry boat service has been considered as a continuation of the
highway when crossing rivers or even lakes, which are small body of waters - separating the land,
however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it
can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a
separate CPC for the operation of an interisland or coastwise shipping service in accordance with the
provisions of law. Its CPC as a bus transportation cannot be merely amended to include this water
service under the guise that it is a mere private ferry service.
operating the ferryboat service and/or coastwise/interisland services between Matnog and Allen
until it shall have secured the appropriate Certificate of Public Convenience (CPC) in accordance
with the requirements of the law, with costs against respondent PANTRANCO.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.

The contention of private respondent PANTRANCO that its ferry service operation is as a private
carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo
trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the
charges for the bus trips and issues separate tickets whenever they board the MV "Black Double"
that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers
it did so as a private carrier and not as a common carrier. The Court does not see any reason why
inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in
passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to
this effect has been submitted. 21 What is even more difficult to comprehend is that while in one
breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is
concerned, in another breath it states that it does not thereby abdicate from its obligation as a
common carrier to observe extraordinary diligence and vigilance in the transportation of its
passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to
operate a private ferry, it can still assert that it cannot be held to account as a common carrier
towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and
interests of its passengers and the cargo owners cannot be allowed.

What appears clear from the record is that at the beginning PANTRANCO planned to operate such
ferry boat service between Matnog and Alien as a common carrier so it requested authority from
MARINA to purchase the vessel M/V "Black Double 22 in accordance with the procedure provided for
by law for such application for a certificate of public convenience. 23 However when its request was
denied as the said routes "are adequately serviced by existing/authorized operators, 24 it
nevertheless purchased the vessel and started operating the same. Obviously to go about this
obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a
private ferryboat service across a small body of water for the exclusive use of its buses, trucks and
passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City to
Tacloban so that it believes it need not secure a separate certificate of public convenience. 25 Based
on this representation, no less than the Secretary of Justice was led to render an affirmative opinion
on October 20, 1981, 26 followed a few days later by the questioned decision of public respondent of
October 23, 1981. 27 Certainly the Court cannot give its imprimatur to such a situation.
Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat
service but a coastwise or interisland shipping service. Before private respondent may be issued a
franchise or CPC for the operation of the said service as a common carrier, it must comply with the
usual requirements of filing an application, payment of the fees, publication, adducing evidence at a
hearing and affording the oppositors the opportunity to be heard, among others, as provided by
law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of
Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in
the same case denying the motions for reconsideration filed by petitioners are hereby Reversed and
set aside and declared null and void. Respondent PANTRANCO is hereby permanently enjoined from
Republic of the Philippines 5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
SUPREME COURT 6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive
Manila hours, Sundays and Holidays Included).
THIRD DIVISION 7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
G.R. No. 112287 December 12, 1997 9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not responsible
NATIONAL STEEL CORPORATION, petitioner, for losses/damages except on proven willful negligence of the officers of the vessel.
vs. 10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents. Charter Party Agreement shall form part of this Contract.
G.R. No. 112350 December 12, 1997 xxx xxx xxx
VLASONS SHIPPING, INC., petitioner, The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in the NANYOZAI
vs. Charter Party which stands for "Freight In and Out including Stevedoring and Trading", which means
COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents. that the handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under
Paragraph 5 of the NANYOZAI Charter Party, it states, "Charterers to load, stow and discharge the
PANGANIBAN, J.: cargo free of risk and expenses to owners. . . . (Emphasis supplied).
The Court finds occasion to apply the rules on the seaworthiness of private carrier, its owner's responsibility for Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the beginning of the
damage to the cargo and its liability for demurrage and attorney's fees. The Court also reiterates the well- voyage, exercise due diligence to make the vessel seaworthy and properly manned, equipped and
known rule that findings of facts of trial courts, when affirmed by the Court of Appeals, are binding on this supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe
Court. for its reception, carriage and preservation. Owners shall not be liable for loss of or damage of the
The Case cargo arising or resulting from: unseaworthiness unless caused by want of due diligence on the part of
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons Shipping, the owners to make the vessel seaworthy, and to secure that the vessel is properly manned, equipped
Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals. 1 The Court of Appeals and supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and
modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. safe for its reception, carriage and preservation; . . . ; perils, dangers and accidents of the sea or other
The RTC disposed as follows: navigable waters; . . . ; wastage in bulk or weight or any other loss or damage arising from inherent
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing defect, quality or vice of the cargo; insufficiency of packing; . . . ; latent defects not discoverable by due
the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the diligence; any other cause arising without the actual fault or privity of Owners or without the fault of
counterclaim as follows: the agents or servants of owners."
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be responsible
on both amounts from April 7, 1976 until the same shall have been fully paid; for split, chafing and/or any damage unless caused by the negligence or default of the master and
2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and crew."
3. Costs of suit. (2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV
SO ORDERED. 2 "VLASONS I" loaded at plaintiffs pier at Iligan City, the NSC's shipment of 1,677 skids of tinplates and
On the other hand, the Court of Appeals ruled: 92 packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19
WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for metric tons for carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief
demurrage to P44,000.00 and deleting the award for attorney's fees and expenses of litigation. Except Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board and
as thus modified, the decision is AFFIRMED. There is no pronouncement as to costs. signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit "D") on August 8, 1974.
SO ORDERED. 3 (3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The
The Facts following day, August 13, 1974, when the vessel's three (3) hatches containing the shipment were
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or shipment opened by plaintiff's agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found
for the general public. Its services are available only to specific persons who enter into a special contract of to be wet and rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer.
charter party with its owner. It is undisputed that the ship is a private carrier. And it is in the capacity that its Unloading was completed only on August 24, 1974 after incurring a delay of eleven (11) days due to
owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of voyage charter hire with the heavy rain which interrupted the unloading operations. (Exhibit "E")
National Steel Corporation. (4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the
The facts as found by Respondent Court of Appeals are as follows: shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons March 17, 1975 (Exhibit "G"), MASCO made a report of its ocular inspection conducted on the cargo,
Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit "B"; also Exhibit both while it was still on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa,
"1") whereby NSC hired VSI's vessel, the MV "VLASONS I" to make one (1) voyage to load steel Manila where the cargo was taken and stored. MASCO reported that it found wetting and rusting of the
products at Iligan City and discharge them at North Harbor, Manila, under the following terms and packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted
conditions, viz: torn at various extents; that container/metal casings of the skids were rusting all over. MASCO
1. . . . ventured the opinion that "rusting of the tinplates was caused by contact with SEA WATER sustained
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option. while still on board the vessel as a consequence of the heavy weather and rough seas encountered
3. . . . while en route to destination (Exhibit "F"). It was also reported that MASCO's surveyors drew at
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of Lading random samples of bad order packing materials of the tinplates and delivered the same to the M.I.T.
within fifteen (15) days. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report
No. 1770 (Exhibit "I") which in part, states, "The analysis of bad order samples of packing materials . . .
shows that wetting was caused by contact with SEA WATER".
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the
defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the
amount of P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim
but defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21,
1976 which was docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as
a result of the act, neglect and default of the master and crew in the management of the vessel as well
as the want of due diligence on the part of the defendant to make the vessel seaworthy and to make
the holds and all other parts of the vessel in which the cargo was carried, fit and safe for its reception,
carriage and preservation all in violation of defendant's undertaking under their Contract of Voyage
Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the MV "VLASONS I"
was seaworthy in all respects for the carriage of plaintiff's cargo; that said vessel was not a "common
carrier" inasmuch as she was under voyage charter contract with the plaintiff as charterer under the
charter party; that in the course of the voyage from Iligan City to Manila, the MV "VLASONS I"
encountered very rough seas, strong winds and adverse weather condition, causing strong winds and
big waves to continuously pound against the vessel and seawater to overflow on its deck and hatch
covers, that under the Contract of Voyage Charter Hire, defendant shall not be responsible for
losses/damages except on proven willful negligence of the officers of the vessel, that the officers of
said MV "VLASONS I" exercised due diligence and proper seamanship and were not willfully negligent;
that furthermore the Voyage Charter Party provides that loading and discharging of the cargo was on
FIOST terms which means that the vessel was free of risk and expense in connection with the loading
and discharging of the cargo; that the damage, if any, was due to the inherent defect, quality or vice of
the cargo or to the insufficient packing thereof or to latent defect of the cargo not discoverable by due
diligence or to any other cause arising without the actual fault or privity of defendant and without the
fault of the agents or servants of defendant; consequently, defendant is not liable; that the stevedores
of plaintiff who discharged the cargo in Manila were negligent and did not exercise due care in the
discharge of the cargo; land that the cargo was exposed to rain and seawater spray while on the pier or
in transit from the pier to plaintiff's warehouse after discharge from the vessel; and that plaintiff's
claim was highly speculative and grossly exaggerated and that the small stain marks or sweat marks
on the edges of the tinplates were magnified and considered total loss of the cargo. Finally, defendant
claimed that it had complied with all its duties and obligations under the Voyage Charter Hire Contract
and had no responsibility whatsoever to plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations
under the Voyage Charter Hire Contract, plaintiff failed and refused to pay the
agreed charter hire of P75,000.00 despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay
defendant the sum of P8,000.00 per day for demurrage. The vessel was on
demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its cargo
from the vessel. Thus, plaintiff was liable to pay defendant demurrage in the total
amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be
ordered to pay defendant attorney's fees and all expenses of litigation in the
amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following findings
which were set forth in its decision:
(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in the tramping
service and is available for hire only under special contracts of charter party as in
this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire
(Exh. "1"), the MV VLASONS I" was covered by the required seaworthiness
certificates including the Certification of Classification issued by an international
classification society, the NIPPON KAIJI KYOKAI (Exh. "4"); Coastwise License from
the Board of Transportation (Exh. "5"); International Loadline Certificate from the
Philippine Coast Guard (Exh. "6"); Cargo Ship Safety Equipment Certificate also
from the Philippine Coast Guard (Exh. "7"); Ship Radio Station License (Exh. "8");
Certificate of Inspection by the Philippine Coast Guard (Exh. "12"); and Certificate
of Approval for Conversion issued by the Bureau of Customs (Exh. "9"). That being a
vessel engaged in both overseas and coastwise trade, the MV "VLASONS I" has a
higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the
Contract of Voyage Charter Hire, the MV "VLASONS I" underwent drydocking in
Cebu and was thoroughly inspected by the Philippine Coast Guard. In fact, subject
voyage was the vessel's first voyage after the drydocking. The evidence shows that
the MV "VLASONS I" was seaworthy and properly manned, equipped and supplied
when it undertook the voyage. It has all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The
hatch openings were covered by hatchboards which were in turn covered by two or
double tarpaulins. The hatch covers were water tight. Furthermore, under the
hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not
supported by evidence. The provisions of the Civil Code on common carriers
pursuant to which there exists a presumption of negligence in case of loss or
damage to the cargo are not applicable. As to the damage to the tinplates which was
allegedly due to the wetting and rusting thereof, there is unrebutted testimony of
witness Vicente Angliongto that tinplates "sweat" by themselves when packed even
without being in contract (sic) with water from outside especially when the
weather is bad or raining. The trust caused by sweat or moisture on the tinplates
may be considered as a loss or damage but then, defendant cannot be held liable for
it pursuant to Article 1734 of the Civil Case which exempts the carrier from
responsibility for loss or damage arising from the "character of the goods . . ." All
the 1,769 skids of the tinplates could not have been damaged by water as claimed
by plaintiff. It was shown as claimed by plaintiff that the tinplates themselves were
wrapped in kraft paper lining and corrugated cardboards could not be affected by
water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were
negligent in not closing the hatch openings of the MV "VLASONS I" when rains
occurred during the discharging of the cargo thus allowing rainwater to enter the
hatches. It was proven that the stevedores merely set up temporary tents to cover
the hatch openings in case of rain so that it would be easy for them to resume work
when the rains stopped by just removing the tent or canvas. Because of this
improper covering of the hatches by the stevedores during the discharging and
unloading operations which were interrupted by rains, rainwater drifted into the
cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic]
Charter Party which was expressly made part of the Contract of Voyage Charter
Hire, the loading, stowing and discharging of the cargo is the sole responsibility of
the plaintiff charterer and defendant carrier has no liability for whatever damage
may occur or maybe [sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather
while en route from Iligan City to Manila causing sea water to splash on the ship's
deck on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a
"Marine Protest" on August 13, 1974 (Exh. "15"); which can be invoked by
defendant as a force majeure that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the
Voyage Charter Hire contract that it was to insure the cargo because it did not. Had
plaintiff complied with the requirement, then it could have recovered its loss or
 damage from the insurer. Plaintiff also violated the charter party contract when it
loaded not only "steel products", i.e. steel bars, angular bars and the like but also
tinplates and hot rolled sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship grade cargo at a lower freight rate.
(i) As regards defendant's counterclaim, the contract of voyage charter hire under
Paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant
carrier upon presentation of the bill of lading within fifteen (15) days. Plaintiff has
not paid the total freight due of P75,000.00 despite demands. The evidence also
showed that the plaintiff was required and bound under paragraph 7 of the same
Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the
unloading of the cargoes. The delay amounted to eleven (11) days thereby making
plaintiff liable to pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I The Court's Ruling
The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly manned, equipped
and supplied, and that there is no proof of willful negligence of the vessel's officers.
II
The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent nature or
character of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of
NSC's shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V carriage is undertaken by special agreement and the carrier does not hold himself out to carry goods for the
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to VSI. 4
As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage from
P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of litigation. NSC and VSI filed
separate motions for reconsideration. In a Resolution 5 dated October 20, 1993, the appellate court denied both
motions. Undaunted, NSC and VSI filed their respective petitions for review before this Court. On motion of VSI,
the Court ordered on February 14, 1994 the consolidation of these petitions. 6
The Issues
In its petition 7 and memorandum, 8 NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused
by weather interruption;
2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7", "8", "9", "11"
and "12") were admissible in evidence and constituted evidence of the vessel's seaworthiness at the
beginning of the voyages; and
3. Whether or not a charterer's failure to insure its cargo exempts the shipowner from liability for
cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in handling and caring for NSC's cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted on their
own; and
4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of NSC's
tinplates.
In its separate petition, 9 VSI submits for the consideration of this Court the following alleged errors of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage
from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for
attorney's fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum: 10
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to
which there exist[s] a presumption of negligence against the common carrier in case of loss or damage
to the cargo are applicable to a private carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the
Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the following headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a private
carrier. The resolution of this preliminary question determines the law, standard of diligence and burden of
proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public." It has been held that the true test of a common carrier is the carriage of
passengers or goods, provided it has space, for all who opt to avail themselves of its transportation service for a
fee.11 A carrier which does not qualify under the above test is deemed a private carrier. "Generally, private
general public. The most typical, although not the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner, obtains the use and service of all or some
part of a ship for a period of time or a voyage or voyages." 12
In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the
Regional Trial Court, it carried passengers or goods only for those it chose under a "special contract of charter
party." 13 As correctly concluded by the Court of Appeals, the MV Vlasons I "was not a common but a private
carrier." 14 Consequently, the rights and obligations of VSI and NSC, including their respective liability for
damage to the cargo, are determined primarily by stipulations in their contract of private carriage or charter
party. 15 Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers
Shipping Corporation, 16 the Court ruled:
. . . in a contract of private carriage, the parties may freely stipulate their duties and obligations which
perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage
does not involve the general public. Hence, the stringent provisions of the Civil Code on common
carriers protecting the general public cannot justifiably be applied to a ship transporting commercial
goods as a private carrier. Consequently, the public policy embodied therein is not contravened by
stipulations in a charter party that lessen or remove the protection given by law in contracts involving
common carriers. 17
Extent of VSI's Responsibility and
Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI "shall not be
responsible for losses except on proven willful negligence of the officers of the vessel." The NANYOZAI Charter
Party, which was incorporated in the parties' contract of transportation further provided that the shipowner
shall not be liable for loss of or a damage to the cargo arising or resulting from unseaworthiness, unless the
same was caused by its lack of due diligence to make the vessel seaworthy or to ensure that the same was
"properly manned, equipped and supplied," and to "make the holds and all other parts of the vessel in which
cargo [was] carried, fit and safe for its reception, carriage and preservation." 18 The NANYOZAI Charter Party
also provided that "[o]wners shall not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew." 19
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment was
caused by VSI's willful negligence or failure to exercise due diligence in making MV Vlasons I seaworthy and fit
for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by the
parties' agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not
been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due to
fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for the account
and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his
omission to take the precautions usually adopted by careful persons, unless the shipper committed
fraud in the bill of lading, making him to believe that the goods were of a class or quality different from
what they really were.
Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by the foregoing
provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places the prima
faciepresumption of negligence on a common carrier. It is a hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to
prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged
while in the carrier's custody does not put the burden of proof on the carrier.
Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the protection
of the goods committed to its care, the burden of proving negligence or a breach of that duty rests on
plaintiff and proof of loss of, or damage to, cargo while in the carrier's possession does not cast on it
the burden of proving proper care and diligence on its part or that the loss occurred from an excepted
cause in the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled
to the benefit of the presumptions and inferences by which the law aids the bailor in an action against
a bailee, and since the carrier is in a better position to know the cause of the loss and that it was not
one involving its liability, the law requires that it come forward with the information available to it,
and its failure to do so warrants an inference or presumption of its liability. However, such inferences
and presumptions, while they may affect the burden of coming forward with evidence, do not alter the
burden of proof which remains on plaintiff, and, where the carrier comes forward with evidence
explaining the loss or damage, the burden of going forward with the evidence is again on plaintiff.
Where the action is based on the shipowner's warranty of seaworthiness, the burden of proving a
breach thereof and that such breach was the proximate cause of the damage rests on plaintiff, and
proof that the goods were lost or damaged while in the carrier's possession does not cast on it the
burden of proving seaworthiness. . . . Where the contract of carriage exempts the carrier from liability
for unseaworthiness not discoverable by due diligence, the carrier has the preliminary burden of
proving the exercise of due diligence to make the vessel seaworthy. 20
In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct position in relation
to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12
of the NANYOZAI Charter Party (incidentally plaintiff-appellant's [NSC's] interpretation of Clause 12 is not even
correct), it argues that 'a careful examination of the evidence will show that VSI miserably failed to comply with
any of these obligation's as if defendant-appellee [VSI] had the burden of
proof." 21
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1) whether
VSI exercised due diligence in making MV Vlasons I seaworthy for the intended purpose under the charter party;
(2) whether the damage to the cargo should be attributed to the willful negligence of the officers and crew of
the vessel or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates was caused by its own
"sweat" or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand opportunity to
hear the parties' conflicting claims and to carefully weigh their respective evidence. The findings of the trial
court were subsequently affirmed by the Court of Appeals. Where the factual findings of both the trial court and
the Court of Appeals coincide, the same are binding on this Court. 22 We stress that, subject to some exceptional
instances, 23 only questions of law not questions of fact may be raised before this Court in a petition for
review under Rule 45 of the Rules of Court. After a thorough review of the case at bar, we find no reason to
disturb the lower court's factual findings, as indeed NSC has not successfully proven the application of any of
the aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for the
carriage of NSC's cargo of steel and tinplates. This is shown by the fact that it was drylocked and inspected by
the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under the contract of
voyage charter hire. 24The vessel's voyage from Iligan to Manila was the vessel's first voyage after drydocking.
The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted and equipped; it met all requirements
for trading as cargo vessel. 25 The Court of Appeals itself sustained the conclusion of the trial court that MV
Vlasons I was seaworthy. We find no reason to modify or reverse this finding of both the trial and the appellate
courts.
Who Were Negligent:
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the negligence
of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the carriage of tinplates.
NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas to cover
the hatches through which the cargo was loaded into the cargo hold of the ship. It faults the Court of Appeals for
failing to consider such claim as an "uncontroverted fact" 26 and denies that MV Vlasons I "was equipped with
new canvas covers in tandem with the old ones as indicated in the Marine Protest . . ." 27 We disagree.
The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in addition to the
new one used primarily to make the ship's hatches watertight. The foregoing are clear from the marine protest
of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ship's boatswain, Jose Pascua.
The salient portions of said marine protest read:
. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8, 1974, loaded with
approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that
before departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or about
August 9, 1974, while in the vicinity of the western part of Negros and Panay, we encountered very
rough seas and strong winds and Manila office was advised by telegram of the adverse weather
conditions encountered; that in the morning of August 10, 1974, the weather condition changed to
worse and strong winds and big waves continued pounding the vessel at her port side causing sea
water to overflow on deck andhatch (sic) covers and which caused the first layer of the canvass
covering to give way while the new canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro; that we
re-secured the canvass covering back to position; that in the afternoon of August 10, 1974, while
entering Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while
approaching Fortune Island, we encountered again rough seas, strong winds and big waves which
caused the same canvass to give way and leaving the new canvass holding on;
xxx xxx xxx 28
And the relevant portions of Jose Pascua's deposition are as follows:
q What is the purpose of the canvas cover?
a So that the cargo would not be soaked with water.
q And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
a It was placed flat on top of the hatch cover, with a little canvas flowing over the
sides and we place[d] a flat bar over the canvas on the side of the hatches and then
we place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
q And will you tell us the size of the hatch opening? The length and the width of the
hatch opening.
 a Forty-five feet by thirty-five feet, sir. Q In connection with these cargoes which were unloaded, where is the place.
xxx xxx xxx A At the Pier.
q How was the canvas supported in the middle of the hatch opening? Q What was used to protect the same from weather?
a There is a hatch board. ATTY LOPEZ:
ATTY DEL ROSARIO We object, your Honor, this question was already asked. This particular matter . . .
q What is the hatch board made of? the transcript of stenographic notes shows the same was covered in the direct
a It is made of wood, with a handle. examination.
q And aside from the hatch board, is there any other material there to cover the ATTY ZAMORA:
hatch? Precisely, your Honor, we would like to go on detail, this is the serious part of the
a There is a beam supporting the hatch board. testimony.
q What is this beam made of? COURT:
a It is made of steel, sir. All right, witness may answer.
q Is the beam that was placed in the hatch opening covering the whole hatch ATTY LOPEZ:
opening? Q What was used in order to protect the cargo from the weather?
a No, sir. A A base of canvas was used as cover on top of the tin plates, and tents were built at
q How many hatch beams were there placed across the opening? the opening of the hatches.
a There are five beams in one hatch opening. Q You also stated that the hatches were already opened and that there were tents
ATTY DEL ROSARIO constructed at the opening of the hatches to protect the cargo from the rain. Now,
q And on top of the beams you said there is a hatch board. How many pieces of will you describe [to] the Court the tents constructed.
wood are put on top? A The tents are just a base of canvas which look like a tent of an Indian camp
a Plenty, sir, because there are several pieces on top of the hatch beam. raise[d] high at the middle with the whole side separated down to the hatch, the
q And is there a space between the hatch boards? size of the hatch and it is soaks [sic] at the middle because of those weather and this
a There is none, sir. can be used only to temporarily protect the cargo from getting wet by rains.
q They are tight together? Q Now, is this procedure adopted by the stevedores of covering tents proper?
a Yes, sir. A No, sir, at the time they were discharging the cargo, there was a typhoon passing by
q How tight? and the hatch tent was not good enough to hold all of it to prevent the water soaking
a Very tight, sir. through the canvass and enter the cargo.
q Now, on top of the hatch boards, according to you, is the canvass cover. How Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water
many canvas covers? enter and soak into the canvass and tinplates.
a Two, sir. 29 A Yes, sir, the second time I went there, I saw it.
Q As owner of the vessel, did you not advise the National Steel Corporation [of] the
That due diligence was exercised by the officers and the crew of the MV Vlasons I was further demonstrated by procedure adopted by its stevedores in discharging the cargo particularly in this
the fact that, despite encountering rough weather twice, the new tarpaulin did not give way and the ship's tent covering of the hatches?
hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals, ". . . we find no reason A Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
not to sustain the conclusion of the lower court based on overwhelming evidence, that the MV 'VLASONS I' was stevedores did not mind at all, so, called the attention of the representative of the
seaworthy when it undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-appellant's National Steel but nothing was done, just the same. Finally, I wrote a letter to
shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from NSC's them. 31
pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; . . . 30 NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately about
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew of MV the stevedores' negligence on the first day of unloading, pointing out that he wrote his letter to petitioner only
Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent in unloading seven days later. 32 The Court is not persuaded. Angliongto's candid answer in his aforequoted testimony
the cargo from the ship. satisfactorily explained the delay. Seven days lapsed because he first called the attention of the stevedores, then
The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a the NSC's representative, about the negligent and defective procedure adopted in unloading the cargo. This
passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly inadequate series of actions constitutes a reasonable response in accord with common sense and ordinary human
for keeping rain and seawater away from the hatches of the ship. Vicente Angliongto, an officer of VSI, testified experience. Vicente Angliongto could not be blamed for calling the stevedores' attention first and then the NSC's
thus: representative on location before formally informing NSC of the negligence he had observed, because he was
ATTY ZAMORA: not responsible for the stevedores or the unloading operations. In fact, he was merely expressing concern for
Q Now, during your testimony on November 5, 1979, you stated on August 14 you NSC which was ultimately responsible for the stevedores it had hired and the performance of their task to
went on board the vessel upon notice from the National Steel Corporation in order unload the cargo.
to conduct the inspection of the cargo. During the course of the investigation, did We see no reason to reverse the trial and the appellate courts' findings and conclusions on this point, viz:
you chance to see the discharging operation? In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired
WITNESS: by NSC were negligent in the unloading of NSC's shipment. We do not think so. Such negligence
A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already according to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV
discharged on the pier but majority of the tinplates were inside the hall, all the 'VLASONS I' when rains occurred during the discharging of the cargo thus allowing rain water and
hatches were opened. seawater spray to enter the hatches and to drift to and fall on the cargo. It was proven that the
 stevedores merely set up temporary tents or canvas to cover the hatch openings when it rained during
the unloading operations so that it would be easier for them to resume work after the rains stopped by
just removing said tents or canvass. It has also been shown that on August 20, 1974, VSI President
Vicente Angliongto wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were
discharging the cargo on rainy days and the improper closing of the hatches which allowed continuous
heavy rain water to leak through and drip to the tinplates' covers and [Vicente Angliongto] also
suggesting that due to four (4) days continuos rains with strong winds that the hatches be totally
closed down and covered with canvas and the hatch tents lowered. (Exh. "13"). This letter was
received by [NSC] on 22 August 1974 while discharging operations were still going on (Exhibit "13-
A"). 33
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable
weather will not make VSI liable for any damage caused thereby. In passing, it may be noted that the NSC may
seek indemnification, subject to the laws on prescription, from the stevedoring company at fault in the
discharge operations. "A stevedore company engaged in discharging cargo . . . has the duty to load the cargo . . .
in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its negligence . . . and where the
officers and members and crew of the vessel do nothing and have no responsibility in the discharge of cargo by
stevedores . . . the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the
stevedores . . ." 34 as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates 'sweat' by themselves
when packed even without being in contact with water from outside especially when the weather is bad or
raining . . ." 35 The Court of Appeals affirmed the trial court's finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the damage to the
tinplates was occasioned not by airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.
Second Issue: Effect of NSC's Failure to
Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally separate
and distinct from the contractual or statutory responsibility that may be incurred by VSI for damage to the
cargo caused by the willful negligence of the officers and the crew of MV Vlasons I. Clearly, therefore, NSC's
failure to insure the cargo will not affect its right, as owner and real party in interest, to file an action against VSI
for damages caused by the latter's willful negligence. We do not find anything in the charter party that would
make the liability of VSI for damage to the cargo contingent on or affected in any manner by NSC's obtaining an
insurance over the cargo.
Third Issue: Admissibility of Certificates
Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the
certificates of seaworthiness offered in evidence by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippines Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs 36
NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules of
Court. It points out that Exhibits 3, 4 and 11 allegedly are "not written records or acts of public officers"; while
Exhibits 5, 6, 7, 8, 9, 11 and 12 are not "evidenced by official publications or certified true copies" as required by
Sections 25 and 26, Rule 132, of the Rules of Court. 37
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are
inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by
private parties, but they have not been proven by one who saw the writing executed, or by evidence of the
genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits, 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per Section 44
of Rule 130 of the Rules of Court, which provides that "(e)ntries in official records made in the performance of a
duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law,
are prima facie evidence of the facts therein stated." 38 Exhibit 11 is an original certificate of the Philippine Coast
Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect that "the vessel 'VLASONS I' was
drydocked . . . and PCG Inspectors were sent on board for inspection . . . After completion of drydocking and duly
inspected by PCG Inspectors, the vessel 'VLASONS I', a cargo vessel, is in seaworthy condition, meets all
requirements, fitted and equipped for trading as a cargo vessel was cleared by the Philippine Coast Guard and
sailed for Cebu Port on July 10, 1974." (sic) NSC's claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was not seaworthy. As
observed earlier, the vessel was a private carrier and, as such, it did not have the obligation of a common carrier
to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the willful
negligence of VSI in making the ship seaworthy resulting in damage to its cargo. Assailing the genuineness of
the certificate of seaworthiness is not sufficient proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option.
xxx xxx xxx
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day. 39
The Court defined demurrage in its strict sense as the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for loading and
unloading of cargo.40 It is given to compensate the shipowner for the nonuse of the vessel. On the other hand,
the following is well-settled:
Laytime runs according to the particular clause of the charter party. . . . If laytime is expressed in
"running days," this means days when the ship would be run continuously, and holidays are not
excepted. A qualification of "weather permitting" excepts only those days when bad weather
reasonably prevents the work contemplated. 41
In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as
WWDSHINC or weather working days Sundays and holidays included. 42 The running of laytime was thus made
subject to the weather, and would cease to run in the event unfavorable weather interfered with the unloading
of cargo. 43Consequently, NSC may not be held liable for demurrage as the four-day laytime allowed it did not
lapse, having been tolled by unfavorable weather condition in view of the WWDSHINC qualification agreed
upon by the parties. Clearly, it was error for the trial court and the Court of Appeals to have found and affirmed
respectively that NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this
erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only
day of unloading unhampered by unfavorable weather or rain, which was August 22, 1974. Based on our
previous discussion, such finding is a reversible error. As mentioned, the respondent appellate court also erred
in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by half.
Attorney's Fees
VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We disagree. While VSI
was compelled to litigate to protect its rights, such fact by itself will not justify an award of attorney's fees under
Article 2208 of the Civil Code when ". . . no sufficient showing of bad faith would be reflected in a party's
persistence in a case other than an erroneous conviction of the righteousness of his cause . . ." 44 Moreover,
attorney's fees may not be awarded to a party for the reason alone that the judgment rendered was favorable to
the latter, as this is tantamount to imposing a premium on one's right to litigate or seek judicial redress of
legitimate grievances. 45
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the cargo?
Ranged against NSC are two formidable truths. First, both lower courts found that such damage was brought
about during the unloading process when rain and seawater seeped through the cargo due to the fault or
negligence of the stevedores employed by it. Basic is the rule that factual findings of the trial court, when
affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are settled exceptions, NSC
has not satisfactorily shown that this case is one of them. Second, the agreement between the parties the
Contract of Voyage Charter Hire placed the burden of proof for such loss or damage upon the shipper, not
upon the shipowner. Such stipulation, while disadvantageous to NSC, is valid because the parties entered into a
contract of private charter, not one of common carriage. Basic too is the doctrine that courts cannot relieve a
parry from the effects of a private contract freely entered into, on the ground that it is allegedly one-sided or
unfair to the plaintiff. The charter party is a normal commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport price which is determined not only by the
actual costs but also by the risks and burdens assumed by the shipper in regard to possible loss or damage to
the cargo. In recognition of such factors, the parties even stipulated that the shipper should insure the cargo to
protect itself from the risks it undertook under the charter party. That NSC failed or neglected to protect itself
with such insurance should not adversely affect VSI, which had nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The questioned
Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.
SO ORDERED.
Narvasa, C.J., Romero, Melo and Francisco, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 101503 September 15, 1993
PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA, respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.
BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private one as
to negate the civil law presumption of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New York,
U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June 1974
aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK)
from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No.
KP-1 signed by the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the
Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner,
in Tokyo, Japan. 3Riders to the aforesaid charter-party starting from par. 16 to 40 were attached to the pre-
printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the
18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the
charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party
which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from National
Cargo Bureau inspector or substitute appointed by charterers for his account certifying the
vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned and
dried at the vessel's expense and the vessel to be presented clean for use in bulk to the
satisfaction of the inspector before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the
steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with steel
bonds. The hatches remained closed and tightly sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the use
of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which were
parked alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the
charter-partly (which provided for an F.I.O.S. clause). 6 The hatches remained open throughout the duration of
the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to
the consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the trucks
were made to pass through a weighing scale where they were individually weighed for the purpose of
ascertaining the net weight of the cargo. The port area was windy, certain portions of the route to the
warehouse were sandy and the weather was variable, raining occasionally while the discharge was in
progress. 8 The petitioner's warehouse was made of corrugated galvanized iron (GI) sheets, with an opening at
the front where the dump trucks entered and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI
sheets were placed in-between and alongside the trucks to contain spillages of the ferilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and
18th). 10A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI to
determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior to and after
discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a
shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was
contaminated with dirt. The same results were contained in a Certificate of Shortage/Damaged Cargo dated 18
July 1974 prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and about 23
M/T were rendered unfit for commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the
resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods
shipped and the diminution in value of that portion said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment because,
according to them, what they received was just a request for shortlanded certificate and not a formal claim, and
that this "request" was denied by them because they "had nothing to do with the discharge of the
shipment." 14 Hence, on 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila.
The defendant carrier argued that the strict public policy governing common carriers does not apply to them
because they have become private carriers by reason of the provisions of the charter-party. The court a
quo however sustained the claim of the plaintiff against the defendant carrier for the value of the goods lost or
damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed negligent in
case of loss or damage of the goods it contracts to transport, all that a shipper has to do in a
suit to recover for loss or damage is to show receipt by the carrier of the goods and to delivery
by it of less than what it received. After that, the burden of proving that the loss or damage was
due to any of the causes which exempt him from liability is shipted to the carrier, common or
private he may be. Even if the provisions of the charter-party aforequoted are deemed valid,
and the defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or negligence
on the part of the shipper or consignee in the loading, stowing, trimming and discharge of the
cargo. This they failed to do. By this omission, coupled with their failure to destroy the
presumption of negligence against them, the defendants are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the
value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private
respondent KKKK was a private carrier and not a common carrier by reason of the time charterer-party.
Accordingly, the Civil Code provisions on common carriers which set forth a presumption of negligence do not
find application in the case at bar. Thus
. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce
sufficient evidence to prove the negligence of the defendant carrier as alleged in its complaint.
It is an old and well settled rule that if the plaintiff, upon whom rests the burden of proving
his cause of action, fails to show in a satisfactory manner the facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or defense
(Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil.
202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of
action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was under
the impression that it did not have to establish defendant's negligence. Be that as it may,
contrary to the trial court's finding, the record of the instant case discloses ample evidence
showing that defendant carrier was not negligent in performing its obligation . .
. 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals.
Petitioner theorizes that the Home Insurance case has no bearing on the present controversy because the issue
raised therein is the validity of a stipulation in the charter-party delimiting the liability of the shipowner for loss
or damage to goods cause by want of due deligence on its part or that of its manager to make the vessel
seaworthy in all respects, and not whether the presumption of negligence provided under the Civil Code applies
only to common carriers and not to private carriers. 19 Petitioner further argues that since the possession and
control of the vessel remain with the shipowner, absent any stipulation to the contrary, such shipowner should
made liable for the negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the
presumption of negligence against respondent carrier, and instead shifting the onus probandi on the shipper to
show want of due deligence on the part of the carrier, when he was not even at hand to witness what transpired
during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason of
a charter-party; in the negative, whether the shipowner in the instant case was able to prove that he had
exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it
fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; 20 a contract of affreightment by which the owner of a ship
or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased by the owner in part or as a whole, to
carry goods for others; and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is
let to the charterer with a transfer to him of its entire command and possession and consequent control over its
navigation, including the master and the crew, who are his servants. Contract of affreightment may either be
time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein
the ship is leased for a single voyage. 22 In both cases, the charter-party provides for the hire of vessel only,
either for a determinate period of time or for a single or consecutive voyage, the shipowner to supply the ship's
stores, pay for the wages of the master and the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The
definition extends to carriers either by land, air or water which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for compensation as a public employment and not as a casual
occupation. The distinction between a "common or public carrier" and a "private or special carrier" lies in the
character of the business, such that if the undertaking is a single transaction, not a part of the general business
or occupation, although involving the carriage of goods for a fee, the person or corporation offering such service
is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business,
should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case of private
carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case
of loss, destruction or deterioration of the goods, common carriers are presumed to have been at fault or to
have acted negligently, and the burden of proving otherwise rests on them. 26 On the contrary, no such
presumption applies to private carriers, for whosoever alleges damage to or deterioration of the goods carried
has the onus of proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the
ship captain, its officers and compliment were under the employ of the shipowner and therefore continued to
be under its direct supervision and control. Hardly then can we charge the charterer, a stranger to the crew and
to the ship, with the duty of caring for his cargo when the charterer did not have any control of the means in
doing so. This is evident in the present case considering that the steering of the ship, the manning of the decks,
the determination of the course of the voyage and other technical incidents of maritime navigation were all
consigned to the officers and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or
portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a
time-charter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering
the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, supra, is
misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the charter-
party exempting the shipowners from liability for loss due to the negligence of its agent, and not the effects of a
special charter on common carriers. At any rate, the rule in the United States that a ship chartered by a single
shipper to carry special cargo is not a common carrier, 29 does not find application in our jurisdiction, for we
have observed that the growing concern for safety in the transportation of passengers and /or carriage of goods
by sea requires a more exacting interpretation of admiralty laws, more particularly, the rules governing
common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30
As a matter of principle, it is difficult to find a valid distinction between cases in which a ship
is used to convey the goods of one and of several persons. Where the ship herself is let to a
charterer, so that he takes over the charge and control of her, the case is different; the
shipowner is not then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or many. The master
and the crew are in each case his servants, the freighter in each case is usually without any
representative on board the ship; the same opportunities for fraud or collusion occur; and
the same difficulty in discovering the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee
should first prove the fact of shipment and its consequent loss or damage while the same was in the possession,
actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to prove that he has
exercised extraordinary diligence required by law or that the loss, damage or deterioration of the cargo was due
to fortuitous event, or some other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
faciepresumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the
Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the
fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After completing the
loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron lids,
then covered with three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the weight of the steel covers made it
impossible for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of
spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum"
docked at its berthing place, representatives of the consignee boarded, and in the presence of a representative
of the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and
inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of
the shipmates who were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by
the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was
confirmed by respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the instant case
discloses ample evidence showing that defendant carrier was not negligent in performing its
obligations. Particularly, the following testimonies of plaintiff-appellee's own witnesses
clearly show absence of negligence by the defendant carrier; that the hull of the vessel at the
time of the discharge of the cargo was sealed and nobody could open the same except in the
presence of the owner of the cargo and the representatives of the vessel (TSN, 20 July 1977,
p. 14); that the cover of the hatches was made of steel and it was overlaid with tarpaulins,
three layers of tarpaulins and therefore their contents were protected from the weather
(TSN, 5 April 1978, p. 24); and, that to open these hatches, the seals would have to be broken,
all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis supplied).

The period during which private respondent was to observe the degree of diligence required of it as a public
carrier began from the time the cargo was unconditionally placed in its charge after the vessel's holds were duly
inspected and passed scrutiny by the shipper, up to and until the vessel reached its destination and its hull was
reexamined by the consignee, but prior to unloading. This is clear from the limitation clause agreed upon by the
parties in the Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S., meaning,
that the loading, stowing, trimming and discharge of the cargo was to be done by the charterer, free from all risk
and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper
stowage only when the stowing is done by stevedores employed by him, and therefore under his control and
supervision, not when the same is done by the consignee or stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction
or deterioration of the goods if caused by the charterer of the goods or defects in the packaging or in the
containers. The Code of Commerce also provides that all losses and deterioration which the goods may suffer
during the transportation by reason of fortuitous event, force majeure, or the inherent defect of the goods, shall
be for the account and risk of the shipper, and that proof of these accidents is incumbent upon the
carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting from the preceding causes if
it is proved, as against him, that they arose through his negligence or by reason of his having failed to take the
precautions which usage has established among careful persons. 38
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries with
it the risk of loss or damage. More so, with a variable weather condition prevalent during its unloading, as was
the case at bar. This is a risk the shipper or the owner of the goods has to face. Clearly, respondent carrier has
sufficiently proved the inherent character of the goods which makes it highly vulnerable to deterioration; as
well as the inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was
adduced by the petitioner showing that the carrier was remise in the exercise of due diligence in order to
minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the trial
court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now Regional
Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.
Davide, Jr. and Quiason, JJ., concur.
Cruz, J., took no part.
Grio-Aquino, J., is on leave.

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

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

The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made
greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical effects of the
elements and the grimy condition of the various pieces of equipment used in transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the
vessel's holds during the voyage since the hull of the vessel was in good condition and her hatches were tightly
closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she was
chartered for. If there was loss or contamination of the cargo, it was more likely to have occurred while the
same was being transported from the ship to the dump trucks and finally to the consignee's warehouse. This
may be gleaned from the testimony of the marine and cargo surveyor of CSCI who supervised the unloading. He
explained that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just an
approximation or estimate made by them after the fertilizer was discharged from the vessel and segregated
from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It rained
from time to time at the harbor area while the cargo was being discharged according to the supply officer of PPI,
who also testified that it was windy at the waterfront and along the shoreline where the dump trucks passed
enroute to the consignee's warehouse.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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 right-hand 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
propioimplementation 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 1. Entry into and exit out of the industry. Following the Constitutional dictum against
devastated by the recent earthquake. monopoly, no franchise holder shall be permitted to maintain a monopoly on any route. A
In view of the foregoing considerations, the undersigned respectfully suggests that the minimum of two franchise holders shall be permitted to operate on any route.
implementation of the proposed fare range scheme this year be further studied and The requirements to grant a certificate to operate, or certificate of public convenience, shall
evaluated. be: proof of Filipino citizenship, financial capability, public need, and sufficient insurance
On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. (PBOAP) cover to protect the riding public.
filed an application for fare rate increase. An across-the-board increase of eight and a half centavos (P0.085) per In determining public need, the presumption of need for a service shall be deemed in favor of the
kilometer for all types of provincial buses with a minimum-maximum fare range of fifteen (15%) percent over applicant. The burden of proving that there is no need for a proposed service shall be with the
and below the proposed basic per kilometer fare rate, with the said minimum-maximum fare range applying oppositor(s).
only to ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per kilometer fare for In the interest of providing efficient public transport services, the use of the "prior operator"
aircon buses, was sought. and the "priority of filing" rules shall be discontinued. The route measured capacity test or
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board other similar tests of demand for vehicle/vessel fleet on any route shall be used only as a
increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the drop guide in weighing the merits of each franchise application and not as a limit to the services
in the expected price of diesel. offered.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that Where there are limitations in facilities, such as congested road space in urban areas, or at
the proposed rates were exorbitant and unreasonable and that the application contained no allegation on the airports and ports, the use of demand management measures in conformity with market
rate of return of the proposed increase in rates. principles may be considered.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in The right of an operator to leave the industry is recognized as a business decision, subject
accordance with the following schedule of fares on a straight computation method, viz: only to the filing of appropriate notice and following a phase-out period, to inform the public
AUTHORIZED FARES and to minimize disruption of services.
LUZON 2. Rate and Fare Setting. Freight rates shall be freed gradually from government
MIN. OF 5 KMS. SUCCEEDING KM. controls. Passenger fares shall also be deregulated, except for the lowest class of passenger
REGULAR P1.50 P0.37 service (normally third class passenger transport) for which the government will fix indicative
STUDENT P1.15 P0.28 or reference fares. Operators of particular services may fix their own fares within a range 15%
VISAYAS/MINDANAO above and below the indicative or reference rate.
REGULAR P1.60 P0.375 Where there is lack of effective competition for services, or on specific routes, or for the
STUDENT P1.20 P0.285 transport of particular commodities, maximum mandatory freight rates or passenger fares
FIRST CLASS (PER KM.) shall be set temporarily by the government pending actions to increase the level of
LUZON P0.385 competition.
VISAYAS/ For unserved or single operator routes, the government shall contract such services in the
MINDANAO P0.395 most advantageous terms to the public and the government, following public bids for the
PREMIERE CLASS (PER KM.) services. The advisability of bidding out the services or using other kinds of incentives on
LUZON P0.395 such routes shall be studied by the government.
VISAYAS/ 3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the
MINDANAO P0.405 government shall not engage in special financing and incentive programs, including direct
AIRCON (PER KM.) P0.415. 4 subsidies for fleet acquisition and expansion. Only when the market situation warrants
On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes government intervention shall programs of this type be considered. Existing programs shall
Prado issued Department Order No. be phased out gradually.
92-587 defining the policy framework on the regulation of transport services. The full text of the said order is The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the
reproduced below in view of the importance of the provisions contained therein: Maritime Industry Authority are hereby directed to submit to the Office of the Secretary,
WHEREAS, Executive Order No. 125 as amended, designates the Department of within forty-five (45) days of this Order, the detailed rules and procedures for the
Transportation and Communications (DOTC) as the primary policy, planning, regulating and Implementation of the policies herein set forth. In the formulation of such rules, the
implementing agency on transportation; concerned agencies shall be guided by the most recent studies on the subjects, such as the
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential
system, the transportation regulatory agencies under or attached to the DOTC have to Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate
harmonize their decisions and adopt a common philosophy and direction; Rationalization Study.
WHEREAS, the government proposes to build on the successful liberalization measures For the compliance of all concerned. (Emphasis ours)
pursued over the last five years and bring the transport sector nearer to a balanced longer On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications
term regulatory framework; Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following adoption of rules and procedures to implement above-quoted Department Order No. 92-587 that laid down
policies and principles in the economic regulation of land, air, and water transportation deregulation and other liberalization policies for the transport sector. Attached to the said memorandum was a
services are hereby adopted: 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 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 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.
Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 114222 April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of Transportation and
Communications, and EDSA LRT CORPORATION, LTD., respondents.
QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further
implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail
Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April 1992 Revised
and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate and
are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent
Secretary of the Department of Transportation and Communications (DOTC), while private respondent EDSA
LRT Corporation, Ltd. is a private corporation organized under the laws of Hongkong.
I was not the public bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in
Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan,
referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit system along
EDSA and alleviate the congestion and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu Levin to
DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation and
Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by President
Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of government
projects through private initiative and investment: Build-Operate-Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on
January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively creating
the Prequalification Bids and Awards Committee (PBAC) and the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing and
implementation of the project The notice, advertising the prequalification of bidders, was published in three
newspapers of general circulation once a week for three consecutive weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to April 1,
1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell Holdings Ltd. of
Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium,
composed of ten foreign and domestic corporations: namely, Kaiser Engineers International, Inc., ACER
Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics,
TCGI Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc.,
A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed by the
Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as follows: (a) Legal
aspects 10 percent; (b) Management/Organizational capability 30 percent; and (c) Financial capability portion to DOTC which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated
30 percent; and (d) Technical capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementation Rules
and Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring that of the
five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points per
criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points" (Rollo, p.
146). The Legal Aspects referred to provided that the BOT/BT contractor-applicant meet the requirements
specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and was
replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated May 31,
1991 and June 14, 1991, respectively recommending the award of the EDSA LRT III project to the sole
complying bidder, the EDSA LRT Consortium, and requesting for authority to negotiate with the said firm for
the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp.
298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the DOTC
to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid proposal to
DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT
Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary Orbos,
informed Secretary Prado that the President could not grant the requested approval for the following reasons:
(1) that DOTC failed to conduct actual public bidding in compliance with Section 5 of the BOT Law; (2) that the
law authorized public bidding as the only mode to award BOT projects, and the prequalification proceedings
Regulations of the BOT Law which authorized negotiated award of contract in addition to public bidding was of
doubtful legality; and (4) that congressional approval of the list of priority projects under the BOT or BT Scheme
provided in the law had not yet been granted at the time the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated the
agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are] cognizant of the
fact the DOTC has full authority to sign the Agreement without need of approval by the President pursuant to
the provisions of Executive Order No. 380 and that certain events [had] supervened since November 7, 1991
which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by
Secretary Jesus Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to
the 22 April 1992 Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for
EDSA" so as to "clarify their respective rights and responsibilities" and to submit [the] Supplemental Agreement
to the President, of the Philippines for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and approval.
In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak Federal
Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year to be
achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III will run at grade, or street level,
on the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to North Avenue,
Quezon City. The system will have its own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p.
55). It will also have thirteen (13) passenger stations and one depot in 16-hectare government property at
North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete operational light rail
transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is 1,080 days or
approximately three years from the implementation date of the contract inclusive of mobilization, site works,
initial and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial
completion and viability thereof, private respondent shall deliver the use and possession of the completed
Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a monthly basis
through an Irrevocable Letter of Credit. The rentals shall be determined by an independent and internationally
accredited inspection firm to be appointed by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As
agreed upon, private respondent's capital shall be recovered from the rentals to be paid by the DOTC which, in
turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p.
54). After 25 years and DOTC shall have completed payment of the rentals, ownership of the project shall be
transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo,
p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled "An Act
Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private
Sector, and for Other Purposes" was signed into law by the President. The law was published in two
newspapers of general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28, 1994. The
law expressly recognizes BLT scheme and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL
AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A
FOREIGN CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES
THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT
DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND
REGULATIONS AND, HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957
AND, HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION,
LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND
REGULATIONS OF THE BOT LAW AND, HENCE, IS ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR
PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo,
pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not apply to private
respondent;
(5) The Agreements executed by and between respondents have been approved by President Ramos and are
not disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is allowed by
the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718 passed by the
Legislature On May 12, 1994, which provides for direct negotiation as a mode of award of infrastructure
projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners, however,
countered that the action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the
national government or government-owned or controlled corporations allegedly in contravention of the law
(Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal contracts
are involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and
uphold the legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by
the Constitution to Filipino citizens and domestic corporations, not foreign corporations like
private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT
Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent not
through public bidding which is the only mode of awarding infrastructure projects under the
BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III was
awarded by public respondent, is admittedly a foreign corporation "duly incorporated and existing under the
laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT III is constructed, private
respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the system and pay rentals for
said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a
public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks, rolling
stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a franchise is
needed to operate these facilities to serve the public, they do not by themselves constitute a public utility. What
constitutes a public utility is not their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v.
Public Service Board, 44 Phil. 551, 557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it
does not require a franchise before one can own the facilities needed to operate a public utility so long as it does
not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is
owned by such citizens, nor shall such franchise, certificate or authorization be exclusive
character or for a longer period than fifty years . . . (Emphasis supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the facilities
and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely
subjected to his will in everything not prohibited by law or the concurrence with the rights of another
(Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be operated
and used to serve the public as a public utility unless the operator has a franchise. The operation of a rail system
as a public utility includes the transportation of passengers from one point to another point, their loading and
unloading at designated places and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R.
Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R.
Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the facilities
thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a
public utility without owning the facilities used to serve the public. The devotion of property to serve the public
may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to serve the
public can be very well appreciated when we consider the transportation industry. Enfranchised airline and
shipping companies may lease their aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it admits that it is
not enfranchised to operate a public utility (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of
this incapacity, private respondent and DOTC agreed that on completion date, private respondent will
immediately deliver possession of the LRT system by way of lease for 25 years, during which period DOTC shall
operate the same as a common carrier and private respondent shall provide technical maintenance and repair
services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical
maintenance consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for
routine clearing and security; and (2) producing and distributing maintenance manuals and drawings for the
entire system (Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance and
repair of the rolling stock, power plant, substations, electrical, signaling, communications and all other
equipment as supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training
consists of theoretical and live training of DOTC operational personnel which includes actual driving of light rail
vehicles under simulated operating conditions, control of operations, dealing with emergencies, collection,
counting and securing cash from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-
3). Personnel of DOTC will work under the direction and control of private respondent only during training
(Revised and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon
completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in their employ
personnel capable of undertaking training of all new and replacement personnel (Revised and Restated
Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction period and upon
commencement of normal revenue operation, DOTC shall be able to operate the EDSA LRT III on its own and
train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes the project cost,
cost of replacement of plant equipment and spare parts, investment and financing cost, plus a reasonable rate of
return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common carrier.
For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses, damages,
injuries or death which may be claimed in the operation or implementation of the system, except losses,
damages, injury or death due to defects in the EDSA LRT III on account of the defective condition of equipment
or facilities or the defective maintenance of such equipment facilities (Revised and Restated Agreement, Secs.
12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have
no dealings with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be distinguished
from the role of the Philippine Gaming Management Corporation (PGMC) in the case of Kilosbayan Inc. v.
Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC and the Philippine Charity
Sweepstakes Office (PCSO) was actually a collaboration or joint venture agreement prescribed under the
charter of the PCSO. In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all
the facilities necessary to operate and maintain a nationwide on-line lottery system from whom PCSO was to
lease the facilities and operate the same. Upon due examination of the contract, the Court found that PGMC's
participation was not confined to the construction and setting up of the on-line lottery system. It spilled over to
the actual operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the
highly technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which
actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence and
W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of Wisconsin,
205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S.
434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply
cars under contract to railroad companies considered as public utilities (Crystal Car Line v. State Tax
Commission, 174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as one
operating a public utility. The moment for determining the requisite Filipino nationality is when the entity
applies for a franchise, certificate or any other form of authorization for that purpose (People v. Quasha, 93 Phil.
333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized in the BOT
Law and its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A contractual arrangement whereby the contractor
undertakes the construction including financing, of a given infrastructure facility, and the
operation and maintenance thereof. The contractor operates the facility over a fixed term
during which it is allowed to charge facility users appropriate tolls, fees, rentals and charges
sufficient to enable the contractor to recover its operating and maintenance expenses and its
investment in the project plus a reasonable rate of return thereon. The contractor transfers
the facility to the government agency or local government unit concerned at the end of the
fixed term which shall not exceed fifty (50) years. For the construction stage, the contractor
may obtain financing from foreign and/or domestic sources and/or engage the services of a
foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of the
contractor of an infrastructure facility whose operation requires a public utility franchise must
be in accordance with the Constitution: Provided, however, That in the case of corporate
investors in the build-operate-and-transfer corporation, the citizenship of each stockholder
in the corporate investors shall be the basis for the computation of Filipino equity in the said
corporation: Provided, further, That, in the case of foreign constructors [sic], Filipino labor
shall be employed or hired in the different phases of the construction where Filipino skills
are available: Provided, furthermore, that the financing of a foreign or foreign-controlled
contractor from Philippine government financing institutions shall not exceed twenty
percent (20%) of the total cost of the infrastructure facility or project: Provided, finally, That
financing from foreign sources shall not require a guarantee by the Government or by
government-owned or controlled corporations. The build-operate-and-transfer scheme shall
include a supply-and-operate situation which is a contractual agreement whereby the
supplier of equipment and machinery for a given infrastructure facility, if the interest of the
Government so requires, operates the facility providing in the process technology transfer
and training to Filipino nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby the contractor
undertakes the construction including financing, of a given infrastructure facility, and its
turnover after completion to the government agency or local government unit concerned
which shall pay the contractor its total investment expended on the project, plus a
reasonable rate of return thereon. This arrangement may be employed in the construction of
any infrastructure project including critical facilities which for security or strategic reasons,
must be operated directly by the government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing in
infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed
period during which it may recover its expenses and investment in the project plus a reasonable rate of return
thereon. After the expiration of the agreed term, the contractor transfers the ownership and operation of the
project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after completion,
the ownership and operation thereof are turned over to the government. The government, in turn, shall pay the
contractor its total investment on the project in addition to a reasonable rate of return. If payment is to be
effected through amortization payments by the government infrastructure agency or local government unit
concerned, this shall be made in accordance with a scheme proposed in the bid and incorporated in the contract
(R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with
the citizenship requirement of the Constitution on the operation of a public utility. No such a requirement is
imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the payment
by the government of the project cost. The law must not be read in such a way as to rule out or unduly restrict
any variation within the context of the two schemes. Indeed, no statute can be enacted to anticipate and provide
all the fine points and details for the multifarious and complex situations that may be encountered in enforcing
the law (Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United
States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by
allowing it to amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis
according to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter of
Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment shall have
been made to and received by private respondent, it shall transfer to DOTC, free from any lien or encumbrances,
all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1;
Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a thing for
a certain price and for a period which may be definite or indefinite but not longer than 99 years (Civil Code of
the Philippines, Art. 1643). There is no transfer of ownership at the end of the lease period. But if the parties
stipulate that title to the leased premises shall be transferred to the lessee at the end of the lease period upon
the payment of an agreed sum, the lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine pesos.
The EDSA LRT III Project is a high priority project certified by Congress and the National Economic and
Development Authority as falling under the Investment Priorities Plan of Government (Rollo, pp. 310-311). It is,
therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to
wit, any obligation contracted in the Philippines which provisions purports to give the
obligee the right to require payment in gold or in a particular kind of coin or currency other
than Philippine currency or in an amount of money of the Philippines measured thereby, be
as it is hereby declared against public policy, and null, void, and of no effect, and no such
provision shall be contained in, or made with respect to, any obligation hereafter incurred.
The above prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority
economic projects for agricultural, industrial and power development as may be determined
by
the National Economic Council which are financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation and
before congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by
the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with commercial
development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls, amounts to a
ratification of the prior award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract appears to
have been rigged from the very beginning to do away with the usual open international public bidding where
qualified internationally known applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to
conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an absurb
and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to Presidential
Decree No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government
Infrastructure Contracts," allows the negotiated award of government projects in exceptional cases. Sections 4
of the said law reads as follows:
Bidding. Construction projects shall generally be undertaken by contract after competitive
public bidding. Projects may be undertaken by administration or force account or by
negotiated contract only in exceptional cases where time is of the essence, or where there is lack
of qualified bidders or contractors, or where there is conclusive evidence that greater economy
and efficiency would be achieved through this arrangement, and in accordance with provision
of laws and acts on the matter, subject to the approval of the Minister of Public Works and
Transportation and Communications, the Minister of Public Highways, or the Minister of
Energy, as the case may be, if the project cost is less than P1 Million, and the President of the
Philippines, upon recommendation of the Minister, if the project cost is P1 Million or more
(Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure
contracts may he made by negotiation. Presidential Decree No. 1594 is the general law on government
infrastructure contracts while the BOT Law governs particular arrangements or schemes aimed at encouraging
private sector participation in government infrastructure projects. The two laws are not inconsistent with each
other but are in pari materia and should be read together accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none of
the competing firms ever brought the matter before the PBAC, or intervened in this case before us (cf. Malayan
Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of the President,
205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself. Although then Executive
Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a Light Rail Transit System
for EDSA," there is nothing in our laws that prohibits parties to a contract from renegotiating and modifying in
good faith the terms and conditions thereof so as to meet legal, statutory and constitutional requirements.
Under the circumstances, to require the parties to go back to step one of the prequalification process would just
be an idle ceremony. Useless bureaucratic "red tape" should be eschewed because it discourages private sector
participation, the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and renders the
BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e) Build-lease-and-transfer A contractual arrangement whereby a project proponent is
authorized to finance and construct an infrastructure or development facility and upon its
completion turns it over to the government agency or local government unit concerned on a
lease arrangement for a fixed period after which ownership of the facility is automatically
transferred to the government unit concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only
one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification and it meets the
prequalification requirements, after which it is required to submit a bid proposal which is
subsequently found by the agency/local government unit (LGU) to be complying.
(b) If, after advertisement, more than one contractor applied for prequalification but only
one meets the prequalification requirements, after which it submits bid/proposal which is
found by the agency/local government unit (LGU) to be complying.
(c) If, after prequalification of more than one contractor only one submits a bid which is
found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only one is found by
the agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder
[sic] may appeal the decision of the implementing agency, agency/LGUs prequalification bids
and awards committee within fifteen (15) working days to the head of the agency, in case of
national projects or to the Department of the Interior and Local Government, in case of local
projects from the date the disqualification was made known to the disqualified bidder:
Provided, furthermore, That the implementing agency/LGUs concerned should act on the
appeal within forty-five (45) working days from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT Law
has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law authorizes all government
infrastructure agencies, government-owned and controlled corporations and local government units to enter
into contract with any duly prequalified proponent for the financing, construction, operation and maintenance
of any financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-own-and-
operate), CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-
transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any of the schemes enumerated in
Section 2 thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of
minimum government regulations and procedures and specific government undertakings in support of the
private sector" (Sec. 1). A curative statute makes valid that which before enactment of the statute was invalid.
Thus, whatever doubts and alleged procedural lapses private respondent and DOTC may have engendered and
committed in entering into the questioned contracts, these have now been cured by R.A. No. 7718
(cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA
1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government because the
rental rates are excessive and private respondent's development rights over the 13 stations and the depot will
rob DOTC of the best terms during the most productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period of 25
years, exclusive rights over the depot and the air space above the stations for development into commercial
premises for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For
and in consideration of these development rights, private respondent shall pay DOTC in Philippine currency
guaranteed revenues generated therefrom in the amounts set forth in the Supplemental Agreement (Sec.
11; Rollo, p. 93). In the event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be
allowed to deduct any shortfalls from the monthly rent due private respondent for the construction of the EDSA
LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all
contracts on the commercial spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the
proper administrative agencies and officials who have acquired expertise, specialized skills and knowledge in
the performance of their functions should be accorded respect absent any showing of grave abuse of discretion
(Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v.
Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is necessary
to rebut this presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the
parties to each other. The matter of valuation is an esoteric field which is better left to the experts and which
this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is deprived
of the profits if it engages in the business itself, is not worthy of being raised as an issue. In all cases where a
party enters into a contract with the government, he does so, not out of charity and not to lose money, but to
gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its governmental
function. DOTC is the primary policy, planning, programming, regulating and administrative entity of the
Executive branch of government in the promotion, development and regulation of dependable and coordinated
networks of transportation and communications systems as well as in the fast, safe, efficient and reliable postal,
transportation and communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the
Executive department, DOTC in particular that has the power, authority and technical expertise determine
whether or not a specific transportation or communication project is necessary, viable and beneficial to the
people. The discretion to award a contract is vested in the government agencies entrusted with that function
(Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED
Bellosillo and Kapunan, JJ., concur.
Padilla and Regalado, JJ., concurs in the result.
Romero, J., is on leave.
Separate Opinions
MENDOZA, J., concurring:
I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I
join to dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions
on the doctrine of standing are and, why in accordance with these decisions, petitioners do not have the rights
to sue, whether as legislators, taxpayers or citizens. As members of Congress, because they allege no
infringement of prerogative as legislators. 1 As taxpayers because petitioners allege neither an unconstitutional
exercise of the taxing or spending powers of Congress (Art VI, 24-25 and 29) 2 nor an illegal disbursement of
public money. 3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 a party suing as taxpayer
"must specifically prove that he has sufficient interest in preventing the illegal expenditure of money raised by
taxation and that he will sustain a direct injury as a result of the enforcement of the questioned statute or
contract. It is not sufficient that he has merely a general interest common to all members of the public." In that
case, it was held that a contract, whereby a local government leased property to a private party with the
understanding that the latter would build a market building and at the end of the lease would transfer the
building of the lessor, did not involve a disbursement of public funds so as to give taxpayer standing to question
the legality of the contract. I see no substantial difference, as far as the standing is of taxpayers to question
public contracts is concerned, between the contract there and the build-lease-transfer (BLT) contract being
questioned by petitioners in this case.
Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were authorized to
sue, this Court found standing because it thought the constitutional claims pressed for decision to be of
"transcendental importance," as in fact it subsequently granted relief to petitioners by invalidating the
challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon by the majority for upholding
petitioners standing, this Court took into account the "paramount public interest" involved which
"immeasurably affect[ed] the social, economic, and moral well-being of the people . . . and the counter-
productive and retrogressive effects of the envisioned on-line lottery system:" 7 Accordingly, the Court
invalidated the contract for the operation of lottery.
But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive contentions to
be without merit To the extent therefore that a party's standing is affected by a determination of the substantive
merit of the case or a preliminary estimate thereof, petitioners in the case at bar must be held to be without
standing. This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino 8 and In
re Bermudez 9 where we dismissed citizens' actions on the ground that petitioners had no personality to sue
and their petitions did not state a cause of action. The holding that petitioners did not have standing followed
from the finding that they did not have a cause of action.
In order that citizens' actions may be allowed a party must show that he personally has suffered some actual or
threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to
the challenged action; and the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court
has held:
Typically, . . . the standing inquiry requires careful judicial examination of a complaint's
allegation to ascertain whether the particular plaintiff is entitled to an adjudication of the
particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to be
considered judicially cognizable? Is the line of causation between the illegal conduct and
injury too attenuated? Is the prospect of obtaining relief from the injury as a result of a
favorable ruling too speculative? These questions and any others relevant to the standing
inquiry must be answered by reference to the Art III notion that federal courts may exercise
power only "in the last resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman,
143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent
with a system of separated powers and [the dispute is one] traditionally thought to be
capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20 L Ed 2d
947, 88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct
752. 11
Today's holding that a citizen, qua citizen, has standing to question a government contract unduly expands the
scope of public actions and sweeps away the case and controversy requirement so carefully embodied in Art.
VIII, 5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of ombudsman
for the ventilation of generalized grievances. Consistent with the view that this case has no merit I submit with
respect that petitioners, as representatives of the public interest, have no standing.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
DAVIDE, JR., J., dissenting:
After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised
and the arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia of
Mr. Justice Camilo P. Quiason.
I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-ultra-vires act
of the Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no
authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has,
the contract was entered into without complying with the mandatory requirement of public bidding.
I unit the franchise to operate and maintain the facility, including the collection of tolls, fees,
Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An
Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements between
the private sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme
and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2 thereof which defines
only the BOT and BT schemes, in Section 3 which explicitly provides for said schemes thus:
Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies, including
government-owned and controlled corporations and local government units, are hereby
authorized to enter into contract with any duly prequalified private contractor for the
financing, construction, operation and maintenance of any financially viable infrastructure
facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the
terms and conditions hereinafter set forth; (Emphasis supplied).
and in Section 5 which requires public bidding of projects under both schemes.
All prior acts and negotiations leading to the perfection of the challenged contract were clearly intended and
pursued for such schemes.
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid prior
acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any power or
authority to enter into the BLT contract in question.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the
BT schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law
must not be read in such a way as to rule outer unduly restrict any variation within the context of the two
schemes." This interpretation would be correct if the law itself provides a room for flexibility. We find no such
provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of
lease are not unknown in our jurisdiction, and Congress has enacted several laws relating to leases. That the
BLT scheme was never intended as a permissible variation "within the context" of the BOT and BT schemes is
conclusively established by the passage of R.A. No. 7718 which amends:
a. Section 2 by adding to the original BOT and BT schemes the following schemes:
(1) Build-own-and-operate (BOO)
(2) Build-Lease-and-transfer (BLT)
(3) Build-transfer-and-operate (BTO)
(4) Contract-add-and-operate (CAO)
(5) Develop-operate-and-transfer (DOT)
(6) Rehabilitate-operate-and-transfer (ROT)
(7) Rehabilitate-own-and-operate (ROO).
b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-
and-transfer or build-and-transfer scheme."
II
Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of
this Act, the concerned head of the infrastructure agency or local government unit shall
forthwith cause to be published, once every week for three (3) consecutive weeks, in at least
two (2) newspapers of general circulation and in at least one (1) local newspaper which is
circulated in the region, province, city or municipality in which the project is to be
constructed a notice inviting all duly prequalified infrastructure contractors to participate in
the public bidding for the projects so approved. In the case of a build-operate-and-transfer
arrangement, the contract shall be awarded to the lowest complying bidder based on the
present value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility
to be constructed, operated, and maintained according to the prescribed minimum design
and performance standards plans, and specifications. For this purpose, the winning
contractor shall be automatically granted by the infrastructure agency or local government
rentals; and charges in accordance with Section 6 hereof.
In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest
complying bidder based on the present value of its proposed, schedule of amortization
payments for the facility to be constructed according to the prescribed minimum design and
performance standards, plans and specifications: Provided, however, That a Filipino
constructor who submits an equally advantageous bid shall be given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be
submitted to Congress for its information.
The requirement of public bidding is not an idle ceremony. It has been aptly said that in our jurisdiction "public
bidding is the policy and medium adhered to in Government procurement and construction contracts under
existing laws and regulations. It is the accepted method for arriving at a fair and reasonable price and ensures
that overpricing, favoritism, and other anomalous practices are eliminated or minimized. And any Government
contract entered into without the required bidding is null and void and cannot adversely affect the rights of
third parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE
LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).
The Office of the President, through then Executive Secretary Franklin Drilon Correctly disapproved the
contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was conducted. Secretary
Drilon Further bluntly stated that the provision of the Implementing Rules of said law authorizing negotiated
contracts was of doubtful legality. Indeed, it is null and void because the law itself does not recognize or allow
negotiated contracts.
However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified,
then a public bidding would be "an absurd and pointless exercise." I submit that the mandatory requirement of
public bidding cannot be legally dispensed with simply because only one was qualified to bid during the
prequalification proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the lowest
complying bidder," which logically means that there must at least be two (2) bidders. If this minimum
requirement is not met, then the proposed bidding should be deferred and a new prequalification proceeding be
scheduled. Even those who were earlier disqualified may by then have qualified because they may have, in the
meantime, exerted efforts to meet all the qualifications.
This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy
conspiracies among prospective bidders, which would even include dishonest government officials. They could
just agree, for a certain consideration, that only one of them qualify in order that the latter would automatically
corner the contract and obtain the award.
That section 5 admits of no exception and that no bidding could be validly had with only one bidder is likewise
conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a new section
denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation contracts. This new
section reads:
Sec. 5-A. Direct Negotiation Of Contracts Direct negotiation, shall be resorted to when
there is only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification
requirements, after which it is required to submit a bid/proposal which
subsequently found by the agency/local government unit (LGU) to be
complying.
(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements,
after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying,
(c) If after prequalification of more than one contractor only one submits
a bid which is found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor, only one submit
bids but only one is found by the agency/LGU to be complying: Provided,
That, any of the disqualified prospective bidder may appeal the decision
contractor of the implementing agency/LGUs prequalification bids an
award committee within fifteen (15) working days to the head of the
 agency, in case of national projects or to the Department of the Interior
and Local Government, in case of local projects from the date the
disqualification was made known to the disqualified bidder Provided, That
the implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.
Can this amendment be given retroactive effect to the challenged contract so that it may now be considered a
permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not provide that it should be
given retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall take effect fifteen (15)
days after its publication in at least two (2) newspapers of general circulation." If it were the intention of
Congress to give said act retroactive effect then it would have so expressly provided. Article 4 of the Civil Code
provides that "[l]aws shall have no retroactive effect, unless the contrary is provided."
The presumption is that all laws operate prospectively, unless the contrary clearly appears or is clearly, plainly,
and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be resolved against
the retroactive application of laws. (Ruben E Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to
amendatory acts, or acts which change an existing statute, Sutherland states:
In accordance with the rule applicable to original acts, it is presumed that provisions added
by the amendment affecting substantive rights are intended to operate prospectively.
Provisions added by the amendment that affect substantive rights will not be construed to
apply to transactions and events completed prior to its enactment unless the legislature has
expressed its intent to that effect or such intent is clearly implied by the language of the
amendment or by the circumstances surrounding its enactment. (1 Frank E. Horack, Jr.,
SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the challenged contract and its supplement.
FELICIANO, J., dissenting:
After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree
with many of the things set out in the majority opinion written by my distinguished brother in the Court
Quiason, J. At the end of the day, however, I find myself unable to join in the result reached by the majority.
I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow
grounds. At the same time; I wish to address briefly one of the points made by Justice Quiason in the majority
opinion in his effort to meet the difficulties posed by Davide Jr., J.
I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts" More
specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as follows:
Sec. 4. Bidding. Construction projects shall, generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or force account
or by negotiated contract only in exceptional cases where time is of the essence, or where
there is lack of qualified bidders or contractors, or where there is a conclusive evidence that
greater economy and efficiency would be achieved through this arrangement, and in
accordance with provisions of laws and acts on the matter, subject to the approval of the
Ministry of public Works, Transportation and Communications, the Minister of Public
Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1
Million, and of the President of the Philippines, upon the recommendation of the Minister, if
the project cost is P1 Million or more.
xxx xxx xxx
I understand the unspoken theory in the majority opinion to be that above Section 4 and presumably the rest of
Presidential Decree No. 1594 continue to exist and to run parallel to the provisions of Republic Act No. 6957,
whether in its original form or as amended by Republic Act No. 7718.
A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply
to all "government contracts for infrastructure and other construction projects." But Republic Act No. 6957 as
amended by Republic Act No. 7718, relates only to "infrastructure projects" which are financed, constructed,
operated and maintained "by the private sector" "through the build/operate-and-transfer or build-and-transfer
scheme" under Republic Act No. 6597 and under a series of other comparable schemes under Republic Act No.
7718. In other words, Republic Act No. 6957 and Republic Act. No. 7718 must be held, in my view, to be special
statutes applicable to a more limited field of "infrastructure projects" than the wide-ranging scope of application
of the general statute i.e., Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice
Davide that Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of
contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by
administration or force account or by negotiated contract only"
(1) in exceptional cases where time is of the essence; or
(2) where there is lack of bidders or contractors; or
(3) where there is a conclusive evidence that greater economy and efficiency would be
achieved through these arrangements, and in accordance with provision[s] of laws and acts
on the matter.
It must, upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no mention of
negotiated contracts being permitted to displace the requirement of public bidding. Upon the other hand,
Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718, does not purport
to authorize direct negotiation of contracts situations where there is a lack of pre-qualified contractors or,
complying bidders. Thus, even under the amended special statute, entering into contracts by negotiation
is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e.,
"in exceptional cases where time is of the essence" and "when there is conclusive evidence that greater
economy and efficiency would be achieved through these arrangements, etc."
The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public bidding
requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts opened for pre-
qualification and bidding after the date of effectivity of Republic Act No. 7718, The provision of Republic Act No.
7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted.
The difficulties. of applying the provisions of Presidential Degree No. 1594 to the Edsa LRT-type of contracts are
aggravated when one considers the detailed "Implementing Rules and Regulations as amended April 1988"
issued under that Presidential Decree. 1 For instance:
IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxx xxx
a. In times of emergencies arising from natural calamities where
immediate action is necessary to prevent imminent loss of life and/or
property.
b. Failure to award the contract after competitive public bidding for valid
cause or causes [such as where the prices obtained through public bidding
are all above the AAE and the bidders refuse to reduce their prices to the
AAE].
In these cases, bidding may be undertaken through sealed canvass of at least three (3)
qualified contractors. Authority to negotiate contracts for projects under these exceptional
cases shall be subject to prior approval by heads of agencies within their limits of approving
authority.
c. Where the subject project is adjacent or contiguous to an on-going
project and it could be economically prosecuted by the same contractor
provided that he has no negative slippage and has demonstrated a
satisfactory performance. (Emphasis supplied).
Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and Regulations
to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as distinguished from
requiring public bidding or a second public bidding.
Note also the following provision of the same Implementing Rules and Regulations:
IB 1 Prequalification
The following may be become contractors for government projects:
1 Filipino
a. Citizens (single proprietorship)
b. Partnership of corporation duly organized under the laws of the Philippines, and at least
seventy five percent (75%) of the capital stock of which belongs to Filipino citizens.
2. Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract, shall
 for purposes of bidding/tendering comply with LOI 630, and, aside from being currently and
properly accredited by the Philippine Contractors Accreditation Board, shall comply with the
provisions of R.A. 4566, provided thatjoint ventures in which Filipino ownership is less than
seventy five percent ( 75%) may be prequalified where the structures to be built require
the application of techniques and/or technologies which are not adequately possessed by a
Filipino entity as defined above.
[The foregoing shall not negate any existing and future commitments with respect to the
bidding and aware of contracts financed partly or wholly with funds from international
lending institutions like the Asian Development Bank and the Worlds Bank as well as from
bilateral and other similar sources.(Emphases supplied)
The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT Corporation; there is
no suggestion that this corporation is organized under Philippine law and is at least seventy-five (75%) percent
owned by Philippine citizens.
Public bidding is the normal method by which a government keeps contractors honest and is able to assure
itself that it would be getting the best possible value for its money in any construction or similar project. It is
not for nothing that multilateral financial organizations like the World Bank and the Asian Development Bank
uniformly require projects financed by them to be implemented and carried out by public bidding. Public
bidding is much too important a requirement casually to loosen by a latitudinarian exercise in statutory
construction.
The instant petition should be granted and the challenged contract and its supplement should be nullified and
set aside. A true public bidding, complete with a new prequalification proceeding, should be required for the
Edsa LRT Project.
Separate Opinions
MENDOZA, J., concurring:
I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to sue, I
join to dismiss the petition in this case. I write only to set forth what I understand the grounds for our decisions
petitioners do not have the rights to sue, whether as legislators, taxpayers or citizens. As members of Congress,
because they allege no infringement of prerogative as legislators. 1 As taxpayers because petitioners allege
neither an unconstitutional exercise of the taxing or spending powers of Congress (Art VI, 24-25 and 29) 2 nor
an illegal disbursement of public money. 3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 a
party suing as taxpayer "must specifically prove that he has sufficient interest in preventing the illegal
expenditure of money raised by taxation and that he will sustain a direct injury as a result of the enforcement of
the questioned statute or contract, It is not sufficient that has merely a general interest common to all members
of the public." In that case, it was held that a contract, whereby a local government leased property to a private
party with the understanding that the latter would build a market building and at the end of the lease would
transfer the building of the lessor, did not involve a disbursement of public funds so as to give taxpayer standing
to question the legality of the contract contracts I see no substantial difference, as far as the standing is of
taxpayers is concerned, between the contract there and the build-lease-transfer (BLT) contract being
questioned by petitioners in this case.
Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were authorized to
sue, this Court found standing because it thought the constitutional claims pressed for decision to be of
"transcendental importance," as in fact it subsequently granted relief to petitioners by invalidating the
challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon by the majority for upholding
petitioners standing, this Court took into account the "paramount public interest" involved which
"immeasurably affect[ed] the social, economic, and moral well-being of the people . . . and the counter-
productive and retrogressive effects of the envisioned on-line lottery system:" 7 Accordingly, the Court
invalidated the contract for the operation of lottery.
But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive contentions to
be without merit To the extent therefore that a party's standing is affected by a determination of the substantive
merit of the case or a preliminary estimate thereof, petitioners in the case at bar must be held to be without
standing. This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino 8 and In re
Bermudez 9 where we dismissed citizens' actions on the ground that petitioners had no personality to sue and
their petitions did not state a cause of action. The holding that petitioners did not have standing followed from
the finding that they did not have a cause of action.
In order that citizens' actions may be allowed a party must show that he personally has suffered some actual or
threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to
the challenged action; and the injury is likely to be redressed by a favorable action. 10 As the U.S. Supreme Court
has held:
Typically, . . . the standing inquiry requires careful judicial examination of a complaint's
allegation to ascertain whether the particular plaintiff is entitled to an adjudication of the
particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to be
considered judicially cognizable? Is the line of causation between the illegal conduct and
injury too attenuated? Is the prospect of obtaining relief from the injury as a result of a
favorable ruling too speculative? These questions and any others relevant to the standing
inquiry must be answered by reference to the Art III notion that federal courts may exercise
power only "in the last resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman,
143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent
with a system of separated powers and [the dispute is one] traditionally thought to be
capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20 L Ed 2d
947, .88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct
752. 11
Today's holding that a citizen, qua citizen, has standing to question a government contract unduly expands the
scope of public actions and sweeps away the case and controversy requirement so carefully embodied in Art.
VIII, 5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of ombudsman
for the ventilation of generalized grievances. Consistent with the view that this case has no merit I submit with
respect that petitioners, as representatives of the public interest, have no standing.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
DAVIDE, JR., J., dissenting:
After wading through the record of the vicissitudes of the challenged contract and evaluating the issues raised
and the arguments adduced by the parties, I find myself unable to joint majority in the well-written ponencia of
Mr. Justice Camilo P. Quiason.
I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-ultra-vires act
of the Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC has no
authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo that it has,
the contract was entered into without complying with the mandatory requirement of public bidding.
I
Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An
Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements between
the private sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme
and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2 thereof which defines
only the BOT and BT schemes, in Section 3 which explicitly provides for said schemes thus:
Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies, including
government-owned and controlled corporations and local government units, are hereby
authorized to enter into contract with any duly prequalified private contractor for the
financing, construction, operation and maintenance of any financially viable infrastructure
facilities through the build-operate-and transfer or build-and-transfer scheme, subject to the
terms and conditions hereinafter set forth; (Emphasis supplied).
and in Section 5 which requires public bidding of projects under both schemes.
All prior acts and negotiations leading to the perfection of the challenged contract were clearly intended and
pursued for such schemes.
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid prior
acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any power or
authority to enter into the BLT contract in question.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the BOT and the
BT schemes bar any other arrangement for the payment by the government of the project cost," then "[t]he law
must not be read in such a way as to rule outer unduly restrict any variation within the context of the two
schemes." This interpretation would be correct if the law itself provides a room for flexibility. We find no such
provisions in R.A. No. 6957 if it intended to include a BLT scheme, then it should have so stated, for contracts of
lease are not unknown in our jurisdiction, and Congress has enacted several laws relating to leases. That the
BLT scheme was never intended as a permissible variation "within the context" of the BOT and BT schemes is
conclusively established by the passage of R.A. No. 7718 which amends:
a. Section. 2 by adding to the original BOT and BT schemes the following schemes:
1) Build-own-and-operate (BOO)
2) Build-Lease-and-transfer (BLT)
3) Build-transfer-and-operate (BTO)
4) Contract-add-and-operate (CAO)
5) Develop-operate-and-transfer (DOT)
6) Rehabilitate-operate-and-transfer (ROT)
7) Rehabilitate-own-and-operate (ROO).
b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-
and-transfer or build-and-transfer scheme.
II
Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of
this Act, the concerned head of the infrastructure agency or local government unit shall
forthwith cause to be published, once every week for three (3) consecutive weeks, in at least
two (2) newspapers of general circulation and in at least one (1) local newspaper which is
circulated in the region, province, city or municipality in which the project is to be
constructed a notice inviting all duly prequalified infrastructure contractors to participate in
the public bidding for the projects so approved. In the case of a build-operate-and-transfer
arrangement, the contract shall be awarded to the lowest complying bidder based on the
present value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility
to be constructed, operated, and maintained according to the prescribed minimum design
and performance standards plans, and specifications. For this purpose, the winning
contractor shall be automatically granted by the infrastructure agency or local government
unit the franchise to operate and maintain the facility, including the collection of tolls, fees,
rentals; and charges in accordance with Section 6 hereof.
In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest
complying bidder based on the present value of its proposed, schedule of amortization
payments for the facility to be constructed according to the prescribed minimum design and
performance standards, plans and specifications: Provided, however, That a Filipino
constructor who submits an equally advantageous bid shall be given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be
submitted to Congress for its information.
The requirement of public bidding is not an idle ceremony. It has been aptly said that in our jurisdiction "public
bidding is the policy and medium adhered to in Government procurement and construction contracts under
existing laws and regulations. It is the accepted method for arriving at a fair and reasonable price and ensures
that overpricing, favoritism, and other anomalous practices are eliminated or minimized. And any Government
contract entered into without the required bidding is null and void and cannot adversely affect the rights of
third parties." (Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE
LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).
The Office of the president secretary through then Executive Secretary Franklin Drilon Correctly disapproved
the contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was conducted.
Secretary Drilon Further bluntly stated that the provision of the Implementing Rules of said law authorizing
negotiated contracts was of doubtful legality. Indeed, it is null and void because the law itself does not recognize
or allow negotiated contracts.
However the majority opinion posits the view that since only private respondent EDSA LRT was prequalified,
then a public bidding would be "an absurd and pointless exercise." I submit that the mandatory requirement of
public bidding cannot be legally dispensed with simply because only one was qualified to bid during the
prequalification proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the lowest
complying bidder," which logically means that there must at least be two (2) bidders. If this minimum
requirement is not met, then the proposed bidding should be deferred and a new prequalification proceeding be
scheduled. Even those who were earlier disqualified may by then have qualified because they may have, in the
meantime, exerted efforts to meet all the qualifications.
This view of the majority would open the floodgates to the rigging of prequalification proceedings or to unholy
conspiracies among prospective bidders, which would even include dishonest government officials. They could
just agree, for a certain consideration, that only one of them qualify in order that the latter would automatically
corner the contract and obtain the award.
That section 5 admits of no exception and that no bidding could be validly had with only one bidder is likewise
conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a new section
denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation contracts. This new
section reads:
Sec. 5-A. Direct Negotiation Of Contracts Direct negotiation, shall be resorted to when
there is only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification
requirements submit a bid/proposal which subsequently found by the
agency/local government unit (LGU) to be complying.
(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification .requirements,
after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying,
(c) If after prequalification of more than one contractor only one submits
a bid which is found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor, only one submit
bids but only one is found by the agency/LGU to be complying: Provided,
That, any of the disqualified prospective bidder may appeal the decision
contractor of the implementing agency/LGUs prequalification bids an
award committee within fifteen (15) working days to the head of the
agency of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification
was made known to the disqualified bidder Provided, That the
implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.
Can this amendment be given retroactive effect to the challenged contract so that it may now be considered a
permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not provide that it should be
given retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall take effect fifteen (15)
after its publication in at least two (2) newspapers of general circulation." If it were the intention of Congress to
give said act retroactive effect then it would have so expressly provided. Article 4 of the Civil Code provides that
"[l]aws shall have no retroactive effect, unless the contrary is provided."
The presumption is that all laws operate prospectively, unless the contrary clearly appears or is clearly, plainly,
and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be resolved against
the retroactive application of laws. (Ruben E Agpalo, STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to
amendatory acts, or acts which change an existing statute, Sutherland states:
In accordance with the rule applicable to original acts, it is presumed that provisions added
by the amendment affecting substantive rights are intended to operate prospectively.
Provisions added by the amendment that affect substantive rights will not be construed to
apply to transactions and events completed prior to its enactment unless the legislature has
expressed its intent to that effect or such intent is clearly implied by the language of the
amendment or by the circumstances surrounding its enactment. (1 Frank E. Horack, Jr.,
SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the challenged contract and its supplement.
FELICIANO, J., dissenting:
After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I agree
with many of the things set out in the majority opinion written by my distinguished brother in the Court
Quiason, J. At the end of the day, however, I find myself unable to join in the result reached by the majority.
I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on fairly narrow
grounds. At the same time; I wish to address briefly one of Justice Quiason in the majority opinion in his effort
to meet the difficulties posed by Davide Jr., J.
I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts" More
specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as follows:
Sec. 4. Bidding. Construction projects shall, generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or force account
or by negotiated contract only in exceptional cases where time is of the essence, or where
there is lack of qualified bidders or contractors, or where there is a conclusive evidence that
greater economy and efficiency would be achieved through this arrangement, and in
accordance with provisions of laws and acts on the matter, subject to the approval of the
Ministry of public Works, Transportation and Communications, the Minister of Public
Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1
Million, and of the president of the Philippines, upon the recommendation of the Minister, if
the project cost is P1 Million or more.
xxx xxx xxx
I understand the unspoken theory in the majority opinion utility and the ownership of the facilities used to
serve the public can be very w1594 continue to exist and to run parallel to the provisions of Republic Act No.
6957, whether in its original form or as amended by Republic Act No. 7718.
A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all
"government contracts for infrastructure and other construction projects" But Republic Act No. 6957 as
amended by Republic Act No. 7718, relates on to "infrastructure projects" which are financed, constructed,
operated and maintained "by the private sector" "through the build/operate-and-transfer or build-and-transfer
scheme" under Republic Act No. 6597 and under a series of other comparable schemes under Republic Act No.
7718. In other words, Republic Act No. 6957 and Republic Act. No: 7718 must be held, in my view, to be special
statutes applicable to a more limited field of "infrastructure projects" than the wide-ranging scope of application
of the general statute i.e., Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice
Davide that Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of
contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by
administration or force account or by negotiated contract only "
(1) in exceptional cases where time is of the essence; or
(2) where there is lack of bidders or contractors; or
(3) where there is a conclusive evidence that greater economy and efficiency would be
achieved through these arrangements, and in accordance with provision[s] of laws and acts
on the matter.
It must, upon the one hand, be noted that the special law Republic Act- No. 6957 made absolutely no
mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon the other
hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718,
does not purport to authorize direct negotiation of contracts situations where there is a lack of pre-qualified
contractors or, complying bidders. Thus, even under the amended special statute, entering into contracts by
negotiation is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential Decree
No. 1594, i.e., "in exceptional cases where time is of the essence" and "when there is conclusive evidence that
greater economy and efficiency would be achieved through these arrangements, etc."
The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public bidding
requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts opened for pre-
qualification and bidding after the date of effectivity of Republic Act No. 7718. The provision of Republic Act No.
7718. The assailed contract was entered into before Republic Act. No. 7718 was enacted.
The difficulties. of applying the provisions of presidential Degree No. 1594 to the Edsa LRT-type of contracts are
aggravated when one considers the detailed" Implementing Rules and Regulations as amended April 1988"
issued under that Presidential Decree. 1 For instance:
IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxx xxx
a. In times of emergencies arising from natural calamities where
immediate action is necessary to prevent imminent loss of life and/or
property.
b. Failure to award the contract after competitive public bidding for valid
cause or causes [such as where the prices obtained through public bidding
are all above the AAE and the bidders refuse to reduce their prices to the
AAE].
In these cases, bidding may be undertaken through sealed canvass of at least three (3)
qualified contractors. Authority to negotiate contracts for projects under these exceptional
cases shall be subject to prior approval by heads of agencies within their limits of approving
authority.
b. Where the subject project is adjacent or contiguous to an on-going project and it could be
economically prosecuted by the same contractor provided that he has no negative slippage and has
demonstrated a satisfactory performance. (Emphasis supplied).
c.
Note that there is no reference at all in these presidential Decree No. 1594 Implementing Rules and Regulations
to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as distinguished from
requiring public bidding or a second public bidding.
Note also the following provision of the same Implementing Rules and Regulations:
IB 1 Prequalification
The following may be become contractors for government projects:
1 Filipino
a. Citizens (single proprietorship)
b. Partnership of corporation duly organized under the laws of the Philippines, and at least
seventy five percent (75%) of the capital stock of which belongs to Filipino citizens.
2. Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract, shall
for purposes of bidding/tendering comply with LOI 630, and, aside from being currently and
properly accredited by the Philippine Contractors Accreditation Board, shall comply with the
provisions of R.A. 4566, provided thatjoint ventures in which Filipino ownership is less than
seventy five percent ( 75%) may be prequalified where the structures to be built require
the application of techniques and/or technologies which are not adequately possessed by a
Filipino entity as defined above.
 [The foregoing shall not negate any existing and future commitments with respect to the
bidding and aware of contracts financed partly or wholly with funds from international
lending institutions like the Asian Development Bank and the Worlds Bank as well as from
bilateral and other similar sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT Corporation; there is
no suggestion that this corporation is organized under Philippine law and is at least seventy-five (75%) percent
owned by Philippine citizens.
Public bidding is the normal method by which a government keeps contractors honest and is able to assure
itself that it would be getting the best possible value for its money in any construction or similar project. It is
not for nothing that multilateral financial organizations like the World Bank and the Asian Development Bank
uniformly require projects financed by them to be implemented and carried out by public bidding. Public
bidding is much too important a requirement casually to loosen by a latitudinarian exercise in statutory
construction.
The instant petition should be granted and the challenged contract and its supplement should be nullified and
set aside. A true public bidding, complete with a new prequalification proceeding, should be required for the
Edsa LRT Project.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-28673 October 23, 1984
SAMAR MINING COMPANY, INC., plaintiff-appellee,
vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.
CUEVAS, J.:+.wph!1 The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in
This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First
Instance of Manila, finding defendants carrier and agent, liable for the value of goods never delivered
to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the
defendants, now appellants, under the bill of lading covering the subject shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY,
INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a vessel
owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by its agent,
C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued to consignee
SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of Manila, the
aforementioned importation was unloaded and delivered in good order and condition to the bonded
warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the consignee
at the port of destination Davao.
When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of
exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to
enforce payment. Defendants-appellants brought in AMCYL as third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL
which had earlier been declared in default. Only the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the
bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to
transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the
parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to
law, morals, good customs, public order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire
sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is Bremen,
Germany, while the freight had been prepaid up to the port of destination or the "port of discharge of
goods in this case, Davao, the carrier undertook to transport the goods in its vessel, M/S
SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods were to
be transshipped by the carrier to the port of destination or "port of discharge of goods The
stipulation is plainly indicated on the face of the bill which contains the following phrase printed
below the space provided for the port of discharge from ship", thus: t.hqw
if goods are to be transshipped at port of discharge, show destination under the
column for "description of contents" 7
As instructed above, the following words appeared typewritten under the column for "description of
contents": t.hqw
PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the
same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with
the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL
was part of appellants' duty to transship the goods from Manila to their port of destination-Davao.
The word "transship" means: t.hqw
to transfer for further transportation from one ship or conveyance to another 9
question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to
wit: t.hqw
The carrier shall not be liable in any capacity whatsoever for any delay, loss or
damage occurring before the goods enter ship's tackle to be loaded or after the
goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis
supplied)
and in Section 11 of the same Bill, which provides: t.hqw
Whenever the carrier or m aster may deem it advisable or in any case where the
goods are placed at carrier's disposal at or consigned to a point where the ship does
not expect to load or discharge, the carrier or master may, without notice, forward
the whole or any part of the goods before or after loading at the original port of
shipment, ... This carrier, in making arrangements for any transshipping or
forwarding vessels or means of transportation not operated by this carrier shall be
considered solely the forwarding agent of the shipper and without any other
responsibility whatsoever even though the freight for the whole transport has been
collected by him. ... Pending or during forwarding or transshipping the carrier may
store the goods ashore or afloat solely as agent of the shipper and at risk and
expense of the goods and the carrier shall not be liable for detention nor
responsible for the acts, neglect, delay or failure to act of anyone to whom the goods
are entrusted or delivered for storage, handling or any service incidental thereto
(Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have
discharged the same in full and good condition unto the custody of AMCYL at the port of discharge
from ship Manila, and therefore, pursuant to the aforequoted stipulation (Sec. 11) in the bill of
lading, their responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier
from liability for loss or damage to the goods when the same are not in its actual custody has been
upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said
case matches the present controversy not only as to the material facts but more importantly, as to
the stipulations contained in the bill of lading concerned. As if to underline their awesome likeness,
the goods in question in both cases were destined for Davao, but were discharged from ship in
Manila, in accordance with their respective bills of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the
subject stipulations before Us, provides: t.hqw
The carrier shall not be liable in any capacity whatsoever for any loss or damage to
the goods while the goods are not in its actual custody. (Par. 2, last subpar.)
xxx xxx xxx
The carrier or master, in making arrangements with any person for or in
connection with all transshipping or forwarding of the goods or the use of any
 means of transportation or forwarding of goods not used or operated by the carrier,
shall be considered solely the agent of the shipper and consignee and without any
other responsibility whatsoever or for the cost thereof ... (Par. 16). 12
Finding the above stipulations not contrary to law, morals, good customs, public order or public
policy, We sustained their validity 13 Applying said stipulations as the law between the parties in
the aforecited case, the Court concluded that: t.hqw consignee. 20 At the hiatus between these two undertakings of appellant which is the moment when
... The short form Bill of Lading ( ) states in no uncertain terms that the port of
discharge of the cargo is Manila, but that the same was to be transshipped beyond
the port of discharge to Davao City. Pursuant to the terms of the long form Bill of
Lading ( ), appellee's responsibility as a common carrier ceased the moment the goods
were unloaded in Manila and in the matter of transshipment, appellee acted merely
as an agent of the shipper and consignee. ... (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above pronouncements, and
in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No. 18
and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as
they exempt the carrier from liability for loss or damage to the goods while the same are not in the
latter's actual custody.
The liability of the common carrier for the loss, destruction or deterioration of goods transported
from a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all
matters not regulated by said Code, the rights and obligations of common carriers shall be governed
by the Code of Commerce and by special laws. 16 A careful perusal of the provisions of the New Civil
Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736
thereof, which reads: t.hqw
Article 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them,
without prejudice to the provisions of article 1738.
Article 1738 referred to in the foregoing provision runs thus: t.hqw
Article 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and are
stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their
port of destination, and were stored in the warehouse of a third party when last seen and/or heard
of. However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be
relieved of the responsibility for loss or damage to the goods upon actual or constructive delivery of
the same by the carrier to the consignee, or to the person who has a right to receive them. In sales,
actual delivery has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him to receive
the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is
actual delivery in contracts for the transport of goods when possession has been turned over to the
consignee or to his duly authorized agent and a reasonable time is given him to remove the
goods. 18 The court a quo found that there was actual delivery to the consignee through its duly
authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had developed between
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first
is FOR THE TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE
TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with appellant acting as agent of the
the subject goods are discharged in Manila, its personality changes from that of carrier to that of
agent of the consignee. Thus, the character of appellant's possession also changes, from possession
in its own name as carrier, into possession in the name of consignee as the latter's agent. Such being
the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same
appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to
be responsible for any loss or damage that may befall the goods from that point onwards. This is the
full import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value of the
missing goods, It is true that the transshipment of the goods, which was the object of the agency, was
not fully performed. However, appellant had commenced said performance, the completion of which
was aborted by circumstances beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the object of the agency, 21This can be
gleaned from the following provisions of the New Civil Code on the obligations of the
agent: t.hqw
Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may
suffer.
xxx xxx xxx
Article 1889. The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power but without designating the person and the
person appointed was notoriously incompetent or insolvent.
xxx xxx xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence
which shall be judged with more or less rigor by the courts, according to whether
the agency was or was not for a compensation.
The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting
transshipment.
The actions of appellant carrier and of its representative in the Philippines being in full faith with the
lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil
Code on common carriers, agency and contracts, they incur no liability for the loss of the goods in
question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby
DISMISSED.
No costs.
SO ORDERED.
Republic of the Philippines On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US
SUPREME COURT $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On
Manila appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed with modification the Trial
FIRST DIVISION Court's judgment by decreasing the amount recoverable by DOWA to US $1,000.00 because of $500 per package
G.R. No. L-69044 May 29, 1987 limitation of liability under the COGSA.
EASTERN SHIPPING LINES, INC., petitioner, Hence, this Petition for Review on certiorari by Petitioner Carrier.
vs. Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First Division,
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's Motion for
CORPORATION, respondents. Reconsideration, however, G.R. No. 69044 was given due course on March 25, 1985, and the parties were
No. 71478 May 29, 1987 required to submit their respective Memoranda, which they have done.
EASTERN SHIPPING LINES, INC., petitioner, On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying the
vs. Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case, which was
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE CO., then pending resolution with the First Division. The same was granted; the Resolution of the Second Division of
LTD., respondents. September 25, 1985 was set aside and the Petition was given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a
MELENCIO-HERRERA, J.: charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:
These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the sinking There are about 22 cases of the "ASIATICA" pending in various courts where various
of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo. plaintiffs are represented by various counsel representing various consignees or insurance
The basic facts are not in controversy: companies. The common defendant in these cases is petitioner herein, being the operator of
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern said vessel. ... 1
Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's
Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine pleading are deemed admissions of that party and binding upon it. 2 And an admission in one pleading in one
Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. action may be received in evidence against the pleader or his successor-in-interest on the trial of another action
Both sets of goods were insured against marine risk for their stated value with respondent Development to which he is a party, in favor of a party to the latter action. 3
Insurance and Surety Corporation. The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on Common
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show negligence of the
accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying carrier?
instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were insured for their On the Law Applicable
stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by The law of the country to which the goods are to be transported governs the liability of the common carrier in
respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00. case of their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan to the
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all matters
The respective respondent Insurers paid the corresponding marine insurance values to the consignees not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of
concerned and were thus subrogated unto the rights of the latter as the insured. Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the
G.R. NO. 69044 provisions of the Civil Code. 7
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for On the Burden of Proof
short), having been subrogated unto the rights of the two insured companies, filed suit against petitioner Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are
Carrier for the recovery of the amounts it had paid to the insured before the then Court of First instance of bound to observe extraordinary diligence in the vigilance over goods, according to all the circumstances of each
Manila, Branch XXX (Civil Case No. 6087). case. 8Common carriers are responsible for the loss, destruction, or deterioration of the goods unless the same
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous is due to any of the following causes only:
event, hence, it is not liable under the law. (1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of xxx xxx xxx 9
P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural
Petitioner Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed. disaster or calamity. " However, we are of the opinion that fire may not be considered a natural disaster or
Petitioner Carrier is now before us on a Petition for Review on Certiorari. calamity. This must be so as it arises almost invariably from some act of man or by human means. 10 It does not
G.R. NO. 71478 fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13
Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural
recovery of the insured value of the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such
Case No. 116151), imputing unseaworthiness of the ship and non-observance of extraordinary diligence by event, considering that the law adopts a protection policy towards agriculture. 14
petitioner Carrier. As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is Code provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have
an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when been at fault or to have acted negligently, unless it proves that it has observed the extraordinary deligence
the loss of fire is established, the burden of proving negligence of the vessel is shifted to the cargo shipper. required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods
have been lost. Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon
Petitioner Carrier to proved that it has exercised the extraordinary diligence required by law. In this regard, the
Trial Court, concurred in by the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No, 2
and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from
hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big; that
the fire must have started twenty-four 24) our the same was noticed; that carbon dioxide
was ordered released and the crew was ordered to open the hatch covers of No, 2 tor
commencement of fire fighting by sea water: that all of these effort were not enough to
control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the
vigilance over the goods. The evidence of the defendant did not show that extraordinary
vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2
and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew,
on orders, in the care of the cargoes. What appears is that after the cargoes were stored in
the hatches, no regular inspection was made as to their condition during the voyage.
Consequently, the crew could not have even explain what could have caused the fire. The
defendant, in the Court's mind, failed to satisfactorily show that extraordinary vigilance and
care had been made by the crew to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of deligence required of it under
Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by
law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code,
it is required under Article 1739 of the same Code that the "natural disaster" must have been the "proximate
and only cause of the loss," and that the carrier has "exercised due diligence to prevent or minimize the loss
before, during or after the occurrence of the disaster. " This Petitioner Carrier has also failed to establish
satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided
therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or
resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault"
of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that
the fire must have started twenty-four (24) hours before the same was noticed; " and that "after the cargoes
were stored in the hatches, no regular inspection was made as to their condition during the voyage." The
foregoing suffices to show that the circumstances under which the fire originated and spread are such as to
show that Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the complete
defense afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided in section
4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding $500
per package lawful money of the United States, or in case of goods not shipped in packages,
per customary freight unit, or the equivalent of that sum in other currency, unless the nature
and value of such goods have been declared by the shipper before shipment and inserted in
bill of lading. This declaration if embodied in the bill of lading shall be prima facie evidence,
but all be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed: Provided, That such
maximum shall not be less than the figure above named. In no event shall the carrier be
Liable for more than the amount of damage actually sustained.
xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed amount
per package although the Code expressly permits a stipulation limiting such liability. Thus, the COGSA which is
suppletory to the provisions of the Civil Code, steps in and supplements the Code by establishing a statutory
provision limiting the carrier's liability in the absence of a declaration of a higher value of the goods by the
shipper in the bill of lading. The provisions of the Carriage of Goods by.Sea Act on limited liability are as much a
part of a bill of lading as though physically in it and as much a part thereof as though placed therein by
agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting
the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher value of the
goods. Hence, Petitioner Carrier's liability should not exceed US $500 per package, or its peso equivalent, at the
time of payment of the value of the goods lost, but in no case "more than the amount of damage actually
sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was exactly
the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount affirmed to be
paid by respondent Court. The goods were shipped in 28 packages (Exhibit "C-2") Multiplying 28 packages by
$500 would result in a product of $14,000 which, at the current exchange rate of P20.44 to US $1, would be
P286,160, or "more than the amount of damage actually sustained." Consequently, the aforestated amount of
P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit "I"),
which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to be paid by
respondent Court. however, multiplying seven (7) cases by $500 per package at the present prevailing rate of
P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is the amount that should be paid by
Petitioner Carrier for those spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount awarded to
DOWA which was already reduced to $1,000 by the Appellate Court following the statutory $500 liability per
package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with NISSHIN,
the Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed the award of
$46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA packages) by $500 to arrive at the figure of
$64,000, and explained that "since this amount is more than the insured value of the goods, that is $46,583, the
Trial Court was correct in awarding said amount only for the 128 cartons, which amount is less than the
maximum limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the
shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and the
shipper of floor covering brought action against the vessel owner and operator to recover for loss of ingots and
floor covering, which had been shipped in vessel supplied containers. The U.S. District Court for the Southern
District of New York rendered judgment for the plaintiffs, and the defendant appealed. The United States Court
of Appeals, Second Division, modified and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container supplied by
the carrier and the number of such units is disclosed in the shipping documents, each of
those units and not the container constitutes the "package" referred to in liability limitation
provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.&
1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether
carrier-furnished containers whose contents are disclosed should be treated as packages, the
 interest in securing international uniformity would suggest that they should not be so
treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a
container as a package is inconsistent with the congressional purpose of establishing a
reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes
omitted):
Although this approach has not completely escaped criticism, there is,
nonetheless, much to commend it. It gives needed recognition to the
responsibility of the courts to construe and apply the statute as enacted,
however great might be the temptation to "modernize" or reconstitute it
by artful judicial gloss. If COGSA's package limitation scheme suffers from
internal illness, Congress alone must undertake the surgery. There is, in
this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford
that technological advancements, whether or not forseeable by the COGSA
promulgators, do not warrant a distortion or artificial construction of the
statutory term "package." A ruling that these large reusable metal pieces
of transport equipment qualify as COGSA packages at least where, as
here, they were carrier owned and supplied would amount to just such
a distortion.
Certainly, if the individual crates or cartons prepared by the shipper and
containing his goods can rightly be considered "packages" standing by
themselves, they do not suddenly lose that character upon being stowed
in a carrier's container. I would liken these containers to detachable
stowage compartments of the ship. They simply serve to divide the ship's
overall cargo stowage space into smaller, more serviceable loci. Shippers'
packages are quite literally "stowed" in the containers utilizing
stevedoring practices and materials analogous to those employed in
traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds,
595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases followed Judge
Beeks' reasoning in Matsushita and similarly rejected the functional economics test. Judge
Kellam held that when rolls of polyester goods are packed into cardboard cartons which are
then placed in containers, the cartons and not the containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons
which were then placed by the shipper into a carrier- furnished container. The number of
cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test and
treated the cartons, not the container, as the COGSA packages. However, Eurygenes indicated
that a carrier could limit its liability to $500 per container if the bill of lading failed to
disclose the number of cartons or units within the container, or if the parties indicated, in
clear and unambiguous language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package
Limitations and Third World Delivery Problems by Chester D. Hooper &
Keith L. Flicker, published in Fordham International Law Journal, Vol. 6,
1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number of
cartons or units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes cases it
is clear that the 128 cartons, not the two (2) containers should be considered as the shipping unit subject to the
$500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not.
Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so
packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged on the face of this
Bill of Lading are not already packed into container(s) at the time of receipt, the Carrier shall
be at liberty to pack and carry them in any type of container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading,
meaning that the goods could probably fit in two (2) containers only. It cannot mean that the shipper had
furnished the containers for if so, "Two (2) Containers" appearing as the first entry would have sufficed. and if
there is any ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. 20 This applies with even greater force in a contract of adhesion where a contract is already prepared
and the other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to do so. On
this point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June
27, 1978, when its answer was prepared and filed in Court, until September 26, 1978, when
the pre-trial conference was conducted for the last time, the defendant had more than nine
months to prepare its evidence. Its belated notice to take deposition on written
interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two
days before the hearing set for August 27th, knowing fully well that it was its undertaking on
July 11 the that the deposition of the witnesses would be dispensed with if by next time it
had not yet been obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the Court in that regard. The
defendant has told the Court since February 16, 1979, that it was going to take the deposition
of its witnesses in Japan. Why did it take until August 25, 1979, or more than six months, to
prepare its written interrogatories. Only the defendant itself is to blame for its failure to
adduce evidence in support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it was
denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced. What due
process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the award by
the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No. 69044, and
P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount of
P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall pay
the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28) packages
of calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the legal rate from
the date of the filing of the complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.
Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.
Separate Opinions
YAP, J., concurring and dissenting:
With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the
two (2) containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation
under the Carriage of Goods by Sea Act (COGSA).
The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the
Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d 807
(1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-
furnished containers whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5)
of COGSA.
I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the
following reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2)
the rule laid down in those two cases is by no means settled doctrine.
In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court
held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly
be considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed
in a carrier's container. I would liken these containers to detachable stowage compartments of the ship."
Cartons or crates placed inside carrier-furnished containers are deemed stowed in the vessel itself, and do not
lose their character as individual units simply by being placed inside container provided by the carrier, which
are merely "detachable stowage compartments of the ship.
In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This
fact cannot be presumed. The facts of the case in fact show that this was the only shipment placed in containers.
The other shipment involved in the case, consisting of surveying instruments, was packed in two "cases."
We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of
lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate
that the shipment could fit in two containers, thereby showing that when the goods were delivered by the
shipper, they were not yet placed inside the containers and that it was the petitioner carrier which packed the
goods into its own containers, as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit
A. Such assumption cannot be made in view of the following words clearly stamped in red ink on the face of the
bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper
which loaded and counted the goods placed inside the container and sealed the latter.
The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of
cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper.
The freight paid to the carrier on the shipment was based on the measurement (by volume) of the two
containers at $34.50 per cubic meter. The shipper must have saved on the freight charges by using containers
for the shipment. Under the circumstances, it would be unfair to the carrier to have the limitation of its liability
under COGSA fixed on the number of cartons inside the containers, rather than on the containers themselves,
since the freight revenue was based on the latter.
The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA
package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern
technological changes have revolutionized the shipping industry. There is need for the law itself to be updated
to meet the changes brought about by the container revolution, but this is a task which should be addressed by
the legislative body. Until then, this Court, while mindful of American jurisprudence on the subject, should make
its own interpretation of the COGSA provisions, consistent with what is equitable to the parties concerned.
There is need to balance the interests of the shipper and those of the carrier.
In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the
freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have
entailed higher freight charges; instead of paying higher freight charges, the shipper protected itself by insuring
the shipment. As subrogee, the insurance company can recover from the carrier only what the shipper itself is
entitled to recover, not the amount it actually paid the shipper under the insurance policy.
In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within
the purview of COGSA. However, we realize that this may not be equitable as far as the shipper is concerned. If
the container is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation
should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped
in packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit." In the case at bar,
the petitioner's liability for the shipment in question based on "freight unit" would be $21,950.00 for the
shipment of 43.9 cubic meters.
I concur with the rest of the decision.
Sarmiento, J., concur.
Separate Opinions
YAP, J., concurring and dissenting:
With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and not the
two (2) containers, should be considered as the shipping unit for the purpose of applying the $500.00 limitation
under the Carriage of Goods by Sea Act (COGSA).
The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by the
Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636 F. 2d 807
(1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd, 746. Both cases adopted the rule that carrier-
furnished containers whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5)
of COGSA.
I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for the
following reasons: (1) The facts in those cases differ materially from those obtaining in the present case; and (2)
the rule laid down in those two cases is by no means settled doctrine.
In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui the Court
held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly
be considered "packages" standing by themselves, they do not suddenly lose that character upon being stowed
in a carrier's container. I would liken these containers to detachable stowage compartments of the ship."
Cartons or crates placed inside carrier-furnished containers are deemed stowed in the vessel itself, and do not
lose their character as individual units simply by being placed inside container provided by the carrier, which
are merely "detachable stowage compartments of the ship.
In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied. This
fact cannot be presumed. The facts of the case in fact show that this was the only shipment placed in containers.
The other shipment involved in the case, consisting of surveying instruments, was packed in two "cases."
We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in the bill of
lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere estimate
that the shipment could fit in two containers, thereby showing that when the goods were delivered by the
shipper, they were not yet placed inside the containers and that it was the petitioner carrier which packed the
goods into its own containers, as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit
A. Such assumption cannot be made in view of the following words clearly stamped in red ink on the face of the
bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper
which loaded and counted the goods placed inside the container and sealed the latter.
The two containers were delivered by the shipper to the carrier already sealed for shipment, and the number of
cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so of the shipper.
The freight paid to the carrier on the shipment was based on the measurement (by volume) of the two
containers at $34.50 per cubic meter. The shipper must have saved on the freight charges by using containers
for the shipment. Under the circumstances, it would be unfair to the carrier to have the limitation of its liability
under COGSA fixed on the number of cartons inside the containers, rather than on the containers themselves,
since the freight revenue was based on the latter.
The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA
package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern
technological changes have revolutionized the shipping industry. There is need for the law itself to be updated
to meet the changes brought about by the container revolution, but this is a task which should be addressed by
the legislative body. Until then, this Court, while mindful of American jurisprudence on the subject, should make
its own interpretation of the COGSA provisions, consistent with what is equitable to the parties concerned.
There is need to balance the interests of the shipper and those of the carrier.
In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based on the
freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would have
entailed higher freight charges; instead of paying higher freight charges, the shipper protected itself by insuring
the shipment. As subrogee, the insurance company can recover from the carrier only what the shipper itself is
entitled to recover, not the amount it actually paid the shipper under the insurance policy.
In our view, under the circumstances, the container should be regarded as the shipping unit or "package" within
the purview of COGSA. However, we realize that this may not be equitable as far as the shipper is concerned. If
the container is not regarded as a "package" within the terms of COGSA, then, the $500.00 liability limitation
should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped
in packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit." In the case at bar,
the petitioner's liability for the shipment in question based on "freight unit" would be $21,950.00 for the
shipment of 43.9 cubic meters.
I concur with the rest of the decision.
Sarmiento, J., concur.
Republic of the Philippines to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of
SUPREME COURT Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation
Manila consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil
SECOND DIVISION (Exhs. M & M-1). En route to Manila the vessel Dofia Nati figured in a collision at
G.R. No. L-49407 August 19, 1988 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima
NATIONAL DEVELOPMENT COMPANY, petitioner-appellant, Maru' as a result of which 550 bales of aforesaid cargo of American raw cotton were
vs. lost and/or destroyed, of which 535 bales as damaged were landed and sold on the
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales were
CORPORATION, respondents-appellees. not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth
No. L-49469 August 19, 1988 P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills
MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant, Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A,
vs. K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order
CORPORATION, respondents- appellees. of Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss was
Balgos & Perez Law Office for private respondent in both cases. P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly
endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer
PARAS, J.: the total amount of P364,915.86 to the consignees or their successors-in-interest,
These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover
entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of said amount from the defendants-NDC and MCP as owner and ship agent
the Philippines and National Development Company defendant-appellants," affirming in toto the respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)
decision ** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of
the dispositive portion of which reads: First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of
WHEREFORE, judgment is hereby rendered ordering the defendants National P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).
Development Company and Maritime Company of the Philippines, to pay jointly and Interposing the defense that the complaint states no cause of action and even if it does, the action
severally, to the plaintiff Development Insurance and Surety Corp., the sum of has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC
THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal,
AND EIGHTY SIX CENTAVOS (364,915.86) with the legal interest thereon from the pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after
filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with
PESOS (Pl0,000.00) by way of damages as and for attorney's fee. counterclaim and cross-claim against NDC.
On defendant Maritime Company of the Philippines' cross-claim against the NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24).
defendant National Development Company, judgment is hereby rendered, ordering It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40).
the National Development Company to pay the cross-claimant Maritime Company However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record
of the Philippines the total amount that the Maritime Company of the Philippines for its failure to answer DISC's written interrogatories and to comply with the trial court's order
may voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant dated August 14, 1965 allowing the inspection or photographing of the memorandum of agreement
to the judgment rendered in this case. it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on
With costs against the defendant Maritime Company of the Philippines. Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965, but
(pp. 34-35, Rollo, GR No. L-49469) the trial court denied it in its order dated September 21, 1966.
The facts of these cases as found by the Court of Appeals, are as follows: On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court
The evidence before us shows that in accordance with a memorandum agreement rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the
entered into between defendants NDC and MCP on September 13, 1962, defendant sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on
NDC as the first preferred mortgagee of three ocean going vessels including one April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial
with the name 'Dona Nati' appointed defendant MCP as its agent to manage and court granted MCP's crossclaim against NDC.
operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28, MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970
1964 the E. Philipp Corporation of New York loaded on board the vessel "Dona after its motion to set aside the decision was denied by the trial court in its order dated February
Nati" at San Francisco, California, a total of 1,200 bales of American raw cotton 13,1970.
consigned to the order of Manila Banking Corporation, Manila and the People's On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision
Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial of the trial court.
Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On
July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August
27,1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for decision
on February 29, 1980 (Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND
NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF
GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM
THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE
BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT
FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER,
HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development
Company; p. 96, Rollo).
On its part, MCP assigned the following alleged errors:
I relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST
PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE
COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS
AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE
STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE
RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF
THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS
INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK
OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR
NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF
COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT
OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL
DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH
SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF
SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.
V that no reversible error can be found in respondent courses application to the case at bar of Articles
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO
THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE
AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN
THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING
HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL
DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY
TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF
P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID
PLUS P10,000.00 AS AND FOR ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE
BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the
Philippines; p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss or
destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability
as well as the rules of prescription provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply
to the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the
carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the
master, mariner, pilot or the servants of the carrier in the navigation or in the management of the
ship." Thus, NDC insists that based on the findings of the trial court which were adopted by the Court
of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have been
Commerce was applied and both NDC and MCP were ordered to reimburse the insurance company
for the amount the latter paid to the consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA
469-470 [1987]) where it was held under similar circumstance "that the law of the country to which
the goods are to be transported governs the liability of the common carrier in case of their loss,
destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that
for cargoes transported from Japan to the Philippines, the liability of the carrier is governed
primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of
common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code).
Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the
Civil Code.
In the case at bar, it has been established that the goods in question are transported from San
Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a collision
which was found to have been caused by the negligence or fault of both captains of the colliding
vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is
immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for
reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them according to all circumstances of each case.
Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article 1734
thereof, the common carrier shall be presumed to have been at fault or to have acted negigently,
unless it proves that it has observed the extraordinary diligence required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so
826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to
the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages
incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same
Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own
damages and both shall be solidarily responsible for the losses and damages suffered by their
cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault
or negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition
of the universally accepted doctrine that the shipmaster or captain is merely the representative of
the owner who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng
Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only
to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act
(Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain
terms, restricts its application "to all contracts for the carriage of goods by sea to and from
Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing in
this Act shall be construed as repealing any existing provision of the Code of Commerce which is now
in force, or as limiting its application." By such incorporation, it is obvious that said law not only
recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its
application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and
Surety Corporation, has no cause of action against it because the latter did not prove that its alleged
subrogers have either the ownership or special property right or beneficial interest in the cargo in
question; neither was it proved that the bills of lading were transferred or assigned to the alleged
subrogers; thus, they could not possibly have transferred any right of action to said plaintiff-
appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the
duly endorsed bills of lading covering the shipments in question and an examination of the invoices
in particular, shows that the actual consignees of the said goods are the aforementioned companies.
Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is
undisputed that the insurer, plaintiff appellee paid the total amount of P364,915.86 to said
consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a
cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No.
46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and
operator of the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP,
it can only be liable if it acted in excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September
13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to
include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of
the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA G.R.
No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done
where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in
case of collision, both the owner and the agent are civilly responsible for the acts of the captain
(Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of
Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is
true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in
Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of
jurisprudence under the Civil Code but more specially as regards contractual obligations in Article
586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero)
should be declared jointly and severally liable, since the obligation which is the subject of the action
had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v.
Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the
vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages
occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to
the extent of the value of the vessel, its equipment, and the freight (Behn Meyer Y Co. v. McMicking et
al. 11 Phil. 276 [1908]).
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per
package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP
argues that the law on averages should be applied in determining their liability.
MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading
and corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers,
in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot
limit its liability for injury to a loss of goods where such injury or loss was caused by its own
negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the
cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court
of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of
Commerce).
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima
Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed
lengthily as said claim is not only at variance with NDC's posture, but also contrary to the factual
findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at fault for
not changing their excessive speed despite the thick fog obstructing their visibility.
Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow
trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on
April 18,1964 was merely tentative to give allowances for such contingencies that said vessel might
not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo,
resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was
supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and
15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the
above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965,
that is, long before the lapse of one (1) year from the date the lost or damaged cargo "should have
been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision
of the respondent Appellate Court is AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30212 September 30, 1987
BIENVENIDO GELISAN, petitioner,
vs.
BENITO ALDAY, respondent.
PADILLA, J.:
Review on certiorari of the judgment * rendered by the Court of Appeals, dated 11 October 1968, as
amended by its resolution, dated 11 February 1969, in CA-G.R. No. 32670-R, entitled: "Benito Alday,
plaintiff-appellant, vs. Roberto Espiritu and Bienvenido Gelisan, defendants-appellees," which
ordered the herein petitioner Bienvenido Gelisan to pay, jointly and severally, with Roberto Espiritu,
the respondent Benito Alday the amount of P5,397.30, with. legal interest thereon from the filing of
the complaint, and the costs of suit; and for the said Roberto Espiritu to pay or refund the petitioner
Bienvenido Gelisan whatever amount the latter may have paid to the respondent Benito Alday by
virtue of the judgment.
The uncontroverted facts of the case are, as follows:
Defendant Bienvenido Gelisan is the owner of a freight truck bearing plate No. TH-
2377. On January 31, 1962, defendant Bienvenido Gelisan and Roberto Espiritu
entered into a contract marked Exhibit 3-Gelisan under which Espiritu hired the
same freight truck of Gelisan for the purpose of hauling rice, sugar, flour and
fertilizer at an agreed price of P18.00 per trip within the limits of the City of Manila
provided the loads shall not exceed 200 sacks. It is also agreed that Espiritu shall
bear and pay all losses and damages attending the carriage of the goods to be
hauled by him. The truck was taken by a driver of Roberto Espiritu on February 1,
1962. Plaintiff Benito Alday, a trucking operator, and who owns about 15 freight
trucks, had known the defendant Roberto Espiritu since 1948 as a truck operator.
Plaintiff had a contract to haul the fertilizers of the Atlas Fertilizer Corporation from
Pier 4, North Harbor, to its Warehouse in Mandaluyong. Alday met Espiritu at the
gate of Pier 4 and the latter offered the use of his truck with the driver and helper at
9 centavos per bag of fertilizer. The offer was accepted by plaintiff Alday and he
instructed his checker Celso Henson to let Roberto Espiritu haul the fertilizer.
Espiritu made two hauls of 200 bags of fertilizer per trip. The fertilizer was
delivered to the driver and helper of Espiritu with the necessary way bill receipts,
Exhibits A and B. Espiritu, however, did not deliver the fertilizer to the Atlas
Fertolizer bodega at Mandaluyong. The signatures appearing in the way bill
receipts Exhibits A and B of the Alday Transportation admittedly not the signature
of any representative or employee of the Atlas Fertilizer Corporation. Roberto
Espiritu could not be found, and plaintiff reported the loss to the Manila Police
Department. Roberto Espiritu was later arrested and booked for theft. ...
Subsequently, plaintiff Aiday saw the truck in question on Sto. Cristo St. and he
notified the Manila Police Department, and it was impounded by the police. It was
claimed by Bienvenido Gelisan from the Police Department after he had been
notified by his employees that the truck had been impounded by the police; but as
he could not produce at the time the registration papers, the police would not
release the truck to Gelisan. As a result of the impounding of the truck according to
Gelisan, ... and that for the release of the truck he paid the premium of P300 to the
surety company. 1
Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the amount of P5,397.33,
to Atlas Fertilizer Corporation so that, on 12 February 1962, he (Alday) filed a complaint against
Roberto Espiritu and Bienvenido Gelisan with the Court of First Instance of Manila, docketed therein
as Civil Case No. 49603, for the recovery of damages suffered by him thru the criminal acts
committed by the defendants.
The defendant, Roberto Espiritu failed to file an answer and was, accordingly, declared in default.
The defendant, Bienvenido Gelisan, upon the other hand, disowned responsibility. He claimed that
he had no contractual relations with the plaintiff Benito Alday as regards the hauling and/or delivery
of the 400 bags of fertilizer mentioned in the complaint; that the alleged misappropriation or
nondelivery by defendant Roberto Espiritu of plaintiff's 400 bags of fertilizer, was entirely beyond
his (Gelisan's) control and knowledge, and which fact became known to him, for the first time, on 8
February 1962 when his freight truck, with plate No. TH-2377, was impounded by the Manila Police
Department, at the instance of the plaintiff; and that in his written contract of hire with Roberto
Espiritu, it was expressly provided that the latter will bear and pay all loss and damages attending
the carriage of goods to be hauled by said Roberto Espiritu.
After trial, the Court of First Instance of Manila ruled that Roberto Espiritu alone was liable to Benito
Alday, since Bienvenido Gelisan was not privy to the contract between Espiritu and Alday. The
dispositive portion of the decision reads, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Roberto Espiritu for the sum of P6,000 with interest at the legal rate
from the time of the filing of the complaint, and the costs of the suit. Plantiff's
complaint is dismissed with respect to defendant Bienvenido Gelisan, and judgment
is rendered in favor of defendant Bienvenido Gelisan and against the plaintiff for
the sum of P350. 2
On appeal, however, the Court of Appeals, citing the case of Montoya vs. Ignacio, 3 found that
Bienvenido Gelisan is likewise liable for being the registered owner of the truck; and that the lease
contract, executed by and between Bienvenido Gelisan and Roberto Espiritu, is not binding upon
Benito Alday for not having been previously approved by the Public Service Commission.
Accordingly, it sentenced Bienvenido Gelisan to pay, jointly and severally with Roberto Espiritu,
Benito Alday the amount of P5,397.30, with legal interest thereon from the filing of the complaint;
and to pay the costs. Roberto Espiritu, in turn, was ordered to pay or refund Bienvenido Gelisan
whatever amount the latter may have paid to Benito Alday by virtue of the judgment. 4
Hence, the present recourse by Bienvenido Gelisan.
The petition is without merit. The judgment rendered by the Court of Appeals, which is sought to be
reviewed, is in accord with the facts and the law on the case and we find no cogent reason to disturb
the same. The Court has invariably held in several decisions that the registered owner of a public
service vehicle is responsible for damages that may arise from consequences incident to its
operation or that may be caused to any of the passengers therein. 5 The claim of the petitioner that
he is not hable in view of the lease contract executed by and between him and Roberto Espiritu
which exempts him from liability to third persons, cannot be sustained because it appears that the
lease contract, adverted to, had not been approved by the Public Service Commission. It is settled in
our jurisprudence that if the property covered by a franchise is transferred or leased to another
without obtaining the requisite approval, the transfer is not binding upon the public and third Timbol vs. Osias, G.R. No. L-7547, April 30, 1955; Vda. de Medina vs. Cresencia, 99
persons. 6 Phil., 506; Necesito vs. Paras, 104 Phil., 75; Erezo vs. Jepte, 102 Phil., 103; Tamayo
vs. Aquino and Rayos vs Tamayo, 105 Phil., 949; 56 Off. Gaz. [36] 5617.) In the case
We also find no merit in the petitioner's argument that the rule requiring the previous approval by of Erezo vs. Jepte, Supra, We held:
the Public Service Commission, of the transfer or lease of the motor vehicle, may be applied only in * * * In synthesis, we hold that the registered owner, the defendant-appellant
cases where there is no positive Identification of the owner or driver, or where there are very scant herein, is primarily responsible for the damage caused * * * (Emphasis supplied)
means of Identification, but not in those instances where the person responsible for damages has In the case of Tamayo vs. Aquino, supra, We said:
been fixed or determined beforehand, as in the case at bar. The reason for the rule we reiterate in * * * As Tamayo is the registered owner of the truck, his responsibffity to the public
the present case, was explained by the Court in Montoya vs. Ignacio, 7 thus: or to any passenger riding in the vehicle or truck must be direct * * * (Emphasis
supplied)
There is merit in this contention. The law really requires the approval of the Public
Service Commission in order that a franchise, or any privilege pertaining thereto, WHEREFORE, the petition is hereby DENIED. With costs against the petitioner.
may be sold or leased without infringing the certificate issued to the grantee. The SO ORDERED.
reason is obvious. Since a franchise is personal in nature any transfer or lease Yap (Chairman), Melencio-Herrera, Paras and Sarmiento, JJ., concur.
thereof should be notified to the Public Service Commission so that the latter mav
take proper safeguards to protect the interest of the public. In fact, the law requires
that, before the approval is granted, there should be a public hearing, with notice to
all interested parties, in order that the Commission may determine if there are good
and reasonable grounds justifying the transfer or lease of the property covered by
the franchise, or if the sale or lease is detrimental to public interest. Such being the
reason and philosophy behind this requirement, it follows that if the property
covered by the franchise is transferred, or leased to another without obtaining the
requisite approval, the transfer is not binding against the Public Service
Commission and in contemplation of law the grantee continues to be responsible
under the franchise in relation to the Commission and to the Public. Since the lease
of the jeepney in question was made without such approval the only conclusion that
can be drawn is that Marcelino Ignacio still continues to be its operator in
contemplation of law, and as such is responsible for the consequences incident to
its operation, one of them being the collision under consideration.

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

We also find no merit in the petitioner's contention that his liability is only subsidiary. The Court has
consistently considered the registered owner/operator of a public service vehicle to be jointly and
severally liable with the driver for damages incurred by passengers or third persons as a
consequence of injuries sustained in the operation of said vehicles. Thus, in the case of Vargas vs.
Langcay, 9 the Court said:

We hold that the Court of Appeals erred in considering appellant-petitioner Diwata

Vargas only subsidiarily liable under Article 103 of the Revised Penal Code. This
court, in previous decisions, has always considered the registered owner/operator
of a passenger vehicle, jointly and severally liable with the driver, for damages
incurred by passengers or third persons as a consequence of injuries (or death)
sustained in the operation of said vehicles. (Montoya vs. Ignacio, 94 Phil., 182;
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 70876 July 19, 1990
MA. LUISA BENEDICTO, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and GREENHILLS WOOD INDUSTRIES COMPANY,
INC. respondents.
Britanico, Panganiban, Benitez, Africa, Linsangan and Barinaga for petitioner.
Abelardo V. Viray for private respondent.
FELICIANO, J.:
This Petition for Review asks us to set aside the Decision of the then Intermediate Appellate Court
dated 30 January 1985 in A.C.-G.R. CV No. 01454, which affirmed in toto the decision of the Regional
Trial Court ("RTC") of Dagupan City in Civil Case No. 5206. There, the RTC held petitioner Ma. Luisa
Benedicto liable to pay private respondent Greenhills Wood Industries Company, Inc. ("Greenhills")
the amounts of P16,016.00 and P2,000.00 representing the cost of Greenhills' lost sawn lumber and
attorney's fees, respectively.
Private respondent Greenhills, a lumber manufacturing firm with business address at Dagupan City,
operates sawmill in Maddela, Quirino.
Sometime in May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany,
Inc., ("Blue Star") a company with business operations in Valenzuela, Bulacan 100,000 board feet of
sawn lumber with the understanding that an initial delivery would be made on 15 May 1980. 1 To
effect its first delivery, private respondent's resident manager in Maddela, Dominador Cruz,
contracted Virgilio Licuden, the driver of a cargo truck bearing Plate No. 225 GA TH to transport its
sawn lumber to the consignee Blue Star in Valenzuela, Bulacan. This cargo truck was registered in
the name of petitioner Ma. Luisa Benedicto, the proprietor of Macoven Trucking, a business
enterprise engaged in hauling freight, with main office in B.F. Homes, Paraaque.
On 15 May 1980, Cruz in the presence and with the consent of driver Licuden, supervised the loading
of 7,690 board feet of sawn lumber with invoice value of P16,918.00 aboard the cargo truck. Before
the cargo truck left Maddela for Valenzuela, Bulacan, Cruz issued to Licuden Charge Invoices Nos.
3259 and 3260 both of which were initialed by the latter at the bottom left corner. 2 The first invoice
was for the amount of P11,822.80 representing the value of 5,374 board feet of sawn lumber, while
the other set out the amount of P5,095.20 as the value of 2,316 board feet. Cruz instructed Licuden
to give the original copies of the two (2) invoices to the consignee upon arrival in Valenzuela,
Bulacan 3and to retain the duplicate copies in order that he could afterwards claim the freightage
from private respondent's Manila office. 4
On 16 May 1980, the Manager of Blue Star called up by long distance telephone Greenhills' president,
Henry Lee Chuy, informing him that the sawn lumber on board the subject cargo truck had not yet
arrived in Valenzuela, Bulacan. The latter in turn informed Greenhills' resident manager in its
Maddela saw-mill of what had happened. In a letter 5 dated 18 May 1980, Blue Star's administrative
and personnel manager, Manuel R. Bautista, formally informed Greenhills' president and general
manager that Blue Star still had not received the sawn lumber which was supposed to arrive on 15
May 1980 and because of this delay, "they were constrained to look for other suppliers."
On 25 June 1980, after confirming the above with Blue Star and after trying vainly to persuade it to
continue with their contract, private respondent Greenhill's filed Criminal Case No. 668 against
driver Licuden for estafa. Greenhills also filed against petitioner Benedicto Civil Case No. D-5206 for
recovery of the value of the lost sawn lumber plus damages before the RTC of Dagupan City.
In her answer, 6 petitioner Benedicto denied liability alleging that she was a complete stranger to the
contract of carriage, the subject truck having been earlier sold by her to Benjamin Tee, on 28
February 1980 as evidenced by a deed of sale. 7She claimed that the truck had remained registered
in her name notwithstanding its earlier sale to Tee because the latter had paid her only P50,000.00
out of the total agreed price of P68,000.00 However, she averred that Tee had been operating the
said truck in Central Luzon from that date (28 February 1980) onwards, and that, therefore, Licuden
was Tee's employee and not hers.
On 20 June 1983, based on the finding that petitioner Benedicto was still the registered owner of the
subject truck, and holding that Licuden was her employee, the trial court adjudged as follows:
WHEREFORE, in the light of the foregoing considerations, this Court hereby renders
judgment against defendant Maria Luisa Benedicto, ordering her to pay the
Greenhills Wood Industries Co. Inc., thru its President and General Manager, the
amount of P16,016 cost of the sawn lumber loaded on the cargo truck, with legal
rate of interest from the filing of the complaint to pay attorney's fees in the amount
of P2,000.00; and to pay the costs of this suit.
SO ORDERED. 8
On 30 January 1985, upon appeal by petitioner, the Intermediate Appellate Court affirmed 9 the
decision of the trial court in toto. Like the trial court, the appellate court held that since petitioner
was the registered owner of the subject vehicle, Licuden the driver of the truck, was her employee,
and that accordingly petitioner should be responsible for the negligence of said driver and bear the
loss of the sawn lumber plus damages. Petitioner moved for reconsideration, without success. 10
In the present Petition for Review, the sole issue raised is whether or not under the facts and
applicable law, the appellate court was correct in finding that petitioner, being the registered owner
of the carrier, should be held liable for the value of the undelivered or lost sawn lumber.
Petitioner urges that she could not be held answerable for the loss of the cargo, because the doctrine
which makes the registered owner of a common carrier vehicle answerable to the public for the
negligence of the driver despite the sale of the vehicle to another person, applies only to cases
involving death of or injury to passengers. What applies in the present case, according to petitioner,
is the rule that a contract of carriage requires proper delivery of the goods to and acceptance by the
carrier. Thus, petitioner contends that the delivery to a person falsely representing himself to be an
agent of the carrier prevents liability from attaching to the registered owner.
The Court considers that petitioner has failed to show that appellate court committed reversible
error in affirming the trial court's holding that petitioner was liable for the cost of the sawn lumber
plus damages.
There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged in
the business of hauling or transporting goods for hire or compensation. Petitioner Benedicto is, in
brief, a common carrier.
The prevailing doctrine on common carriers makes the registered owner liable for consequences
flowing from the operations of the carrier, even though the specific vehicle involved may already
have been transferred to another person. This doctrine rests upon the principle that in dealing with
vehicles registered under the Public Service Law, the public has the right to assume that the
registered owner is the actual or lawful owner thereof It would be very difficult and often impossible
as a practical matter, for members of the general public to enforce the rights of action that they may
have for injuries inflicted by the vehicles being negligently operated if they should be required to
prove who the actual owner is. 11 The registered owner is not allowed to deny liability by proving
the identity of the alleged transferee. Thus, contrary to petitioner's claim, private respondent is not
required to go beyond the vehicle's certificate of registration to ascertain the owner of the carrier. In destination. That the freight to be paid may-not have been fixed before loading and carriage, did not
this regard, the letter presented by petitioner allegedly written by Benjamin Tee admitting that prevent the contract of carriage from arising, since the freight was at least determinable if not fixed
Licuden was his driver, had no evidentiary value not only because Benjamin Tee was not presented by the tariff schedules in petitioner's main business office. Put in somewhat different terms, driver
in court to testify on this matter but also because of the aforementioned doctrine. To permit the Licuden is in law regarded as the employee and agent of the petitioner, for whose acts petitioner
ostensible or registered owner to prove who the actual owner is, would be to set at naught the must respond. A contract of carriage of goods was shown; the sawn lumber was loaded on board the
purpose or public policy which infuses that doctrine. freight truck; loss or non-delivery of the lumber at Blue Star's premises in Valenzuela, Bulacan was
In fact, private respondent had no reason at all to doubt the authority of Licuden to enter into a also proven; and petitioner has not proven either that she had exercised extraordinary diligence to
contract of carriage on behalf of the registered owner. It appears that, earlier, in the first week of prevent such loss or non-delivery or that the loss or non-delivery was due to some casualty or force
May 1980, private respondent Greenhills had contracted Licuden who was then driving the same majeure inconsistent with her liability. 16 Petitioner's liability to private respondent Greenhills was
cargo truck to transport and carry a load of sawn lumber from the Maddela sawmill to Dagupan thus fixed and complete, without prejudice to petitioner's right to proceed against her putative
City. 12 No one came forward to question that contract or the authority of Licuden to represent the transferee Benjamin Tee and driver Licuden for reimbursement or contribution. 17
owner of the carrier truck. WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the former
Moreover, assuming the truth of her story, petitioner Benedicto retained registered ownership of the Intermediate Appellate Court dated 30 January 1985 is hereby AFFIRMED. Costs against petitioner.
freight truck for her own benefit and convenience, that is, to secure the payment of the balance of the SO ORDERED.
selling price of the truck. She may have been unaware of the legal security device of chattel Fernan (Chairman), Gutierrez, Jr., and Cortes, JJ., concur.
mortgage; or she, or her buyer, may have been unwilling to absorb the expenses of registering a Bidin, J., took no part.
chattel mortgage over the truck. In either case, considerations both of public policy and of equity
require that she bear the consequences flowing from registered ownership of the subject vehicle.
Petitioner Benedicto, however, insists that the said principle should apply only to cases involving
negligence and resulting injury to or death of passengers, and not to cases involving merely carriage
of goods. We believe otherwise.
A common carrier, both from the nature of its business and for insistent reasons of public policy, is
burdened by the law with the duty of exercising extraordinary diligence not only in ensuring the
safety of passengers but also in caring for goods transported by it. 13 The loss or destruction or
deterioration of goods turned over to the common carrier for conveyance to a designated
destination, raises instantly a presumption of fault or negligence on the part of the carrier, save only
where such loss, destruction or damage arises from extreme circumstances such as a natural
disaster or calamity or act of the public enemy in time of war, or from an act or omission of the
shipper himself or from the character of the goods or their packaging or container. 14
This presumption may be overcome only by proof of extraordinary diligence on the part of the
carrier. 15 Clearly, to permit a common carrier to escape its responsibility for the passengers or
goods transported by it by proving a prior sale of the vehicle or means of transportation to an
alleged vendee would be to attenuate drastically the carrier's duty of extraordinary diligence. It
would also open wide the door to collusion between the carrier and the supposed vendee and to
shifting liability from the carrier to one without financial capability to respond for the resulting
damages. In other words, the thrust of the public policy here involved is as sharp and real in the case
of carriage of goods as it is in the transporting of human beings. Thus, to sustain petitioner
Benedicto's contention, that is, to require the shipper to go behind a certificate of registration of a
public utility vehicle, would be utterly subversive of the purpose of the law and doctrine.
Petitioner further insists that there was no perfected contract of carriage for the reason that there
was no proof that her consent or that of Tee had been obtained; no proof that the driver, Licuden
was authorized to bind the registered owner; and no proof that the parties had agreed on the
freightage to be paid.
Once more, we are not persuaded by petitioner's arguments which appear to be a transparent
attempt to evade statutory responsibilities. Driver Licuden was entrusted with possession and
control of the freight truck by the registered owner (and by the alleged secret owner, for that
matter).itc-asl Driver Licuden, under the circumstances, was clothed with at least implied
authority to contract to carry goods and to accept delivery of such goods for carriage to a specified
THIRD DIVISION
[G.R. No. 120553. June 17, 1997]
PHILTRANCO SERVICE ENTERPRISES, INC. and ROGACIONES MANILHIG, petitioner, vs. COURT OF
APPEALS and HEIRS OF THE LATE RAMON ACUESTA, respondents.
DECISION
DAVIDE, JR., J.:
The petitioners interposed this appeal by way of a petition for review under Rule 45 of the Rules of Court
from the 31 January 1995 Decision of the Court of Appeals in CA-G.R. CV No. 41140[1] affirming the 22 January
1993[2] Decision of Branch 31 of the Regional Trial Court, Calbayog City, in Civil Case No. 373, which ordered the
petitioners to pay the private respondents damages as a result of a vehicular accident.
Civil Case No. 373 was an action against herein petitioners for damages instituted by the heirs of Ramon A.
Acuesta, namely, Gregorio O. Acuesta; Julio O. Acuesta; Ramon O. Acuesta, Jr.; Baltazar O. Acuesta; Rufino O.
Acuesta; Maximo O. Acuesta; Neri O. Acuesta; Iluminada O. Acuesta; Rosario Acuesta-Sanz; and Pamfilo O.
Acuesta. Atty. Julio O. Acuesta also appeared as counsel for the plaintiffs (herein private respondents). [3] The
private respondents alleged that the petitioners were guilty of gross negligence, recklessness, violation of traffic
rules and regulations, abandonment of victim, and attempt to escape from a crime.
To support their allegations, the private respondents presented eight witnesses. On 10 February 1992,
after the cross-examination of the last witness, the private respondents counsel made a reservation to present a
ninth witness. The case was then set for continuation of the trial on 30 and 31 March 1992. Because of the non-
appearance of the petitioners counsel, the 30 March 1992 hearing was cancelled. The next day, private
respondents counsel manifested that he would no longer present the ninth witness. He thereafter made an oral
offer of evidence and rested the case. The trial court summarized private respondents evidence in this wise:
[I]n the early morning of March 24, 1990, about 6:00 o'clock, the victim Ramon A. Acuesta was riding in his easy
rider bicycle (Exhibit O), along the Gomez Street of Calbayog City. The Gomez Street is along the side of Nijaga
Park. On the Magsaysay Blvd., also in Calbayog City, defendant Philtranco Service Enterprises, Inc. (Philtranco
for brevity) Bus No. 4025 with plate No. EVA-725 driven by defendant Rogasiones Manilhig y Dolira was being
pushed by some persons in order to start its engine. The Magsaysay Blvd. runs perpendicular to Gomez St. and
the said Philtranco bus 4025 was heading in the general direction of the said Gomez Street. Some of the persons
who were pushing the bus were on its back, while the others were on the sides. As the bus was pushed, its
engine started thereby the bus continued on its running motion and it occurred at the time when Ramon A.
Acuesta who was still riding on his bicycle was directly in front of the said bus. As the engine of the Philtranco
bus started abruptly and suddenly, its running motion was also enhanced by the said functioning engine,
thereby the subject bus bumped on the victim Ramon A. Acuesta who, as a result thereof fell and, thereafter,
was run over by the said bus. The bus did not stop although it had already bumped and ran [sic] over the victim;
instead, it proceeded running towards the direction of the Rosales Bridge which is located at one side of the
Nijaga Park and towards one end of the Gomez St., to which direction the victim was then heading when he was
riding on his bicycle.P/Sgt. Yabao who was then jogging thru the Gomez Street and was heading and meeting
the victim Ramon A. Acuesta as the latter was riding on his bicycle, saw when the Philtranco bus was being
pushed by some passengers, when its engine abruptly started and when the said bus bumped and ran over the
victim. He approached the bus driver defendant Manilhig herein and signalled to him to stop, but the latter did
not listen. So the police officer jumped into the bus and introducing himself to the driver defendant as
policeman, ordered the latter to stop. The said defendant driver stopped the Philtranco bus near the Nijaga Park
and Sgt. Yabao thereafter, told the driver to proceed to the Police Headquarter which was only 100 meters away
from Nijaga Park because he was apprehensive that the said driver might be harmed by the relatives of the
victim who might come to the scene of the accident. Then Sgt. Yabao cordoned the scene where the vehicular
accident occurred and had P/Cpl. Bartolome Bagot, the Traffic Investigator, conduct an investigation and make
a sketch of the crime scene. Sgt. Yambao Yabao was only about 20 meters away when he saw the bus of
defendant Philtranco bumped [sic] and [sic] ran over the victim. From the place where the victim was actually
bumped by the bus, the said vehicle still had run to a distance of about 15 meters away. [4]
For their part, the petitioners filed an Answer[5] wherein they alleged that petitioner Philtranco exercised
the diligence of a good father of a family in the selection and supervision of its employees, including petitioner
Manilhig who had excellent record as a driver and had undergone months of rigid training before he was hired.
Petitioner Manilhig had always been a prudent professional driver, religiously observing traffic rules and
regulations. In driving Philtranco's buses, he exercised the diligence of a very cautious person.
As might be expected, the petitioners had a different version of the incident. They alleged that in the
morning of 24 March 1990, Manilhig, in preparation for his trip back to Pasay City, warmed up the engine of the
bus and made a few rounds within the city proper of Calbayog. While the bus was slowly and moderately
cruising along Gomez Street, the victim, who was biking towards the same direction as the bus, suddenly
overtook two tricycles and swerved left to the center of the road. The swerving was abrupt and so sudden that
even as Manilhig applied the brakes and blew the bus horn, the victim was bumped from behind and run over
by the bus. It was neither willful nor deliberate on Manilhig's part to proceed with the trip after his bus bumped
the victim, the truth being that when he looked at his rear-view window, he saw people crowding around the
victim, with others running after his bus. Fearing that he might be mobbed, he moved away from the scene of
the accident and intended to report the incident to the police. After a man boarded his bus and introduced
himself as a policeman, Manilhig gave himself up to the custody of the police and reported the accident in
question.
The petitioners further claimed that it was the negligence of the victim in overtaking two tricycles,
without taking precautions such as seeing first that the road was clear, which caused the death of the
victim. The latter did not even give any signal of his intention to overtake. The petitioners then counterclaimed
for P50,000 as and for attorney's fees; P1 million as moral damages; and P50,000 for litigation expenses.
However, the petitioners were not able to present their evidence, as they were deemed to have
waived that right by the failure of their counsel to appear at the scheduled hearings on 30 and 31 March
1992. The trial court then issued an Order[6] declaring the case submitted for decision. Motions for the
reconsideration of the said Order were both denied.
On 22 January 1992, the trial court handed down a decision ordering the petitioners to jointly and
severally pay the private respondents the following amounts:
1) P55, 615.72 as actual damages;
2) P200,000 as death indemnity for the death of the victim Ramon A. Acuesta;
3) P1 million as moral damages;
4) P500,000 by way of exemplary damages;
5) P50,000 as attorneys fees; and
6) the costs of suit.[7]
Unsatisfied with the judgment, the petitioners appealed to the Court of Appeals imputing upon the trial
court the following errors:
(1) in preventing or barring them from presenting their evidence;
(2) in finding that petitioner Manilhig was at fault;
(3) in not finding that Ramon was the one at fault and his own fault caused, or at least contributed to,
his unfortunate accident;
(4) in awarding damages to the private respondents; and
(5) in finding that petitioner Philtranco was solidarily liable with Manilhig for damages.[8]
In its decision of 31 January 1995, the Court of Appeals affirmed the decision of the trial court. It held that
the petitioners were not denied due process, as they were given an opportunity to present their defense. The
records show that they were notified of the assignment of the case for 30 and 31 March 1992. Yet, their counsel
did not appear on the said dates. Neither did he file a motion for postponement of the hearings, nor did he
appeal from the denial of the motions for reconsideration of the 31 March 1992 Order of the trial court. The
petitioners have thereby waived their right to present evidence. Their expectation that they would have to
object yet to a formal offer of evidence by the private respondents was misplaced, for it was within the sound
discretion of the court to allow oral offer of evidence.
As to the second and third assigned errors, the respondent court disposed as follows:
... We cannot help but accord with the lower court's finding on appellant Manilhig's fault. First, it is not disputed
that the bus driven by appellant Manilhig was being pushed at the time of the unfortunate happening. It is of
common knowledge and experience that when a vehicle is pushed to a jump-start, its initial movement is far
from slow. Rather, its movement is abrupt and jerky and it takes a while before the vehicle attains normal
speed. The lower court had thus enough basis to conclude, as it did, that the bumping of the victim was due to
appellant Manilhig's actionable negligence and inattention. Prudence should have dictated against jump-
starting the bus in a busy section of the city. Militating further against appellants' posture was the fact that the
precarious pushing of subject bus to a jumpstart was done where the bus had to take a left turn, thereby making
the move too risky to take. The possibility that pedestrians on Gomez Street, where the bus turned left and the
victim was biking, would be unaware of a vehicle being pushed to a jumpstart, was too obvious to be
overlooked. Verily, contrary to their bare arguments, there was gross negligence on the part of appellants.
The doctrine of last clear chance theorized upon by appellants, is inapplicable under the premises because the
victim, who was bumped from behind, obviously, did not of course anticipate a Philtranco bus being pushed
from a perpendicular street.
The respondent court sustained the awards of moral and exemplary damages and of attorneys fees, for
they are warranted under Articles 2206, 2231, and 2208(1), respectively, of the Civil Code. Anent the solidary
liability of petitioner Philtranco, the same finds support in Articles 2180 and 2194 of the said Code. The defense
that Philtranco exercised the diligence of a good father of a family in the selection and supervision of its
employees crumbles in the face of the gross negligence of its driver, which caused the untimely death of the
victim.
Their motion for reconsideration having been denied, the petitioners came to us claiming that the Court of
Appeals gravely erred
I scope of their assigned tasks even though the former are not engaged in any business or industry.
...IN HOLDING THAT PETITIONERS WAIVED THEIR RIGHT TO PRESENT THEIR EVIDENCE, AND THAT
PETITIONERS WERE NOT DENIED DUE PROCESS.
II
...IN APPLYING ART. 2194, INSTEAD OF ART. 2180, OF THE CIVIL CODE, AND IN HOLDING THAT
PETITIONER PHILTRANCO CAN NOT INVOKE THE DEFENSE OF DILIGENCE OF A GOOD FATHER OF A
FAMILY.
III
...IN AWARDING DAMAGES TO RESPONDENTS AND/OR IN NOT FINDING THE TRIAL COURT'S AWARD OF
DAMAGES EXCESSIVE.
We resolved to give due course to the petition and required the parties to submit their respective
memoranda after due consideration of the allegations, issues, and arguments adduced in the petition, the
comment thereon by the private respondents, and the reply to the comment filed by the petitioners. The
petitioners filed their memorandum in due time; while the private respondents filed theirs only on 3 January
1997, after their counsel was fined in the amount of P1,000 for failure to submit the required memorandum.
The first imputed error is without merit. The petitioners and their counsel, Atty. Jose Buban, were duly
notified in open court of the order of the trial court of 10 February 1992 setting the case for hearing on 30 and
31 March 1992.[9] On both dates neither the petitioners nor their counsel appeared. In his motion for
reconsideration,[10] Atty. Buban gave the following reasons for his failure to appear on the said hearings:
1. That when this case was called on March 27, 1992, counsel was very much indisposed due to the rigors of a
very hectic campaign as he is a candidate for City Councilor of Tacloban; he wanted to leave for Calbayog City,
but he was seized with slight fever on the morning of said date; but then, during the last hearing, counsel was
made to understand that plaintiffs would formally offer their exhibits in writing, for which reason, counsel for
defendants waited for a copy of said formal offer, but counsel did not receive any copy as counsel for plaintiffs
opted to formally offer their exhibits orally in open court;
2. That counsel for defendants, in good faith believed that he would be given reasonable time within which to
comment on the formal offer in writing, only to know that counsel for plaintiffs orally offered their exhibits in
open court and that the same were admitted by the Honorable Court; and that when this case was called on
March 30 and 31, 1992, the undersigned counsel honestly believed that said schedule would be cancelled,
pending on the submission of the comments made by the defendants on the formal offer; but it was not so, as
the exhibits were admitted in open court.[11]
In its order of 26 May 1992, the trial court denied the motion, finding it to be "devoid of meritorious
basis," as Atty. Buban could have filed a motion for postponement.[12] Atty. Buban then filed a motion to
reconsider[13] the order of denial, which was likewise denied by the trial court in its order of 12 August
1992.[14] Nothing more was done by the petitioners after receipt of the order of 12 August 1992. A perusal of the
first and second motions for reconsideration discloses absence of any claim that the petitioners have
meritorious defenses. Clearly, therefore, the trial court committed no error in declaring the case submitted for
decision on the basis of private respondent's evidence.
The second imputed error is without merit either.
Civil Case No. 373 is an action for damages based on quasi-delict[15] under Article 2176 and 2180 of the
Civil Code against petitioner Manilhig and his employer, petitioner Philtranco, respectively. These articles
pertinently provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this Chapter.
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but
also for those of persons for whom one is responsible.
...
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by
their employees in the service of the branches in which the latter are employed or on the occasion of their
functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the
...
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage.
We have consistently held that the liability of the registered owner of a public service vehicle, like
petitioner Philtranco,[16] for damages arising from the tortious acts of the driver is primary, direct, and joint and
several or solidary with the driver.[17] As to solidarity, Article 2194 expressly provides:
ART. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
Since the employer's liability is primary, direct and solidary, its only recourse if the judgment for damages is
satisfied by it is to recover what it has paid from its employee who committed the fault or negligence which
gave rise to the action based on quasi-delict.Article 2181 of the Civil Code provides:
ART. 2181. Whoever pays for the damage caused by his dependents or employees may recover from the latter
what he has paid or delivered in satisfaction of the claim.
There is, however, merit in the third imputed error.
The trial court erroneously fixed the "death indemnity" at P200,000. The private respondents defended
the award in their Opposition to the Motion for Reconsideration by saying that "[i]n the case of Philippine
Airlines, Inc. vs. Court of Appeals, 185 SCRA 110, our Supreme Court held that the award of damages for death is
computed on the basis of the life expectancy of the deceased." In that case, the "death indemnity" was computed
by multiplying the victim's gross annual income by his life expectancy, less his yearly living expenses. Clearly
then, the "death indemnity" referred to was the additional indemnity for the loss of earning capacity mentioned
in Article 2206(1) of the Civil Code, and not the basic indemnity for death mentioned in the first paragraph
thereof. This article provides as follows:
ART. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand
pesos, even though there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be
paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless
the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity
at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is
not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand
support from the person causing the death, for a period of not exceeding five years, the exact duration to be
fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral
damages for mental anguish by reason of the death of the deceased.
We concur with petitioners view that the trial court intended the award of "P200,000.00 as death
indemnity" not as compensation for loss of earning capacity. Even if the trial court intended the award as
indemnity for loss of earning capacity, the same must be struck out for lack of basis. There is no evidence on the
victim's earning capacity and life expectancy.
Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which has
been fixed by current jurisprudence at P50,000.[18]
 The award of P1 million for moral damages to the heirs of Ramon Acuesta has no sufficient basis and is
excessive and unreasonable. This was based solely on the testimony of one of the heirs, Atty. Julio Acuesta,
contained in his "Direct Testimony... As Plaintiff, conducted by Himself,"[19] to wit:
Q. What was your feeling or reaction as a result of the death of your father Ramon A. Acuesta?
A. We, the family members, have suffered much from wounded feelings, moral shock, mental
anguish, sleepless nights, to which we are entitled to moral damages at the reasonable amount
of ONE MILLION (P1,000,000.00) PESOS or at the sound discretion of this Hon. Court."
Since the other heirs of the deceased did not take the witness stand, the trial court had no basis for its award of
moral damages to those who did not testify thereon.
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They
are awarded only to allow the former to obtain means, diversion, or amusements that will serve to alleviate the
moral suffering he has undergone due to the defendant's culpable action and must, perforce, be proportional to
the suffering inflicted.[20]In light of the circumstances in this case, an award of P50,000 for moral damages is in
order.
The award of P500,000 for exemplary damages is also excessive. In quasi-delicts, exemplary damages may
be awarded if the party at fault acted with gross negligence.[21]The Court of Appeals found that there was gross
negligence on the part of petitioner Manilhig.[22] Under Article 2229 of the Civil Code, exemplary damages are
imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated, or
compensatory damages. Considering its purpose, it must be fair and reasonable in every case and should not be
awarded to unjustly enrich a prevailing party. In the instant case, an award of P50,000 for the purpose would be
adequate, fair, and reasonable.
Finally, the award of P50,000 for attorney's fees must be reduced. The general rule is that attorney's fees
cannot be recovered as part of damages because of the policy that no premium should be placed on the right to
litigate.[23] Stated otherwise, the grant of attorney's fees as part of damages is the exception rather than the rule,
as counsel's fees are not awarded every time a party prevails in a suit. [24] Such attorney's fees can be awarded in
the cases enumerated in Article 2208 of the Civil Code, and in all cases it must be reasonable. In the instant case,
the counsel for the plaintiffs is himself a co-plaintiff; it is then unlikely that he demanded from his brothers and
sisters P100,000 as attorney's fees as alleged in the complaint and testified to by him. [25] He did not present any
written contract for his fees. He is, however, entitled to a reasonable amount for attorney's fees, considering
that exemplary damages are awarded. Among the instances mentioned in Article 2208 of the Civil Code when
attorney's fees may be recovered is "(1) when exemplary damages are awarded." Under the circumstances in
this case, an award ofP25,000 for attorney's fees is reasonable.
The petitioners did not contest the award for actual damages fixed by the trial court.Hence, such award
shall stand.
IN VIEW OF THE FOREGOING, the petition is hereby partly granted and the challenged decision of CA-
G.R. CV No. 41140 is AFFIRMED, subject to modifications as to the damages awarded, which are reduced as
follows:
(a) Death indemnity, from P200,000 to P50,000;
(b) Moral damages, from P1 million to P50,000;
(c) Exemplary damages, from P500,000 to P50,000; and
(d) Attorney's fees, from P50,000 to P25,000.
No pronouncements as to costs in this instance.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, and Panganiban, JJ., concur.
Francisco, J., On Leave.
THIRD DIVISION
[G.R. No. 143360. September 5, 2002]
EQUITABLE LEASING CORPORATION, petitioner, vs. LUCITA SUYOM, MARISSA ENANO, MYRNA TAMAYO
and FELIX OLEDAN, respondents.
DECISION
PANGANIBAN, J.:
In an action based on quasi delict, the registered owner of a motor vehicle is solidarily liable for the
injuries and damages caused by the negligence of the driver, in spite of the fact that the vehicle may have
already been the subject of an unregistered Deed of Sale in favor of another person. Unless registered with the
Land Transportation Office, the sale -- while valid and binding between the parties -- does not affect third
parties, especially the victims of accidents involving the said transport equipment. Thus, in the present case,
petitioner, which is the registered owner, is liable for the acts of the driver employed by its former lessee who
has become the owner of that vehicle by virtue of an unregistered Deed of Sale.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the May 12, 2000
Decision[1] of the Court of Appeals[2] (CA) in CA-GR CV No. 55474. The decretal portion of the Decision reads as
follows:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. The assailed
decision, dated May 5, 1997, of the Regional Trial Court of Manila, Branch 14, in Civil Case No. 95-73522, is
hereby AFFIRMED with MODIFICATION that the award of attorneys fees is DELETED.[3]
On the other hand, in Civil Case No. 95-73522, the Regional Trial Court (RTC) of Manila (Branch 14) had
earlier disposed in this wise:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant Equitable
Leasing Corporation ordering said defendant to pay to the plaintiffs the following:
A. TO MYRNA TAMAYO
1. the sum of P50,000.00 for the death of Reniel Tamayo;
2. P50,000.00 as moral damages; and
3. P56,000.00 for the damage to the store and its contents, and funeral expenses.
B. TO FELIX OLEDAN
1. the sum of P50,000.00 for the death of Felmarie Oledan;
2. P50,000.00 as moral damages; and
3. P30,000.00 for medical expenses, and funeral expenses.
C. TO MARISSA ENANO
1. P7,000.00 as actual damages
D. TO LUCITA SUYOM
1. The sum of P5,000.00 for the medical treatment of her two sons.
The sum of P120,000.00 as and for attorneys fees.[4]
The Facts
On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into the house cum store of Myrna
Tamayo located at Pier 18, Vitas, Tondo, Manila. A portion of the house was destroyed. Pinned to death under
the engine of the tractor were Respondent Myrna Tamayos son, Reniel Tamayo, and Respondent Felix Oledans
daughter, Felmarie Oledan.Injured were Respondent Oledan himself, Respondent Marissa Enano, and two sons
of Respondent Lucita Suyom.
Tutor was charged with and later convicted of reckless imprudence resulting in multiple homicide and
multiple physical injuries in Criminal Case No. 296094-SA, Metropolitan Trial Court of Manila, Branch 12.[5]
Upon verification with the Land Transportation Office, respondents were furnished a copy of Official
Receipt No. 62204139[6] and Certificate of Registration No. 08262797,[7]showing that the registered owner of
the tractor was Equitable Leasing Corporation/leased to Edwin Lim. On April 15, 1995, respondents filed
against Raul Tutor, Ecatine Corporation (Ecatine) and Equitable Leasing Corporation (Equitable) a
Complaint[8] for damages docketed as Civil Case No. 95-73522 in the RTC of Manila, Branch 14.
The trial court, upon motion of plaintiffs counsel, issued an Order dropping Raul Tutor, Ecatine and Edwin
Lim from the Complaint, because they could not be located and served with summonses.[9] On the other hand, in
its Answer with Counterclaim,[10] petitioner alleged that the vehicle had already been sold to Ecatine and that
the former was no longer in possession and control thereof at the time of the incident. It also claimed that Tutor
was an employee, not of Equitable, but of Ecatine.
After trial on the merits, the RTC rendered its Decision ordering petitioner to pay actual and moral
damages and attorneys fees to respondents. It held that since the Deed of Sale between petitioner and Ecatine
had not been registered with the Land Transportation Office (LTO), the legal owner was still Equitable. [11] Thus,
petitioner was liable to respondents.[12]
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner was still to be legally deemed the owner/operator of the
tractor, even if that vehicle had been the subject of a Deed of Sale in favor of Ecatine on December 9, 1992. The
reason cited by the CA was that the Certificate of Registration on file with the LTO still remained in petitioners
name.[13] In order that a transfer of ownership of a motor vehicle can bind third persons, it must be duly
recorded in the LTO.[14]
The CA likewise upheld respondents claim for moral damages against petitioner because the appellate
court considered Tutor, the driver of the tractor, to be an agent of the registered owner/operator. [15]
Hence, this Petition.[16]
Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
I
Whether or not the Court of Appeals and the trial court gravely erred when they decided and held that
petitioner [was] liable for damages suffered by private respondents in an action based on quasi delict for the
negligent acts of a driver who [was] not the employee of the petitioner.
II
Whether or not the Court of Appeals and the trial court gravely erred when they awarded moral damages to
private respondents despite their failure to prove that the injuries they suffered were brought by petitioners
wrongful act.[17]
This Courts Ruling
The Petition has no merit.
First Issue:
Liability for Wrongful Acts
Petitioner contends that it should not be held liable for the damages sustained by respondents and that
arose from the negligence of the driver of the Fuso Road Tractor, which it had already sold to Ecatine at the time
of the accident. Not having employed Raul Tutor, the driver of the vehicle, it could not have controlled or
supervised him.[18]
We are not persuaded. In negligence cases, the aggrieved party may sue the negligent party under (1)
Article 100[19] of the Revised Penal Code, for civil liability ex delicto; or (2) under Article 2176[20] of the Civil
Code, for civil liability ex quasi delicto.[21]
Furthermore, under Article 103 of the Revised Penal Code, employers may be held subsidiarily liable for
felonies committed by their employees in the discharge of the latters duties. [22] This liability attaches when the
employees who are convicted of crimes committed in the performance of their work are found to be insolvent
and are thus unable to satisfy the civil liability adjudged.[23]
On the other hand, under Article 2176 in relation to Article 2180 [24] of the Civil Code, an action predicated
on quasi delict may be instituted against the employer for an employees act or omission. The liability for the
negligent conduct of the subordinate is direct and primary, but is subject to the defense of due diligence in the
selection and supervision of the employee.[25] The enforcement of the judgment against the employer for an
action based on Article 2176 does not require the employee to be insolvent, since the liability of the former
is solidary -- the latter being statutorily considered a joint tortfeasor.[26] To sustain a claim based on quasi delict,
the following requisites must be proven: (a) damage suffered by the plaintiff, (b) fault or negligence of the
defendant, and (c) connection of cause and effect between the fault or negligence of the defendant and the
damage incurred by the plaintiff.[27]
These two causes of action (ex delicto or ex quasi delicto) may be availed of, subject to the caveat[28] that
the offended party cannot recover damages twice for the same act or omission or under both causes. [29] Since
these two civil liabilities are distinct and independent of each other, the failure to recover in one will not
necessarily preclude recovery in the other.[30]
 In the instant case, respondents -- having failed to recover anything in the criminal case -- elected to file a Moral Damages
separate civil action for damages, based on quasi delict under Article 2176 of the Civil Code. [31] The evidence is Petitioner further claims that it is not liable for moral damages, because respondents failed to establish or
clear that the deaths and the injuries suffered by respondents and their kins were due to the fault of the driver show the causal connection or relation between the factual basis of their claim and their wrongful act or
of the Fuso tractor. omission, if any. [49]
Dated June 4, 1991, the Lease Agreement[32] between petitioner and Edwin Lim stipulated that it is the Moral damages are not punitive in nature, but are designed to compensate[50] and alleviate in some way
intention of the parties to enter into a FINANCE LEASE AGREEMENT.[33] Under such scheme, ownership of the the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
subject tractor was to be registered in the name of petitioner, until the value of the vehicle has been fully paid shock, social humiliation, and similar injury unjustly caused a person.[51] Although incapable of pecuniary
by Edwin Lim.[34] Further, in the Lease Schedule,[35] the monthly rental for the tractor was stipulated, and the computation, moral damages must nevertheless be somehow proportional to and in approximation of the
term of the Lease was scheduled to expire on December 4, 1992. After a few months, Lim completed the suffering inflicted.[52] This is so because moral damages are in the category of an award designed to compensate
payments to cover the full price of the tractor.[36] Thus, on December 9, 1992, a Deed of Sale[37] over the tractor the claimant for actual injury suffered, not to impose a penalty on the wrongdoer.[53]
was executed by petitioner in favor of Ecatine represented by Edwin Lim. However, the Deed was not registered Viewed as an action for quasi delict, the present case falls squarely within the purview of Article 2219
with the LTO. (2),[54] which provides for the payment of moral damages in cases of quasi delict.[55] Having established the
We hold petitioner liable for the deaths and the injuries complained of, because it was the registered liability of petitioner as the registered owner of the vehicle,[56] respondents have satisfactorily shown the
owner of the tractor at the time of the accident on July 17, 1994. [38] The Court has consistently ruled that, existence of the factual basis for the award[57]and its causal connection to the acts of Raul Tutor, who is deemed
regardless of sales made of a motor vehicle, the registered owner is the lawful operator insofar as the public and as petitioners employee.[58] Indeed, the damages and injuries suffered by respondents were the proximate
third persons are concerned; consequently, it is directly and primarily responsible for the consequences of its result of petitioners tortious act or omission.[59]
operation.[39] In contemplation of law, the owner/operator of record is the employer of the driver, the actual Further, no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount
operator and employer being considered as merely its agent.[40] The same principle applies even if the of indemnity being left to the discretion of the court.[60] The evidence gives no ground for doubt that such
registered owner of any vehicle does not use it for public service.[41] discretion was properly and judiciously exercised by the trial court.[61] The award is in fact consistent with the
Since Equitable remained the registered owner of the tractor, it could not escape primary liability for the rule that moral damages are not intended to enrich the injured party, but to alleviate the moral suffering
deaths and the injuries arising from the negligence of the driver.[42] undergone by that party by reason of the defendants culpable action.[62]
The finance-lease agreement between Equitable on the one hand and Lim or Ecatine on the other has WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
already been superseded by the sale. In any event, it does not bind third persons. The rationale for this rule has SO ORDERED.
been aptly explained in Erezo v. Jepte,[43] which we quote hereunder: Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur.
x x x. The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that Sandoval-Gutierrez, J., on leave.
any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a
definite individual, the registered owner. Instances are numerous where vehicles running on public highways
caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or
drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the
determination of persons responsible for damages or injuries caused on public highways. [44]
Further, petitioners insistence on FGU Insurance Corp. v. Court of Appeals is misplaced.[45] First, in FGU
Insurance, the registered vehicle owner, which was engaged in a rent-a-car business, rented out the car. In this
case, the registered owner of the truck, which is engaged in the business of financing motor vehicle acquisitions,
has actually sold the truck to Ecatine, which in turn employed Tutor. Second, in FGU Insurance, the registered
owner of the vehicle was not held responsible for the negligent acts of the person who rented one of its cars,
because Article 2180 of the Civil Code was not applicable. We held that no vinculum juris as employer and
employee existed between the owner and the driver.[46] In this case, the registered owner of the tractor is
considered under the law to be the employer of the driver, while the actual operator is deemed to be
its agent.[47] Thus, Equitable, the registered owner of the tractor, is -- for purposes of the law on quasi delict --
the employer of Raul Tutor, the driver of the tractor. Ecatine, Tutors actual employer, is deemed as merely an
agent of Equitable.[48]
True, the LTO Certificate of Registration, dated 5/31/91, qualifies the name of the registered owner as
EQUITABLE LEASING CORPORATION/Leased to Edwin Lim. But the lease agreement between Equitable and
Lim has been overtaken by the Deed of Sale on December 9, 1992, between petitioner and Ecatine. While this
Deed does not affect respondents in this quasi delict suit, it definitely binds petitioner because, unlike them, it is
a party to it.
We must stress that the failure of Equitable and/or Ecatine to register the sale with the LTO should not
prejudice respondents, who have the legal right to rely on the legal principle that the registered vehicle owner is
liable for the damages caused by the negligence of the driver. Petitioner cannot hide behind its allegation that
Tutor was the employee of Ecatine.This will effectively prevent respondents from recovering their losses on the
basis of the inaction or fault of petitioner in failing to register the sale. The non-registration is the fault of
petitioner, which should thus face the legal consequences thereof.
Second Issue:
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-26815 May 26, 19810
ADOLFO L. SANTOS, petitioner,
vs.
ABRAHAM SIBUG and COURT OF APPEALS, respondents.
MELENCIO-HERRERA, J.:1wph1.t enjoining the Sheriff from conducting the public auction sale of the motor vehicle levied upon. 3 The
The controversy in this case will be resolved on the basis of the following facts and expositions. Prior
to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized
passenger jeepney operator. Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS,
for short) was the owner of a passenger jeep, but he had no certificate of public convenience for the
operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of
VIDAD so that it could be operated under the latter's certificate of public convenience. ln other
words, SANTOS became what is known in ordinary parlance as a kabit operator. For the protection
of SANTOS, VIDAD executed a re-transfer document to the former, which was to be a private
document presumably to be registered if and where it was decided that the passenger jeep of
SANTOS was to be withdrawn from the kabit arrangement.
On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a
passenger jeepney operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a
complaint for damages against VIDAD and Gragas with the Court of First Instance of Manila, Branch
XVII, then presided by Hon. Arsenic Solidum. That Civil Case will hereinafter be referred to as the
BRANCH XVII CASE.
On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas,
jointly and severally, to pay SIBUG the sums of P506.20 as actual damages; P3,000.00 as moral
damages; P500.00 as attorney's fees, and costs. 1
On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64,
registered in the name of VIDAD, and scheduled the public auction sale thereof on May 8,1964.
On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership
of the motor vehicle levied upon, and stating that registration thereof in the name of VIDAD was
merely to enable SANTOS to make use of VIDAD'S Certificate of Public Convenience. After the third-
party complaint was filed, SIBUG submitted to the Sheriff a bond issued by the Philippine Surety
Insurance Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if he
were to proceed with the sale and if SANTOS' third-party claim should be ultimately upheld.
On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for
Damages and injunction with a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD;
and the Sheriff in Civil Case No. 56842 of Branch X, of the same Court of First Instance of Manila
(hereinafter referred to as the BRANCH X CASE). The complaint was later amended to include the
BONDING COMPANY as a party defendant although its bond had not become effective. ln the
Complaint, SANTOS alleged essentially that he was the actual owner of the motor vehicle subject of
levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for
purposes of operating said vehicle as a passenger jeepney under the latter's franchise; that SANTOS
did not receive any payment from VIDAD in consideration of said sale; that to protect SANTOS'
proprietary interest over the vehicle in question, VIDAD in turn had executed a Deed of Sale in favor
of SANTOS on June 27, 1962; that SANTOS was not a party in the BRANCH XVII CASE and was not in
any manner liable to the registered owner VIDAD and the driver Gragas; that SANTOS derived a daily
income of P30.00 from the operation of said motor vehicle as a passenger jeepney and stood to
suffer irreparable damage will possession of said motor vehicle were not restored to him. SANTOS
then prayed that 1,) pending trial, a Writ of Preliminary Mandatory injunction be issued ex-parte
commanding the Sheriff of Manila to restore the motor vehicle to him and that the Sheriff be
enjoined from proceeding with its sale; 2) that, after trial, the Deed of Sale in favor of VIDAD be
declared absolutely fictitious and, therefore, null and void, and adjudging SANTOS to be the absolute
owner of the vehicle in questioned and 3) that damages be awarded to SANTOS as proven during the
trial plus attorney's fees in the amount of P450.00 and costs. 2
No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining Order
Restraining Order was issued wrongfully. Under the provisions of Section 17, Rule 39, the action
taken by the Sheriff cannot be restrained by another Court or by another Branch of the same Court.
The Sheriff has the right to continue with the public sale on his own responsibility, or he can desist
from conducting the public sale unless the attaching creditor files a bond securing him against the
third-party-claim. But the decision to proceed or not with the public sale lies with him. As said in
Uy Piaoco vs. Osmea 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional power and
personal liability." The mentioned discretional power and personal liability have been further
elucidated in Planes and Verdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held. 1wph1.t
The duty of the sheriff in connection with the execution and satisfaction of
judgment of the court is governed by Rule 39 of the Rules of Court. Section 15
thereof provides for the procedure to be. followed where the property levied on
execution 'is claimed by a by person. lf the third-party claim is sufficient, the sheriff,
upon receiving it, is not bound to proceed with the levy of the property, unless he is
given by the judgment creditor an indemnity bond against the claim (Mangaoang vs.
Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceed with the levy
even without the Indemnity bond, but in such case he will answer for any damages
with his own personal funds (Waits vs. Peterson, et al., S Phil. 419 Alzua et al. vs.
Johnson, 21 Phil., 308; Consults No. 341 de los abogados de Smith, Bell & Co., 48
Phil., 565). And the rule also provides that nothing therein contained shall prevent a
third person from vindicating his claim to the property by any proper action (Sec.
15 of Rule 39.).
It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff
has to proceed with the public auction. When such bond is not filed, then the Sheriff shall decide
whether to proceed. or to desist from proceeding, with the public auction. lf he decides to proceed,
he will incur personal liability in favor of the successful third-party claimant.
On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the
evidence adduced, and decreed: 1wph1.t
WHEREFORE, judgment is hereby rendered, enjoining the defendants from
proceeding with the sale of the vehicle in question ordering its return to the
plaintiff and furthermore sentencing the defendant Abraham Sibug to pay the
plaintiff the sum of P15.00 a day from April 10, 1964 until the vehicle is returned to
him, and P500.00 as attorney's fee's as well as the costs. 4
This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by
SANTOS, to include the BONDING COMPANY as jointly slid severally liable with SIBUG. 51wph1.t
... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no
case exceed P6,500.00. Abraham Sibug is furthermore condemned to pay the
Philippine Surety & Insurance Co., Inc. the same sums it is ordered to pay under this
decision.
The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the
undertaking furnished to the Sheriff by the BONDING COMPANY did not become effective for the
reason that the jeep was not sold, the public sale thereof having been restrained, there was no
reason for promulgating judgment against the BONDING COMPANY. lt has also been noted that the
Complaint against VIDAD was dismissed.
Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of
ownership to the vehicle in question, SANTOS candidly admitted his participation in the illegal and
pernicious practice in the transportation business known as the kabit system. Sec.. 20 (g) of the
Public Service Act, then the applicable law, specifically provided: 1wph1.t
... it shall be unlawful for any public service or for the owner, lessee or operator
thereof, without the approval and authorization of the Commission previously had
... (g) to sell, alienate, mortgage, encumber or lease its property, franchise,
certificates, privileges, or rights, or any part thereof.
In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered
owner and operator of record at the time of the accident. lt is true that VIDAD had executed a re-sale
to SANTOS, but the document was not registered. Although SANTOS, as the kabit was the true owner
as against VIDAD, the latter, as the registered owner/operator and grantee of the franchise, is
directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a
consequence of the negligent or careless operation of the vehicle. 6 This ruling is based on the
principle that the operator of record is considered the operator of the vehicle in contemplation of
law as regards the public and third persons 7 even if the vehicle involved in the accident had been
sold to another where such sale had not been approved by the then Public Service Commission. 8 For
the same basic reason, as the vehicle here in question was registered in VIDAD'S name, the levy on
execution against said vehicle should be enforced so that the judgment in the BRANCH XVII CASE
may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to
another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid his
responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to
VIDAD. This is one way of curbing the pernicious kabit system that facilitates the commission of
fraud against the travelling public.
As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go
against VIDAD, the actual operator who was responsible for the accident, for the recovery of
whatever damages SANTOS may suffer by reason of the execution. In fact, if SANTOS, as
the kabit had been impleaded as a party defendant in the BRANCH XVII CASE, he should be held
jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for
exemplary damages. 10
From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for
immidiately execution. SIBUG opposed it on the ground that Branch X had no jurisdiction over the
BRANCH XVII CASE, and that Branch X had no power to interfere by injunction with the judgment of
Branch XVII a Court of concurrent or coordinate jurisdiction. 11
On November 13, 1965, Branch X released an order authorizing immediate execution on the theory
that the BRANCH X CASE is "principally an action for the issuance of a writ of prohibition to forbid
the Sheriff from selling at public auction property not belonging to the judgment creditor (sic) and
there being no attempt in this case to interfere with the Judgment or decree of another court of
concurrent jurisdiction." 12
Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from
respondent Appellate Court in a Petition for certiorari with Preliminary injunction. On November 18,
1965, respondent Court of Appeals enjoined the enforcement of the Branch X Decision and the Order
of execution issued by said Branch. 13 On September 28, 1966, respondent Count of Appeals
rendered the herein challenged Decision nullifying the judgment renderred in the Branch X Case and
permanently restraining V from taking cognizance of the BRANCH X CASE SANTOS. It ruled
that: 1wph1.t
... the respondent Court Branch X, indeed, encroached and interfered with the
judgment of Branch XVII when it issued a restraining order and finally a decision
permanently enjoining the other court from excuting the decision rendered in Civil
Case No. 54335. This to our mind constitutes an interference with the powers and
authority of the other court having co-equal and coordinate jurisdiction. To rule
otherwise, would indubitably lead to confusion which might hamper or hinder the
proper administration of justice. ... 14
Respondent Court further held that SANTOS may not be permitted to prove his ownership over a
particular vehicle being levied upon but registered in another's name in a separated action,
observing that: 1wph1.t
As the vehicle in question was registered in the name of Vicente U. Vidad, the
government or any person affected by the representation that said vehicle is
registered under the name of a particular person had the right to rely on his
declaration of ownership and registration: and the registered owner or any other
person for that matter cannot be permitted to repudiate said declaration with the
objective of proving that said registered vehicle is owned by another person and
not by the registered owner (sec. 68, (a), Rule 123, and art. 1431, New Civil Code)
xxx xxx xxx
Were we to allow a third person to prove that he is the real owner of a particular
vehicle and not the registered owner it would in effect be tantamount to
sanctioning the attempt of the registered owner of the particular vehicle in evading
responsibility for it cannot be dispelled that the door would be opened to collusion
between a person and a registered owner for the latter to escape said responsibility
to the public or to any person. ...
SANTOS now seeks a review of respondent Court's Decision contending that: 1wph1.t
1) The respondent Court of Appeals erred in holding that Branch X of the Court of
First Instance of Manila has no jurisdiction to restrain by Writ of Injunction the
auction sale of petitioner's motor vehicle to satisfy the judgment indebtedness of
another person:
2) The respondent Court of Appeals erred in holding that petitioner as owner of a
motor vehicle that was levied upon pursuant to a Writ of Execution issued by
Branch XVII of the Court of i stance of Manila in Civil Case No. 54335 cannot be
allowed to prove in a separate suit filed in Branch X of the same court (Civil Case
No. 56842) that he is the true owner of the said motor vehicle and not its registered
owner;
3) The respondent Court of Appeals erred in declaring null and void the decision of
the Court of First Instance of Manila (Branch X ) in Civil Case No. 56482.
We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered
the case submitted for decision on July 20, 1967.
One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First
Instance to issue, at the instance of a third-party claimant, an Injunction restraining the execution
sale of a passenger jeepney levied upon by a judgment creditor in another Court of First Instance.
The corollary issue is whether or not the third-party claimant has a right to vindicate his claim to the
vehicle levied upon through a separate action.
Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin And the judgment rendered in his favor by Branch X, declaring him to be the owner of the property,
Salvador, 15speaking through Mr. Justice Ramon Aquino, succinctly held: 1wph1.t did not as a basic proposition, constitute interference with the powers or processes of Branch
It is noteworthy that, generally, the rule, that no court has authority to interfere by XVII which rendered the judgment, to enforce which the was levied upon. And this is so because
injunction with the judgments or decrees of a concurrent or coordinate jurisdiction property belonging to a stranger is not ordinarily subject to levy. While it is true that the vehicle in
having equal power to grant the injunctive relief, is applied in cases, where no question was in custodia legis, and should not be interfered with without the permission of the
third-party claimant is involved, in order to prevent one court from nullifying the proper Court, the property must be one in which the defendant has proprietary interest. Where the
judgment or process of another court of the same rank or category, a power which Sheriff seizes a stranger's property, the rule does not apply and interference with his custody is not
devolves upon the proper appellate court. interference with another Court's Order of attachment. 17
xxx xxx xxx However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court
When the sheriff, acting beyond the bounds of his authority, seizes a stranger's nullifying the Decision of Branch X permanently enjoining the auction sale, should be upheld. Legally
property, the writ of injunction, which is issued to stop the auction sale of that speaking, it was not a "stranger's property" that was levied upon by the Sheriff pursuant to the
property, is not an interference with the writ of execution issued by another court judgment rendered by Branch XVII. The vehicle was, in fact, registered in the name of VIDAD, one of
because the writ of execution was improperly implemented by the sheriff. Under the judgment debtors. And what is more, the aspect of public service, with its effects on the riding
that writ, he could attach the property of the judgment debtor. He is not authorized public, is involved. Whatever legal technicalities may be invoked, we find the judgment of
to levy upon the property of the third-party claimant (Polaris Marketing respondent Court of Appeals to be in consonance with justice.
Corporation vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; Manila Herald WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on
Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102). certiorari filed by Adolfo L. Santos is dismissed with costs against the petitioner.
An earlier case, Abiera vs. Hon. Court of Appeals, et al., 16 explained the doctrine more SO ORDERED.
extensively: 1wph1.t Makasiar, Guerrero and De Castro, * JJ., concur.1wph1.t
Courts; Jurisdiction Courts without power to interfere by injunction with judgments or Teehankee (Chairman), concurs in the result.
decrees of a court of concurrent jurisdiction. No court has power to interfere by
injunction with the judgments or decrees of a court of concurrent or coordinate
jurisdiction having equal power to grant the relief sought by injunction.
Same, Same; Same; When applicable. For this doctrine to apply, the injunction
issued by one court must interfere with the judgment or decree issued by another
court of equal or coordinate jurisdiction and the relief sought by such injunction
must be one which could be granted by the court which rendered the judgment or
issued the decree.
Same, Same Same; Exception Judgment rendered by another court in favor of a third
person who claims property levied upon on execution. Under section 17 of Rule 39 a
third person who claims property levied upon on execution may vindicate such
claim by action. A judgment rendered in his favor - declaring him to be the owner of
the property - would not constitute interference with the powers or processes of
the court which rendered the judgment to enforce which the execution was levied.
lf that be so - and it is so because the property, being that of a stranger, is not
subject to levy - then an interlocutory order, such as injunction, upon a claim and
prima facie showing of ownership by the claimant, cannot be considered as such
interference either.
Execution; Where property levied on claimed by third person; "Action" in section l7,
Rule 39 of the Rules of Court, interpreted The right of a person who claims to be the
owner of property levied upon on execution to file a third-party claim with the
sheriff is not exclusive, and he may file an action to vindicate his claim even if the
judgment creditor files an indemnity bond in favor of the sheriff to answer for any
damages that may be suffered by the third party claimant. By "action", as stated in
the Rule, what is meant is a separate and independent action.
Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of
respondent Court, it was appropriate, as a matter of procedure, for SANTOS, as an ordinary third-
party claimant, to vindicate his claim of ownership in a separate action under Section 17 of Rule 39.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-64693 April 27, 1984
LITA ENTERPRISES, INC., petitioner,
vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and
FRANCISCA P. GARCIA, respondents.
Manuel A. Concordia for petitioner.
Nicasio Ocampo for himself and on behalf of his correspondents.
ESCOLIN, J.:+.wph!1
"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the 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.1wph1.t
Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-
Herrera, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.
Aquino, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-65510 March 9, 1987
TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.
PARAS, J.:
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim
that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither
can seek relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises
vs. IAC, 129 SCRA 81.)
The factual background of this case is undisputed. The same is narrated by the respondent court in
its now assailed decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with
complete accessories and a sidecar in the total consideration of P8,000.00 as shown
by Invoice No. 144 (Exh. "A"). Out of the total purchase price the defendant gave a
downpayment of P1,700.00 with a promise that he would pay plaintiff the balance
within sixty days. The defendant, however, failed to comply with his promise and so
upon his own request, the period of paying the balance was extended to one year in
monthly installments until January 1976 when he stopped paying anymore. The
plaintiff made demands but just the same the defendant failed to comply with the
same thus forcing the plaintiff to consult a lawyer and file this action for his damage
in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation.
The plaintiff also claims that as of February 20, 1978, the total account of the
defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B").
This amount includes not only the balance of P1,700.00 but an additional 12%
interest per annum on the said balance from January 26, 1976 to February 27,
1978; a 2% service charge; and P 546.21 representing attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a
security for the payment of the balance of the purchase price. It has been the
practice of financing firms that whenever there is a balance of the purchase price
the registration papers of the motor vehicle subject of the sale are not given to the
buyer. The records of the LTC show that the motorcycle sold to the defendant was
first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing
and Angel Jaucian are one and the same, because it was made to appear that way
only as the defendant had no franchise of his own and he attached the unit to the
plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to
undertake the yearly registration of the motorcycle with the Land Transportation
Commission. Pursuant to this agreement the defendant on February 22, 1976 gave
the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the
registration fee of the motorcycle. The plaintiff, however failed to register the
motorcycle on that year on the ground that the defendant failed to comply with
some requirements such as the payment of the insurance premiums and the
bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that the
defendant was hiding the motorcycle from him. Lastly, the plaintiff explained also
that though the ownership of the motorcycle was already transferred to the
defendant the vehicle was still mortgaged with the consent of the defendant to the
Rural Bank of Camaligan for the reason that all motorcycle purchased from the
plaintiff on credit was rediscounted with the bank.
On his part the defendant did not dispute the sale and the outstanding balance of
P1,700. 00 still payable to the plaintiff. The defendant was persuaded to buy from
the plaintiff the motorcycle with the side car because of the condition that the
plaintiff would be the one to register every year the motorcycle with the Land
Transportation Commission. In 1976, however, the plaintfff failed to register both
the chattel mortgage and the motorcycle with the LTC notwithstanding the fact that
the defendant gave him P90.00 for mortgage fee and registration fee and had the
motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also
by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to
comply with his obligation to register the motorcycle the defendant suffered
damages when he failed to claim any insurance indemnity which would amount to
no less than P15,000.00 for the more than two times that the motorcycle figured in
accidents aside from the loss of the daily income of P15.00 as boundary fee
beginning October 1976 when the motorcycle was impounded by the LTC for not
being registered.
The defendant disputed the claim of the plaintiff that he was hiding from the
plaintiff the motorcycle resulting in its not being registered. The truth being that
the motorcycle was being used for transporting passengers and it kept on travelling
from one place to another. The motor vehicle sold to him was mortgaged by the
plaintiff with the Rural Bank of Camaligan without his consent and knowledge and
the defendant was not even given a copy of the mortgage deed. The defendant
claims that it is not true that the motorcycle was mortgaged because of re-
discounting for rediscounting is only true with Rural Banks and the Central Bank.
The defendant puts the blame on the plaintiff for not registering the motorcycle
with the LTC and for not giving him the registration papers inspite of demands
made. Finally, the evidence of the defendant shows that because of the filing of this
case he was forced to retain the services of a lawyer for a fee on not less than
P1,000.00.
xxx xxx xxx
... it also appears and the Court so finds that defendant purchased the motorcycle in
question, particularly for the purpose of engaging and using the same in the
transportation business and for this purpose said trimobile unit was attached to the
plaintiffs transportation line who had the franchise, so much so that in the
registration certificate, the plaintiff appears to be the owner of the unit. Furthermore,
it appears to have been agreed, further between the plaintiff and the defendant, that
plaintiff would undertake the yearly registration of the unit in question with the
LTC. Thus, for the registration of the unit for the year 1976, per agreement, the
defendant gave to the plaintiff the amount of P82.00 for its registration, as well as
the insurance coverage of the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with
Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court
rendered judgment in favor of petitioner, the dispositive portion of which reads:
 WHEREFORE, decision is hereby rendered dismissing the counterclaim and The defect of in existence of a contract is permanent and cannot be cured by ratification or by
ordering the defendant to pay plaintiff the sum of P1,700.00 representing the prescription. The mere lapse of time cannot give efficacy to contracts that are null and void.
unpaid balance of the purchase price with legal rate of interest from the date of the WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the
filing of the complaint until the same is fully paid; to pay plaintiff the sum of Intermediate Appellate Court (now the Court of Appeals) is AFFIRMED. No costs.
P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of SO ORDERED.
litigation; and to pay the costs. Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur.
SO ORDERED. Alampay, J., took no part.
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private
respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983
the said Court promulgated its decision, the pertinent portion of which reads
However, as the purchase of the motorcycle for operation as a trimobile under the
franchise of the private respondent Jaucian, pursuant to what is commonly known
as the "kabit system", without the prior approval of the Board of Transportation
(formerly the Public Service Commission) was an illegal transaction involving the
fictitious registration of the motor vehicle in the name of the private respondent so
that he may traffic with the privileges of his franchise, or certificate of public
convenience, to operate a tricycle service, the parties being in pari delicto, neither of
them may bring an action against the other to enforce their illegal contract [Art.
1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint of
respondent Teja Marketing and/or Angel Jaucian, as well as the counterclaim of
petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of
Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are
dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel
Jaucian presenting a lone assignment of error whether or not respondent court erred in applying
the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit
system" whereby a person who has been granted a certificate of public convenience allows another
person who owns motor vehicles to operate under such franchise for a fee. A certificate of public
convenience is a special privilege conferred by the government. Abuse of this privilege by the
grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root
causes of the prevalence of graft and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as
being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil
Code. It is a fundamental principle that the court will not aid either party to enforce an illegal
contract, but will leave both where it finds then. Upon this premise it would be error to accord the
parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It
provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover that
he has given by virtue of the contract, or demand, the performance of the other's
undertaking.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16790 April 30, 1963
URBANO MAGBOO and EMILIA C. MAGBOO, plaintiffs-appellees,
vs.
DELFIN BERNARDO, defendant-appellant.
Parades, Gaw and Associates for plaintiffs-appellees.
Bonifacio B. Camacho for defendant-appellant.
MAKALINTAL, J.:
Appeal from the Court of First Instance of Manila to the Court of Appeals, and certified by the latter
to this Court on the ground that only questions of law are involved.
The action of the spouses Urbano Magboo and Emilia C. Magboo against Delfin Bernardo is for
enforcement of his subsidiary liability as employer in accordance with Article 103, Revised Penal
Code. The trial court ordered defendant to pay plaintiffs P3,000.00 and costs upon the following
stipulated facts:
1. That plaintiffs are the parents of Cesar Magboo, a child of 8 years old, who lived with them
and was under their custody until his death on October 24,1956 when he was killed in a
motor vehicle accident, the fatal vehicle being a passenger jeepney with Plate No, AC-1963
(56) owned by the defendant;
2. That at the time of the accident, said passenger jeepney was driven by Conrado Roque;
3. That the contract between Conrado Roque and defendant Delfin Bernardo was that Roque
was to pay to defendant the sum of P8.00, which he paid to said defendant, for privilege of
driving the jeepney on October 24, 1956, it being their agreement that whatever earnings
Roque could make out of the use of the jeepney in transporting passengers from one point
to another in the City of Manila would belong entirely to Conrado Roque;
4. That as a consequence of the accident and as a result of the death of Cesar Magboo in said
accident, Conrado Roque was prosecuted for homicide thru reckless imprudence before the
Court of First Instance of Manila, the information having been docketed as Criminal Case No.
37736, and that upon arraignment Conrado Roque pleaded guilty to the information and
was sentenced to six (6) months of arresto mayor, with the accessory penalties of the law; to
indemnify the heirs of the deceased in the sum of P3,000.00, with subsidiary imprisonment
in case of insolvency, and to pay the costs;
5. That pursuant to said judgment Conrado Roque served his sentence but he was not able
to pay the indemnity because he was insolvent."
Appellant assails said decision, assigning three errors which boil down to the question of whether or
not an employer-employee relationship exists between a jeepney-owner and a driver under a
"boundary system" arrangement. Appellant contends that the relationship is essentially that of
lessor and lessee.
A similar contention has been rejected by this Court in several cases. In National Labor Union v.
Dinglasan, 52 O.G., No. 4, 1933, it was held that the features which characterize the "boundary
system" namely, the fact that the driver does not receive a fixed wage but gets only the excess of
the receipt of fares collected by him over the amount he pays to the jeep-owner and that the gasoline
consumed by the jeep is for the account of the driver are not sufficient to withdraw the
relationship between them from that of employer and employee. The ruling was subsequently cited
and applied in Doce v. Workmen's Compensation Commission, L-9417, December 22, 1958, which
involved the liability of a bus owner for injury compensation to a conductor working under the
"boundary system."
The same principle applies with greater reason in negligence cases concerning the right of third
parties to recover damages for injuries sustained. In Montoya v. Ignacio, L-5868, December 29, 1953,
the owner and operator of a passenger jeepney leased it to another, but without the approval of the
Public Service Commission. In a subsequent collision a passenger died. We ruled that since the lease
was made without such approval, which was required by law, the owner continued to be the
operator of the vehicle in legal contemplation and as such was responsible for the consequences
incident to its operation. The same responsibility was held to attach in a case where the injured
party was not a passenger but a third person, who sued on the theory of culpa aquiliana (Timbol vs.
Osias, L-7547, April 30, 1955). There is no reason why a different rule should be applied in a
subsidiary liability case under Article 103 of the Revised Penal Code. As in the existence of an
employer-employee relationship between the owner of the vehicle and the driver. Indeed to exempt
from liability the owner of a public vehicle who operates it under the "boundary system" on the
ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service law
but also to place the riding public at the mercy of reckless and irresponsible drivers - reckless
because the measure of their earnings depends largely upon the number of trips they make and,
hence, the speed at which they drive; and irresponsible because most if not all of them are in no
position to pay the damages they might cause. (See Erezo vs. Jepte, L-9605, September 30, 1957).
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1wph1.t
Appellant further argues that he should not have been held subsidiarily liable because Conrado
Roque (the driver of the jeepney) pleaded guilty to the charge in the criminal case without
appellant's knowledge and contrary to the agreement between them that such plea would not be
entered but, instead evidence would be presented to prove Roque's innocence. On this point we
quote with approval the pertinent portion of the decision appealed from:
"'With respect to the contention of the defendant that he was taken unaware by the
spontaneous plea of guilt entered by the driver Conrado Roque, and that he did not have a
chance to prove the innocence of said Conrado Roque, the Court holds that at this stage, it is
already too late to try the criminal case all over again. Defendant's allegation that he relied
on his belief that Conrado Roque would defend himself and they had sufficient proof to
show that Roque was not guilty of the crime charged cannot be entertained. Defendant
should have taken it to himself to aid in the defense of Conrado Roque. Having failed to take
this step and the accused having been declared guilty by final judgment of the crime of
homicide thru reckless imprudence, there appears no more way for the defendant to escape
his subsidiary liability as provided for in Article 103 of the Revised Penal Code."'
WHEREFORE, the judgment appealed from, being in accordance with law, is hereby affirmed, with
costs against defendant-appellant.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon and Regala, JJ., concur.
Padilla, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of
goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the
customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed
from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether
the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that
have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-
forwarder for damages sustained by a shipment while in defendants' custody, filed by the
insurer-subrogee who paid the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for
delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill
of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the
custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in
bad order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from
defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad
Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the
shipment to the consignee's warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No.
10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee
suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims
were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to
all the rights of action of said consignee against defendants (per "Form of Subrogation",
"Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations of the
complaint contending that: As for defendant Eastern Shipping it alleged that the shipment
was discharged in good order from the vessel unto the custody of Metro Port Service so that
any damage/losses incurred after the shipment was incurred after the shipment was turned
over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although
subject shipment was discharged unto its custody, portion of the same was already in bad
order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it,
not having negligent or at fault for the shipment was already in damage and bad order
condition when received by it, but nonetheless, it still exercised extra ordinary care and
diligence in the handling/delivery of the cargo to consignee in the same condition shipment
was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the
custody of defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the
losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-
Trial Brief, adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and
condition, as clearly shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was shipped (Exhs. B and
C). But when on December 12, 1981 the shipment was delivered to
defendant Metro Port Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages
were sustained while in the respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre operator (Metro Port)
and broker (Allied Brokerage). This becomes evident when the Marine
Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are
considered. In the latter notes, it is stated that when the shipment was
"landed on vessel" to dock of Pier # 15, South Harbor, Manila on
 December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet
No. 86427." The report further states that when defendant Allied
Brokerage withdrew the shipment from defendant arrastre operator's
custody on January 7, 1982, one drum was found opened without seal,
cello bag partly torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the
consignee, one drum was found with adulterated/faked contents. It is
obvious, therefore, that these losses/damages occurred before the
shipment reached the consignee while under the successive custodies of
defendants. Under Art. 1737 of the New Civil Code, the common carrier's
duty to observe extraordinary diligence in the vigilance of goods remains
in full force and effect even if the goods are temporarily unloaded and
stored in transit in the warehouse of the carrier at the place of destination,
until the consignee has been advised and has had reasonable opportunity
to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern
Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes"
(Exhs. 3-Eastern) states that on December 12, 1981 one drum was found
"open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per
annum from October 1, 1982, the date of filing of this complaints, until
fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed
US$500 per case or the CIF value of the loss, whichever is lesser, while the
liability of defendant Metro Port Service, Inc. shall be to the extent of the
actual invoice value of each package, crate box or container in no case to
exceed P5,000.00 each, pursuant to Section 6.01 of the Management
Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of
defendant/cross-claimant Allied Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn
therefrom is correct. As there is sufficient evidence that the shipment sustained damage
while in the successive possession of appellants, and therefore they are liable to the appellee,
as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion
on the part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT
SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE
OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF
THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE
RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel.
Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's 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 (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs.
Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are 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 (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals,
139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases
when such presumption of fault is not observed but these cases, enumerated in Article 17341 of the Civil Code,
are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering
the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable
in solidum,thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is similar to that of the
consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253
[1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged
with the obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a
given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which,
being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in
this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there
is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the
herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole
petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing
remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and
pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its
complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This
demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts
later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court
rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to
pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint
was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of
legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the
legal rate. Such interest normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered
upon unliquidated claims or damages, except when the demand can be established with
reasonable certainty." And as was held by this Court in Rivera vs. Perez,4 L-6998, February 29,
1956, if the suit were for damages, "unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25
Phil. 447; Lichauco v.Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to
Person and Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party
defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly
and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is
the value of the boat F B Pacita III together with its accessories, fishing gear and equipment
minus P80,000.00 which is the value of the insurance recovered and the amount of
P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of
May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of
June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's
fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis
supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained
the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the
appellate court's decision became final, the case was remanded to the lower court for execution, and
this was when the trial court issued its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the
petitioners contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary
Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest
for the loan, or forbearance of any money, goods, or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of interest, shall be twelve
(12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the
text)
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or
forbearance of any money, goods or credits. Any other kind of monetary judgment which has
nothing to do with, nor involving loans or forbearance of any money, goods or credits does
not fall within the coverage of the said law for it is not within the ambit of the authority
granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an
Action for Damages for injury to persons and loss of property and does not involve any loan,
much less forbearances of any money, goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article 2209 of the New Civil Code which
reads
Art. 2209. If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of interest agreed upon,
and in the absence of stipulation, the legal interest which is six percent per
annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The
case was for damages occasioned by an injury to person and loss of property. The trial court awarded private
respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest
thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this
Court8modified the interest award from 12% to 6% interest per annum but sustained the time computation
thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the
collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the
date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by
the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review,
the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special
and environmental circumstances of this case, we deem it reasonable to render a decision
imposing, as We do hereby impose, upon the defendant and the third-party defendants (with
the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00)
Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of
the building (including interest charges and lost rentals) and an additional ONE HUNDRED
THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon
the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest
per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary
costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis
supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount of the monetary award was in contravention
of law." The Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases
and, in its resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank
Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any
money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or
forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143
SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the
instant case, there is neither a loan or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the finality of the judgment. It is
delay in the payment of such final judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the
total sum, from the filing of the complaint until paid; in other words, as part of the judgment
for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for
review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court
reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and
P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by
the trial court,i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest
thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this
Court, while recognizing the right of the private respondent to recover damages, held the award, however, for
moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court12 thus set aside
the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent
the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral
and exemplary damages without, however, providing any legal interest thereon. When the decision was
appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental
dated October 31, 1972 is affirmed in all respects, with the modification that defendants-
appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and
severally, the amounts stated in the dispositive portion of the decision, including the sum of
P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date
of the filing of the complaint until fully paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial
court, and an entry of judgment was made. The writ of execution issued by the trial court directed that
only compensatory damages should earn interest at 6% per annum from the date of the filing of the
complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition
for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal
rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No.
416] does not apply to actions based on a breach of employment contract like the case at bar.
(Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the
time the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs. Angas,14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a
hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private
respondents certain sums of money as just compensation for their lands so expropriated "with legal interest
thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the
Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits
but expropriation of certain parcels of land for a public purpose, the payment of which is
without stipulation regarding interest, and the interest adjudged by the trial court is in the
nature of indemnity for damages. The legal interest required to be paid on the amount of just
compensation for the properties expropriated is manifestly in the form of indemnity for
damages for the delay in the payment thereof. Therefore, since the kind of interest involved
in the joint judgment of the lower court sought to be enforced in this case is interest by way
of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall
apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into
two groups according to the similarity of the issues involved and the corresponding rulings rendered by the
court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines
v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company
v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International
v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12%
(under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a
consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or
forbearance16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money,
goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the
payment of indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6%
interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully
paid.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION
that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall
be imposed on such amount upon finality of this decision until the payment thereof.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per SO ORDERED.
annum,17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in
holding that the running of the legal interest should be from the time of the filing of the complaint until fully
paid, the "second group" varied on the commencement of the running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a
quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof,' then, interest 'should be from the date of the
decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6%
interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case
ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment
amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of each
case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to
suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts18 is
breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 116923 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court24 at the rate of 6% per annum.25 No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty.26 Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
SECOND DIVISION
[G.R. No. 127897. November 15, 2001]DELSAN TRANSPORT LINES, INC., petitioner, vs. THE HON. COURT
OF APPEALS and AMERICAN HOME ASSURANCE CORPORATION,respondents
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No.
39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of Makati City, Branch
137, ordering petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six Hundred
Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution[2] dated January 21,
1997 which denied the subsequent motion for reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with
the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed to
transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under
the contract, petitioner took on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex
to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with the private
respondent, American Home Assurance Corporation.
On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank
in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred
Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) representing the insured value of the lost
cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the private respondent
demanded of the petitioner the same amount it paid to Caltex.
Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint
with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money. After the trial and
upon analyzing the evidence adduced, the trial court rendered a decision on November 29, 1990 dismissing the
complaint against herein petitioner without pronouncement as to cost. The trial court found that the vessel, MT
Maysun, was seaworthy to undertake the voyage as determined by the Philippine Coast Guard per Survey
Certificate Report No. M5-016-MH upon inspection during its annual dry-docking and that the incident was
caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier
(herein petitioner) from liability for the loss of its cargo.[3]
The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The appellate
court gave credence to the weather report issued by the Philippine Atmospheric, Geophysical and Astronomical
Services Administration (PAGASA for brevity) which showed that from 2:00 oclock to 8:00 oclock in the
morning on August 16, 1986, the wind speed remained at 10 to 20 knots per hour while the waves measured
from .7 to two (2) meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in
contrast to herein petitioners allegation that the waves were twenty (20) feet high. In the absence of any
explanation as to what may have caused the sinking of the vessel coupled with the finding that the same was
improperly manned, the appellate court ruled that the petitioner is liable on its obligation as common
carrier[4] to herein private respondent insurance company as subrogee of Caltex. The subsequent motion for
reconsideration of herein petitioner was denied by the appellate court.
Petitioner raised the following assignments of error in support of the instant petition,[5] to wit:
I cargo against the petitioner common carrier.[8] Article 2207 of the New Civil Code provides that:
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT.
II
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL PRESUMPTION THAT
THE VESSEL MT MAYSUN WAS SEAWORTHY.
III
THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE SUPREME COURT IN THE CASE OF
HOME INSURANCE CORPORATION V. COURT OF APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of the
Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance there is an implied warranty by the shipper that the ship is
seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in case the
vessel would later on be found as not seaworthy at the inception of the insurance. It theorized that when private
respondent paid Caltex the value of its lost cargo, the act of the private respondent is equivalent to a tacit
recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was not legally liable to
Caltex due to the latters breach of implied warranty under the marine insurance policy that the vessel was
seaworthy.
The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not seaworthy on
the ground that the marine officer who served as the chief mate of the vessel, Francisco Berina, was allegedly
not qualified.Under Section 116 of the Insurance Code of the Philippines, the implied warranty of seaworthiness
of the vessel, which the private respondent admitted as having been fulfilled by its payment of the insurance
proceeds to Caltex of its lost cargo, extends to the vessels complement. Besides, petitioner avers that although
Berina had merely a 2nd officers license, he was qualified to act as the vessels chief officer under Chapter
IV(403), Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. In fact, all the crew
and officers of MT Maysun were exonerated in the administrative investigation conducted by the Board of
Marine Inquiry after the subject accident.[6]
In any event, petitioner further avers that private respondent failed, for unknown reason, to present in
evidence during the trial of the instant case the subject marine cargo insurance policy it entered into with
Caltex. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs. CA,[7] the failure of the
private respondent to present the insurance policy in evidence is allegedly fatal to its claim inasmuch as there is
no way to determine the rights of the parties thereto.
Hence, the legal issues posed before the Court are:
I
Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo
amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against the
petitioner.
II
Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of
money for lack of cause of action.
We rule in the negative on both issues.
The payment made by the private respondent for the insured value of the lost cargo operates as waiver of
its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine
insurance policy.However, the same cannot be validly interpreted as an automatic admission of the vessels
seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under
its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory
right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated
the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the loss or injury.
 The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is
the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good
conscience ought to pay.[9] It is not dependent upon, nor does it grow out of, any privity of contract or upon
written assignment of claim. It accrues simply upon payment by the insurance company of the insurance
claim.[10] Consequently, the payment made by the private respondent (insurer) to Caltex (assured) operates as
an equitable assignment to the former of all the remedies which the latter may have against the petitioner.
From the nature of their business and for reasons of public policy, common carriers are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them,
according to all the circumstances of each case.[11] In the event of loss, destruction or deterioration of the
insured goods, common carriers shall be responsible unless the same is brought about, among others, by flood,
storm, earthquake, lightning or other natural disaster or calamity.[12] In all other cases, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence.[13]
In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner
attributes the sinking of MT Maysun to fortuitous event or force majeure. From the testimonies of Jaime Jarabe
and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it appears that a sudden and
unexpected change of weather condition occurred in the early morning of August 16, 1986; that at around 3:15
oclock in the morning a squall (unos) carrying strong winds with an approximate velocity of 30 knots per hour
and big waves averaging eighteen (18) to twenty (20) feet high, repeatedly buffeted MT Maysun causing it to
tilt, take in water and eventually sink with its cargo.[14] This tale of strong winds and big waves by the said
officers of the petitioner however, was effectively rebutted and belied by the weather report [15] from the
Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), the independent
government agency charged with monitoring weather and sea conditions, showing that from 2:00 oclock to
8:00 oclock in the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per
hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and Panay
Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled, petitioners vessel, MT Maysun,
sank with its entire cargo for the reason that it was not seaworthy. There was no squall or bad weather or
extremely poor sea condition in the vicinity when the said vessel sank.
The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and Francisco
Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to testify against the
interest of their employer, the herein petitioner common carrier.
Neither may petitioner escape liability by presenting in evidence certificates[16] that tend to show that at
the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for
voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the
time of the commencement of the voyage. As correctly observed by the Court of appeals:
At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do
not negate the presumption of unseaworthiness triggered by an unexplained sinking. Of certificates issued in
this regard, authorities are likewise clear as to their probative value, (thus):
Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the issuance of
certificates establishes seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62)
And also:
Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owners
obligation.Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel
or her stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has
no obligation in relation to seaworthiness. (Ibid.)[17]
Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely
concerns their respective administrative liabilities. It does not in any way operate to absolve the petitioner
common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance
over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of
which properly belongs to the courts.[18] In the case at bar, petitioner is liable for the insured value of the lost
cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as
common carrier[19] occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit.
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine
insurance policy is not indispensable in this case before the insurer may recover from the common carrier the
insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the
assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The
right of subrogation accrues simply upon payment by the insurance company of the insurance claim.[20]
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v.
CA[21] (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through several
stages with different parties involved in each stage. First, from the shipper to the port of departure; second,
from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S
Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to
the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private
respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the
absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from
the time it received the cargo until it finally delivered it to the consignee.Ordinarily, it cannot be held
responsible for the handling of the cargo before it actually received it. The insurance contract, which was not
presented in evidence in that case would have indicated the scope of the insurers liability, if any, since no
evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance
Corporation is not applicable to the case at bar. In contrast, there is no doubt that the cargo of industrial fuel oil
belonging to Caltex, in the case at bar, was lost while on board petitioners vessel, MT Maysun, which sank while
in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early morning of August 16, 1986.
WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of Appeals in
CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.
SECOND DIVISION
[G.R. No. 161833. July 8, 2005]PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner,
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
Decision[1] dated 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. SH9410306[2] 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. YJ-73564 DTD[5] 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
Damages[24] against 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 co-defendant 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 certification[30] 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 appealed[31] to the CA which rendered judgment on January 19, 2004 affirmingin
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 faciecase
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 oncertiorari.[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 mid-portion 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.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.
SECOND DIVISION Petitioner thereafter issued to respondent Purchase Order No. 13839, [3] dated 02 November 1989, for the
procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The
[G.R. No. 145483. November 19, 2004]LORENZO SHIPPING CORP., petitioner, vs. BJ MARTHEL purchase order was co-signed by Jose Go, Jr., petitioners vice-president, and Henry Pajarillo. Quoted hereunder
INTERNATIONAL, INC., respondent. is the pertinent portion of the purchase order:
DECISION
CHICO-NAZARIO, J.: Name of Description Qty. Amount
This is a petition for review seeking to set aside the Decision[1] of the Court of Appeals in CA-G.R. CV No.
54334 and its Resolution denying petitioners motion for reconsideration. CYL. LINER M/E 1 SET P477,000.00
The factual antecedents of this case are as follows:
Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used NOTHING FOLLOW
to own the cargo vessel M/V Dadiangas Express. INV. #

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading,
marketing, and selling of various industrial commodities. It is also an importer and distributor of different TERM OF PAYMENT: 25% DOWN PAYMENT
brands of engines and spare parts. 5 BI-MONTHLY INSTALLMENT[S]
Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of
From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the respondent ten postdated checks[4] to be drawn against the formers account with Allied Banking Corporation.
latters marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine The checks were supposed to represent the full payment of the aforementioned cylinder liner.
parts. Acceding to this request, respondent furnished petitioner with a formal quotation,[2] thus:
Subsequently, petitioner issued Purchase Order No. 14011,[5] dated 15 January 1990, for yet another unit
May 31, 1989 of cylinder liner. This purchase order stated the term of payment to be 25% upon delivery, balance payable in 5
MINQ-6093 bi-monthly equal installment[s].[6] Like the purchase order of 02 November 1989, the second purchase order
did not state the date of the cylinder liners delivery.
LORENZO SHIPPING LINES On 26 January 1990, respondent deposited petitioners check that was postdated 18 January 1990,
Pier 8, North Harbor however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine
Manila postdated checks were eventually returned by respondent to petitioner.

SUBJECT: PARTS FOR ENGINE MODEL The parties presented disparate accounts of what happened to the check which was previously
MITSUBISHI 6UET 52/60 dishonored. Petitioner claimed that it replaced said check with a good one, the proceeds of which were applied
to its other obligation to respondent. For its part, respondent insisted that it returned said postdated check to
petitioner.
Dear Mr. Go:
Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo
We are pleased to submit our offer for your above subject requirements. Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of
Tokyo.
Description Qty. Unit Price Total Price On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioners warehouse in North Harbor,
Manila. The sales invoices[7] evidencing the delivery of the cylinder liners both contain the notation subject to
Nozzle Tip 6 pcs. P 5,520.00 33,120.00 verification under which the signature of Eric Go, petitioners warehouseman, appeared.
Plunger & Barrel 6 pcs. 27,630.00 165,780.00 Respondent thereafter sent a Statement of Account dated 15 November 1990 [8] to petitioner. While the
Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00 other items listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to
Cylinder Liner 1 set 477,000.00 petitioner on 20 April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondents vice-
TOTAL PRICE FOB P2,745,900.00 president, sent a demand letter dated 02 January 1991[9] to petitioner requiring the latter to pay the value of the
MANILA ___________ cylinder liners subjects of this case. Instead of heeding the demand of respondent for the full payment of the
DELIVERY: Within 2 months after receipt of firm order. value of the cylinder liners, petitioner sent the former a letter dated 12 March 1991 [10] offering to pay only
TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal P150,000 for the cylinder liners. In said letter, petitioner claimed that as the cylinder liners were delivered late
Installment[s] not to exceed 90 days. and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in
We trust you find our above offer acceptable and look forward to your most valued order. Singapore and pay the balance from the proceeds of said sale.
Shortly thereafter, another demand letter dated 27 March 1991[11] was furnished petitioner by
Very truly yours, respondents counsel requiring the former to settle its obligation to respondent together with accrued interest
and attorneys fees.
(SGD) HENRY PAJARILLO Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and
Sales Manager damages before the Regional Trial Court (RTC) of Makati City. In its complaint,[12] respondent (plaintiff below)
alleged that despite its repeated oral and written demands, petitioner obstinately refused to settle its
obligations. Respondent prayed that petitioner be ordered to pay for the value of the cylinder liners plus
accrued interest of P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from
June 1991 until the full payment of the principal; attorneys fees; costs of suits; exemplary damages; actual
damages; and compensatory damages.
On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended complaint
with preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of Court. [13] Aside from the
prayer for the issuance of writ of preliminary attachment, the amendments also pertained to the issuance by
petitioner of the postdated checks and the amounts of damages claimed.
In an Order dated 25 July 1991,[14] the court a quo granted respondents prayer for the issuance of a
preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of
Attachment[15] attaching thereto a counter-bond as required by the Rules of Court. On even date, the trial court
issued an Order[16] lifting the levy on petitioners properties and the garnishment of its bank accounts.
Petitioner afterwards filed its Answer[17] alleging therein that time was of the essence in the delivery of
the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent committed to
deliver said items within two (2) months after receipt of firm order [18] from petitioner. Petitioner likewise
sought counterclaims for moral damages, exemplary damages, attorneys fees plus appearance fees, and
expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25
October 1991.[19] The amendment introduced dealt solely with the number of postdated checks issued by
petitioner as full payment for the first cylinder liner it ordered from respondent. Whereas in the first amended
complaint, only nine postdated checks were involved, in its second amended complaint, respondent claimed
that petitioner actually issued ten postdated checks. Despite the opposition by petitioner, the trial court
admitted respondents Second Amended Complaint with Preliminary Attachment.[20]
Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder
Liners)[21]alleging therein that [w]ith the passage of time and with no definite end in sight to the present
litigation, the cylinder liners run the risk of obsolescence and deterioration [22] to the prejudice of the parties to
this case. Thus, petitioner prayed that it be allowed to sell the cylinder liners at the best possible price and to
place the proceeds of said sale in escrow. This motion, unopposed by respondent, was granted by the trial court
through the Order of 17 March 1991.[23]
After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:
WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is ordered to pay
P50,000.00 to the defendant as and by way of attorneys fees.[24]
The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect
to the terms of payment and delivery of the cylinder liners. It also declared that respondent had agreed to the
cancellation of the contract of sale when it returned the postdated checks issued by petitioner. Respondents
counterclaims for moral, exemplary, and compensatory damages were dismissed for insufficiency of evidence.
Respondent moved for the reconsideration of the trial courts Decision but the motion was denied for lack
of merit.[25]
Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals [26]which
reversed and set aside the Decision of the court a quo. The appellate court brushed aside petitioners claim that
time was of the essence in the contract of sale between the parties herein considering the fact that a significant
period of time had lapsed between respondents offer and the issuance by petitioner of its purchase orders. The
dispositive portion of the Decision of the appellate court states:
WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is hereby ORDERED to
pay the appellant the amount of P954,000.00, and accrued interest computed at 14% per annum reckoned from
May, 1991.[27]
The Court of Appeals also held that respondent could not have incurred delay in the delivery of cylinder
liners as no demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the
express provision of Article 1169 of the Civil Code which provides:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders by
petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances.
On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of Appeals but
this was denied through the resolution of 06 October 2000.[28] Hence, this petition for review which basically
raises the issues of whether or not respondent incurred delay in performing its obligation under the contract of
sale and whether or not said contract was validly rescinded by petitioner.
That a contract of sale was entered into by the parties is not disputed. Petitioner, however, maintains that
its obligation to pay fully the purchase price was extinguished because the adverted contract was validly
terminated due to respondents failure to deliver the cylinder liners within the two-month period stated in the
formal quotation dated 31 May 1989.
The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify
petitioner to disregard the terms of the contract considering that time was of the essence thereof?
In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent
intention of the parties and before time may be so regarded by a court, there must be a sufficient manifestation,
either in the contract itself or the surrounding circumstances of that intention.[29] Petitioner insists that although
its purchase orders did not specify the dates when the cylinder liners were supposed to be delivered,
nevertheless, respondent should abide by the term of delivery appearing on the quotation it submitted to
petitioner.[30] Petitioner theorizes that the quotation embodied the offer from respondent while the purchase
order represented its (petitioners) acceptance of the proposed terms of the contract of sale. [31] Thus, petitioner
is of the view that these two documents cannot be taken separately as if there were two distinct
contracts.[32] We do not agree.
It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as
to the intention of the contracting parties, the literal meaning shall control.[33] However, in order to ascertain
the intention of the parties, their contemporaneous and subsequent acts should be considered.[34] While this
Court recognizes the principle that contracts are respected as the law between the contracting parties, this
principle is tempered by the rule that the intention of the parties is primordial [35]and once the intention of the
parties has been ascertained, that element is deemed as an integral part of the contract as though it has been
originally expressed in unequivocal terms.[36]
In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves,
embody the terms of the sale of the cylinder liners. One can easily glean the significant differences in the terms
as stated in the formal quotation and Purchase Order No. 13839 with regard to the due date of the down
payment for the first cylinder liner and the date of its delivery as well as Purchase Order No. 14011 with respect
to the date of delivery of the second cylinder liner. While the quotation provided by respondent evidently
stated that the cylinder liners were supposed to be delivered within two months from receipt of the firm order
of petitioner and that the 25% down payment was due upon the cylinder liners delivery, the purchase orders
prepared by petitioner clearly omitted these significant items. The petitioners Purchase Order No. 13839 made
no mention at all of the due dates of delivery of the first cylinder liner and of the payment of 25% down
payment. Its Purchase Order No. 14011 likewise did not indicate the due date of delivery of the second cylinder
liner.
In the case of Bugatti v. Court of Appeals,[37] we reiterated the principle that [a] contract undergoes three
distinct stages preparation or negotiation, its perfection, and finally, its consummation. Negotiationbegins from
the time the prospective contracting parties manifest their interest in the contract and ends at the moment of
agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the
essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill
or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.
In the instant case, the formal quotation provided by respondent represented the negotiation phase of the
subject contract of sale between the parties. As of that time, the parties had not yet reached an agreement as
regards the terms and conditions of the contract of sale of the cylinder liners. Petitioner could very well have
ignored the offer or tendered a counter-offer to respondent while the latter could have, under the pertinent
provision of the Civil Code,[38] withdrawn or modified the same. The parties were at liberty to discuss the
provisions of the contract of sale prior to its perfection. In this connection, we turn to the testimonies of
Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed, renegotiated prior to the issuance of Purchase
Order No. 13839.
During the hearing of the case on 28 January 1993, Pajarillo testified as follows:
Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping
Corporation dated rather marked as Exhibit A stating the terms of payment and delivery of the
cylinder liner, did you not?
A: Yes sir.
Q: I am showing to you the quotation which is marked as Exhibit A there appears in the quotation
that the delivery of the cylinder liner will be made in two months time from the time you
received the confirmation of the order. Is that correct?
A: Yes sir.
Q: Now, after you made the formal quotation which is Exhibit A how long a time did the defendant
make a confirmation of the order?
A: After six months.
Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?
A: Yes sir.
Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of
payment which you required of them of 25% down payment, now, it is stated in the purchase
order the date of delivery, will you explain to the court why the date of delivery of the cylinder
liner was not mentioned in the purchase order which is the contract between you and Lorenzo
Shipping Corporation?
A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired
[with] our supplier in Japan to give us the price and delivery of that item. When we received
that quotation from our supplier it is stated there that they can deliver within two months but
we have to get our confirmed order within June.
Q: But were you able to confirm the order from your Japanese supplier on June of that year?
A: No sir.
Q: Why? Will you tell the court why you were not able to confirm your order with your Japanese
supplier?
A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner.
Q: And it was only on November 2, 1989 when they gave you the purchase order?
A: Yes sir.
Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the
order with your Japanese supplier after receiving the purchase order dated November 2, 1989?
A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%.[39]
For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in the
following manner:
WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was agreed
upon by both parties was 25% down payment.
Q: When?
A: Upon confirmation of the order.
...
Q: And when was the down payment supposed to be paid?
A: It was not stated when we were supposed to receive that. Normally, we expect to receive at the
earliest possible time. Again, that would depend on the customers. Even after receipt of the
purchase order which was what happened here, they re-negotiated the terms and sometimes
we do accept that.
Q: Was there a re-negotiation of this term?
A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.
Q: What was the re-negotiated term?
A: 25% down payment
Q: To be paid when?
A: Supposed to be paid upon order.[40]
The above declarations remain unassailed. Other than its bare assertion that the subject contracts of sale
did not undergo further renegotiation, petitioner failed to proffer sufficient evidence to refute the above
testimonies of Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No. 14011
yet it utterly failed to adduce any justification as to why said documents contained terms which are at variance
with those stated in the quotation provided by respondent. The only plausible reason for such failure on the
part of petitioner is that the parties had, in fact, renegotiated the proposed terms of the contract of sale.
Moreover, as the obscurity in the terms of the contract between respondent and petitioner was caused by the
latter when it omitted the date of delivery of the cylinder liners in the purchase orders and varied the term with
respect to the due date of the down payment,[41] said obscurity must be resolved against it.[42]
Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti,[43] instructive. There,
we held that
When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence of
the contract. . . .
In such cases, the delivery must be made within a reasonable time. The law explicitly gives either party the right to rescind the contract only upon the failure of the other to
perform the obligation assumed thereunder.[48] The right, however, is not an unbridled one. This Court in the
The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the case of University of the Philippines v. De los Angeles,[49] speaking through the eminent civilist Justice J.B.L. Reyes,
absence of anything to show that an immediate delivery intended. . . . exhorts:
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on
We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for account of infractions by the other contracting party must be made known to the other and is always provisional,
dry dock repair and maintenance of its M/V Dadiangas Express between the later part of December 1989 to being ever subject to scrutiny and review by the proper court. If the other party denied that rescission is
early January 1990, the record is bereft of any indication that respondent was aware of such fact. The failure of justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the
petitioner to notify respondent of said date is fatal to its claim that time was of the essence in the subject court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will
contracts of sale. be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity
awarded to the party prejudiced. (Emphasis supplied)
In addition, we quote, with approval, the keen observation of the Court of Appeals:
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act
. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and January 15, accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the
1990, no specific date of delivery was indicated therein. If time was really of the essence as claimed by the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in
appellee, they should have stated the same in the said purchase orders, and not merely relied on the quotation law. But the law definitely does not require that the contracting party who believes itself injured must first file
issued by the appellant considering the lapse of time between the quotation issued by the appellant and the suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party
purchase orders of the appellee. injured by the others breach will have to passively sit and watch its damages accumulate during the pendency
of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise
In the instant case, the appellee should have provided for an allowance of time and made the purchase order due diligence to minimize its own damages.[50]
earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the first week of
January, 1990. In fact, the appellee should have cancelled the first purchase order when the cylinder liner was Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale
not delivered on the date it now says was necessary. Instead it issued another purchase order for the second between them. Quite the contrary, respondents act of proceeding with the opening of an irrevocable letter of
set of cylinder liner. This fact negates appellees claim that time was indeed of the essence in the consummation credit on 23 February 1990 belies petitioners claim that it notified respondent of the cancellation of the
of the contract of sale between the parties.[44] contract of sale. Truly, no prudent businessman would pursue such action knowing that the contract of sale, for
which the letter of credit was opened, was already rescinded by the other party.
Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision
as full payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January 1990 fail of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED.
to impress. It is not an indication of failure to honor a commitment on the part of the respondent. The earliest No costs.
maturity date of the checks was 18 January 1990. As delivery of said checks could produce the effect of
payment only when they have been cashed,[45] respondents obligation to deliver the first cylinder liner could SO ORDERED.
not have arisen as early as 02 January 1990 as claimed by petitioner since by that time, petitioner had yet to Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
fulfill its undertaking to fully pay for the value of the first cylinder liner. As explained by respondent, it
proceeded with the placement of the order for the cylinder liners with its principal in Japan solely on the basis
of its previously harmonious business relationship with petitioner.
As an aside, let it be underscored that [e]ven where time is of the essence, a breach of the contract in that
respect by one of the parties may be waived by the other partys subsequently treating the contract as still in
force.[46] Petitioners receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990
clearly indicates that it considered the contract of sale to be still subsisting up to that time. Indeed, had the
contract of sale been cancelled already as claimed by petitioner, it no longer had any business receiving the
cylinder liners even if said receipt was subject to verification. By accepting the cylinder liners when these were
delivered to its warehouse, petitioner indisputably waived the claimed delay in the delivery of said items.
We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the cylinder
liners on 20 April 1990 was made within a reasonable period of time considering that respondent had to place
the order for the cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy
volume of work.[47]
There having been no failure on the part of the respondent to perform its obligation, the power to rescind
the contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167363 December 15, 2010
SEALOADER SHIPPING CORPORATION, Petitioner,
vs.
GRAND CEMENT MANUFACTURING CORPORATION, JOYCE LAUNCH & TUG CO., INC., ROMULO DIANTAN &
JOHNNY PONCE, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 177466
TAIHEIYO CEMENT PHILIPPINES, INC. (Formerly Grand Cement Manufacturing Corporation), Petitioner,
vs.
SEALOADER SHIPPING CORPORATION, JOYCE LAUNCH & TUG CO., INC., ROMULO DIANTAN & JOHNNY
PONCE, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
For consideration of the Court are two Petitions for Review on Certiorari1 under Rule 45 of the Rules of Court,
both seeking to challenge the Amended Decision2 dated March 3, 2005 of the Court of Appeals in CA-G.R. CV No.
65083. The Amended Decision reduced by 50% the award of actual damages that was previously granted in the
Decision3 dated April 19, 1999 of the Regional Trial Court (RTC) of Cebu City, Branch 58, in Civil Case No. CEB-
16602 and affirmed by the Court of Appeals in its earlier Decision 4 dated November 12, 2004.
The antecedents of the case are presented hereunder:
Sealoader Shipping Corporation (Sealoader) is a domestic corporation engaged in the business of shipping and
hauling cargo from one point to another using sea-going inter-island barges.5 Grand Cement Manufacturing
Corporation (now Taiheiyo Cement Philippines, Inc.), on the other hand, is a domestic corporation engaged in
the business of manufacturing and selling cement through its authorized distributors and, for which purposes, it
maintains its own private wharf in San Fernando, Cebu, Philippines.6
On March 24, 1993, Sealoader executed a Time Charter Party Agreement 7 with Joyce Launch and Tug Co., Inc.
(Joyce Launch), a domestic corporation, which owned and operated the motor tugboat M/T Viper. By virtue of
the agreement, Sealoader chartered the M/T Viper in order to tow the formers unpropelled barges for a
minimum period of fifteen days from the date of acceptance, renewable on a fifteen-day basis upon mutual
agreement of the parties.8
Subsequently, Sealoader entered into a contract with Grand Cement for the loading of cement clinkers and the
delivery thereof to Manila. On March 31, 1994, Sealoaders barge, the D/B Toploader, arrived at the wharf of
Grand Cement tugged by the M/T Viper. The D/B Toploader, however, was not immediately loaded with its
intended cargo as the employees of Grand Cement were still loading another vessel, the Cargo Lift Tres.
On April 4, 1994, Typhoon Bising struck the Visayas area, with maximum recorded winds of 120 kilometers per
hour. Public storm signal number 3 was raised over the province of Cebu. The D/B Toploader was, at that time,
still docked at the wharf of Grand Cement. In the afternoon of said date, as the winds blew stronger and the
waves grew higher, the M/T Viper tried to tow the D/B Toploader away from the wharf. The efforts of the
tugboat were foiled, however, as the towing line connecting the two vessels snapped. This occurred as the
mooring lines securing the D/B Toploader to the wharf were not cast off. The following day, the employees of
Grand Cement discovered the D/B Toploader situated on top of the wharf, apparently having rammed the same
and causing significant damage thereto.
On October 3, 1994, Grand Cement filed a Complaint for Damages9 against Sealoader; Romulo Diantan, the
Captain of the M/T Viper; and Johnny Ponce, the Barge Patron of the D/B Toploader. The complaint was
docketed as Civil Case No. CEB-16602 before the RTC of Cebu City, Branch 58. Grand Cement claimed, among
others, that when the D/B Toploader arrived at its wharf on March 31, 1994, the same was not properly
secured. Likewise, the storm warnings for Typhoon Bising were allegedly circulated to the public as early as
6:00 a.m. of April 4, 1994 through radio and print media. Grand Cement stated that after it received the weather
updates for that day, it immediately advised Romulo Diantan and Johnny Ponce to move their respective vessels
away from the wharf to a safer berthing area. Both men allegedly refused to do so, with Romulo Diantan even
abandoning the D/B Toploader in the critical hours in the afternoon. Because of the strong winds of Typhoon
Bising, the D/B Toploader was forced to smash against the wharf of Grand Cement. On April 7, 1994, Grand
Cement sent a letter10addressed to Johnny Ponce, demanding the payment of the cost of the damage to the
wharf in the amount of 2,423,318.58. As Grand Cement still failed to receive a reply, it sought the assistance of
the Coast Guard Investigation Service Detachment in Cebu. The said office scheduled consecutive hearings, but
Sealoader allegedly did not appear. Hence, Grand Cement filed the complaint, praying that the defendants
named therein be ordered to pay jointly and severally the amount of 2,423,318.58 as actual damages, plus
1,000,000.00 as compensatory damages, 200,000.00 as attorneys fees, and 100,000.00 as litigation
expenses and other costs.
On November 25, 1994, Sealoader filed a motion to dismiss11 the complaint. Sealoader insisted that Joyce
Launch should have been sued in its stead, as the latter was the owner and operator of the M/T Viper. Having
complete physical control of the M/T Viper, as well as the towing, docking, mooring and berthing of the D/B
Toploader, Sealoader maintained that Joyce Launch should be held liable for the negligent acts of the latters
employees who were manning the M/T Viper.
Before the RTC could hear the above motion, Grand Cement filed on December 14, 1994, an Amended
Complaint,12 impleading Joyce Launch as one of the party defendants. The RTC admitted the Amended
Complaint and ordered that summons be issued to Joyce Launch.13
On January 2, 1995, Sealoader instituted a Cross-claim14 against Joyce Launch and Romulo Diantan. Sealoader
reiterated that the M/T Viper was under the complete command, control, supervision and management of Joyce
Launch through Romulo Diantan and the crew, all of whom were employed by Joyce Launch. Sealoader posited
that Joyce Launch had the sole duty and responsibility to secure the M/T Viper and the D/B Toploader in order
to avert any damage to the properties of third parties. Thus, Sealoader pleaded that, should it be adjudged liable
to pay the damages sought by Grand Cement, Joyce Launch should likewise be ordered to reimburse Sealoader
any and all amounts that the latter is ordered to pay.
On January 4, 1995, Sealoader filed its Answer15 to the amended complaint, maintaining that it only had the
right to use the M/T Viper for the purposes for which the tugboat was chartered and nothing more. Sealoader
pointed out that Grand Cement did not initiate the loading of the D/B Toploader notwithstanding the fact that
the said barge had been docked at the latters wharf long before Typhoon Bising came on April 4, 1994. As the
typhoon was a force majeure, the damage it brought upon the wharf of Grand Cement was allegedly beyond the
control of Sealoader. The Clearing Officer of Sealoader, Emar Acosta, also appeared before the Coast Guard
Investigation Service Detachment in Cebu to testify on the circumstances that occurred when Typhoon Bising
struck. Sealoader also instituted a counterclaim against Grand Cement and sought the payment of exemplary
damages, attorneys fees and expenses of litigation.
On March 14, 1995, Joyce Launch posted its Answer16 to the cross-claim of Sealoader, asserting that the damage
sustained by the wharf of Grand Cement was not due to the gross negligence of the M/T Viper crew but due to
the force majeure that was Typhoon Bising. Joyce Launch also claimed that the wharf was not equipped with
rubber fenders and finger jutes, such that the same could easily be damaged by strong waves and winds even
without any vessel berthed thereat. When the typhoon struck, the employees of Grand Cement allegedly
abandoned the wharf, thus, leaving the crew of the M/T Viper helpless in preventing the D/B Toploader from
ramming the wharf. Joyce Launch likewise faulted Grand Cements employees for not warning the crew of the
M/T Viper early on to seek refuge from the typhoon.
In its Answer17 to the amended complaint, Joyce Launch reprised its argument that the resultant damage to the
wharf of Grand Cement was brought about by a fortuitous event, of which it was belatedly warned. Joyce
Launch insisted that, if only the loading of the D/B Toploader proceeded as scheduled, the M/T Viper could have
tugged the barge away from the wharf before the typhoon struck. Joyce Launch prayed for the dismissal of the
complaint and the cross-claim against it, as well as the payment of attorneys fees and litigation expenses, by
way of counterclaim against Grand Cement.
The trial of the case ensued thereafter.
On May 14, 1997, Grand Cement presented ex parte its first witness, Rolando Buhisan, in order to establish the
factual allegations in the complaint and to prove the damages sought therein.18 Buhisan stated that, in 1994, he
became the head of the civil engineering department of Grand Cement. The primary duty of the said office was
to estimate expenses, as well as to investigate or inspect the implemented projects under the said
department.19Buhisan related that on April 5, 1994, he was instructed to investigate the damage caused by the
D/B Toploader on the wharf of Grand Cement.20 After inspecting the damage on the top and bottom sides of the
pier, Buhisan immediately made an estimate of the total cost of repairs and sent it to the Senior Vice President
of Grand Cement.21 On April 17, 1994, Grand Cement sent a letter to Johnny Ponce, the Barge Patron of the D/B
Toploader, demanding that he pay the estimated cost of damage. 22 The demand, however, was not
paid.23Buhisan said that the estimated total cost was about 2,640,000.00, more or less.24
The next witness also put forward ex parte by Grand Cement, on May 16, 1997, was Wennie C. Saniel. As the
Corporate Affairs Manager of Grand Cement, Saniel testified that he was responsible for keeping the company
documents and was likewise in charge of the internal and external functions of the company, the claims for
damages, and the keeping of the policies required for minor claims.25 Saniel pertinently stated that, on April 4,
1994, he gave instructions for the pullout of the D/B Toploader from the wharf in view of the incoming
typhoon.26As the instructions were ignored, Grand Cement resultantly suffered damages estimated to be around
2.4 million.27 The cost of repairs made on the wharf was 2,362,358.20.28
Subsequently, in an Order29 dated November 12, 1997, the RTC granted the manifestation of Grand Cement to
drop Romulo Diantan as a party defendant. The latter was, at that time, already working abroad and cannot be
served with summons and a copy of the complaint.
On February 26, 1998, the RTC granted30 the motion of Sealoader to take the testimonies of its witnesses by
depositions upon written interrogatories.
Thus, on March 16, 1998, the deposition31 of Marita S. Santos was taken by Sealoader in order to prove that the
damage to the wharf of Grand Cement was caused by force majeure, as well as the negligent acts and omissions
of Grand Cement and Joyce Launch. Santos declared that she was the General Manager of Sealoader. She related
that Sealoader and Joyce Launch entered into a Time Charter Party Agreement on March 24, 1993.32 In
accordance with the contract, Joyce Launch would provide a tugboat, the M/T Viper, to tow the barge of
Sealoader. On March 31, 1994, Sealoaders barge, the D/B Toploader, was towed by the M/T Viper to the wharf
of Grand Cement in San Fernando, Cebu. Upon arrival, Sealoaders Clearing Officer, Emar Acosta, notified Grand
Cement that the D/B Toploader was ready to load. The crew of the barge then waited as Grand Cement had
three days from notice to load cargo into the barge. Despite waiting for several days, Santos averred that Grand
Cement did not load the barge. Santos explained that there are demurrage charges if Grand Cement failed to
complete the loading within three days from the commencement thereof. In the afternoon of April 4, 1994, the
crew of the D/B Toploader received notice that Typhoon Bising was expected to batter the Cebu province. The
crew then looked for Romulo Diantan, the captain of the M/T Viper, to direct him to tow the barge to a safer
place.33 At around 3:00 p.m., the crew of the barge found Diantan trying to maneuver the M/T Viper to tow the
D/B Toploader away from the wharf. The M/T Viper failed to tow the barge since the mooring lines were not
cast off and the arrastre responsible for the same were not at the wharf. The towing line connecting the M/T
Viper to the D/B Toploader then snapped with the force of the strong winds and the weight of the vessels. The
crew of the M/T Viper tried to connect another towing line to the D/B Toploader but they failed to do so
because of the big waves. The M/T Viper drifted away to the Bohol area, while the D/B Toploader ran
aground.34
Santos contended that Sealoader was not liable for the damage given that the wharf was still under construction
at that time and Grand Cement was completely responsible for the pulling out of the vessels docked
therein.35 Also, had Grand Cement loaded the D/B Toploader with cargo before April 4, 1994, the accident could
have been averted. Santos further stressed that, since the D/B Toploader had no engine, the M/T Viper was
responsible for towing the barge to safety. Finally, Santos asserted that Typhoon Bising was an act of God;
hence, the parties had to suffer their respective losses.36
In reply to the written cross-interrogatories submitted by the counsel of Grand Cement, Santos stated that, after
Sealoader chartered the M/T Viper, they communicated with the tugboat by means of SSB radio and sometimes
through messages with other vessels. The SSB radio of Sealoader was allegedly operational on the months of
March and April 1994. Santos declared that Sealoader gets weather forecasts twice a day, every 12 hours, from
the Japan Meteorological Company.37 Santos admitted that Sealoader received the weather bulletin issued by
PAGASA regarding Typhoon Bising at 5:00 a.m. of April 3, 1994. Sealoader, however, was not able to relay the
information to the M/T Viper as radio reception was poor. Sealoader tried to communicate through the
operator of another vessel, the Tugboat BJay, but the reception was likewise weak. Consequently, the
succeeding weather forecasts were also not conveyed to the M/T Viper.38
The deposition of Emar A. Acosta was also taken by Sealoader on March 16, 1998 to negate the alleged liability
of Sealoader to Grand Cement. Acosta stated that he was the Clearing Officer of Sealoader from 1992 to 1997.
On March 31, 1994, he was on board the M/T Viper, which tugged the D/B Toploader to the wharf of Grand
Cement. Upon their arrival on said date, Acosta informed Grand Cement, through the latters representative
Jaime Nobleza, that the D/B Toploader was ready to be loaded.39 Nobleza supposedly told Acosta to wait as
another vessel was being loaded at that time. Thereafter, on April 4, 1994, Typhoon Bising struck. At around
3:00 p.m. of said date, Romulo Diantan tried to steer the M/T Viper in an effort to pull the D/B Toploader away
from the wharf, as the waves grew stronger. The lines between the vessels snapped as the D/B Toploader was
still moored to the wharf. The arrastre were supposed to cast off the mooring lines but there was nobody on the
wharf during the typhoon.40Acosta explained that the M/T Viper did not tow the D/B Toploader before the
typhoon intensified because there were no instructions from Nobleza to pull out from the wharf. Acosta pointed
out that the employees of Grand Cement were still loading another vessel at around 1:00 p.m. on April 4,
1994.41 Lastly, Acosta presented the Sworn Statement42 he executed before the Coast Guard on July 26, 1994 to
affirm the truth of his statements in connection with the incident in question.
Acosta also answered written cross-interrogatories submitted by the counsel of Grand Cement on July 9, 1998.
Upon being asked if he had the authority to direct where and when the D/B Toploader and the M/T Viper will
go, Acosta answered in the affirmative. He likewise acknowledged that he was authorized to order the
withdrawal of the vessels from any wharf at any given time, through the captain of the M/T Viper. Acosta added
that he first came to know of the typhoon when Romulo Diantan told him so, while the latter was maneuvering
the M/T Viper away from the wharf. Acosta claimed that it was not his duty to receive weather forecasts and the
same was gathered by the crew of the M/T Viper.43 Acosta also said that the D/B Toploader was equipped with
a handheld radio, while the M/T Viper had a SSB radio. Acosta further stated that he did not order the
withdrawal of the D/B Toploader away from the wharf because they were waiting for Grand Cement to load
their barge and he had no knowledge of the typhoon until it struck the wharf.44
On November 4, 1998, Grand Cement called on Jaime Nobleza to the witness stand in order to rebut the
testimonies of Santos and Acosta. Nobleza testified that he was the Ward Coordinator of Grand Cement from
1993-1995, whose duties were to monitor the loading operations at the Grand Cement pier, to oversee the
general situation therein, and to receive and disseminate information to the vessels and his superior. 45 Nobleza
contradicted the statement of Acosta that there was no instruction to pull the D/B Toploader away from the
wharf. Nobleza said that Acosta was aware of the typhoon as early as April 3, 1994. When Nobleza learned that
typhoon signal number 1 was raised in the Central Visayas region, he discussed the same with Acosta and
advised him of the possible towing of the D/B Toploader to a safer place. Acosta allegedly told Nobleza that the
typhoon was still far. At about 9:00 a.m. on April 4, 1994, Nobleza boarded the D/B Toploader and advised
Acosta to remove the barge from the wharf since the weather was already deteriorating. Acosta did not heed the
instructions and instead told Nobleza that the anchor of the vessel and the cable wire attached thereto were
strong enough to withstand the typhoon.46 The last time that Nobleza directed Acosta to pull out the barge from
the wharf was at 2:00 p.m. on April 4, 1994. About 15 minutes thereafter, the operations of the wharf were
suspended. Contrary to the claim of Acosta, Nobleza averred that during the typhoon, he was at the wharf along
with a roving guard and four other people from the arrastre.47
Nobleza further testified that he did not receive any request for the casting off of the mooring lines, which
connected the D/B Toploader to the wharf. Nobleza said that it was also not proper to simply cast off the
mooring lines without the proper coordination with the crew of the barge because the vessel might no longer be
maneuvered and would drift out to sea.48 Anent the alleged failure of Grand Cement to load cargo on the D/B
Toploader on time, Nobleza countered that Santos was aware of this since the latter was told that the barge will
be loaded only after the loading of the Cargo Lift Tres was completed.49
On cross-examination, Nobleza articulated that Grand Cement took days to load just one vessel because the sea
was not cooperative and they had to stop loading at times. At around 9:00 a.m. on April 4, 1994, despite telling
Acosta to pull out the D/B Toploader from the wharf, Nobleza admitted that they did not suspend the loading of
the Cargo Lift Tres. He explained that the vessel was grounded in the shallow waters and it was already loaded
with clinkers.50 Nobleza testified that he remained at the vicinity of the wharf at around 4:00 p.m. on April 4,
1994.51
Finally, on December 9, 1998, Sealoader presented Renee Cayang as a surrebuttal witness to prove that Nobleza
was not at the wharf when Typhoon Bising struck. Cayang stated that he was the Assistant Barge Patron of the
D/B Toploader at the time of the incident on question. On April 4, 1994, he was on board the D/B
Toploader.52Cayang testified that he did not see Nobleza either on board the D/B Toploader, before the typhoon
struck, or at the wharf at the time of the typhoon. Cayang also asserted that there was nobody at the wharf at
that time.53
At his cross-examination, Cayang said that, during the entire afternoon of April 4, 1994, he stayed inside the
compartment of the D/B Toploader where the officers were usually stationed. 54 Cayang revealed that they were
waiting for the master of the barge to arrive. When asked if there was a radio on board the barge, Cayang
replied in the negative. He also disclosed that nobody notified them of the typhoon and they only came to know
about the same when their vessel was hit.55 Cayang stated that Nobleza stayed in the guardhouse of Grand
Cement on April 4, 1994 and the latter did not go to the wharf. 56 Cayang alleged that, on their end, there was no
advice to pull out the D/B Toploader and that was why they were waiting for somebody to cast off the mooring
lines. On re-direct examination, however, Cayang said that there were stevedores present at that time who were
in a position to cast off the mooring lines.57
On April 19, 1999, the RTC rendered a decision on Civil Case No. 161602, declaring that:
From the evidence adduced, the Court is of the view that the defendants are guilty of negligence, which caused
damage to the [Grand Cements] wharf. The defendants negligence can be shown from their acts or omissions,
thus: they did not take any precautionary measure as demanded or required of them in complete disregard of
the public storm signal or warning; the master or captain or the responsible crew member of the vessel was not
in the vessel, hence, nobody could make any move or action for the safety of the vessel at such time of
emergency or catastrophe; and the vessel was not equipped with a radio or any navigational communication
facility, which is a mandatory requirement for all navigational vessels.
On the second issue: Re: Damages. As the defendants are guilty of negligence, [Grand Cement] is entitled to
recover damages from them. Even the failure of the defendants to equip their vessel with the communication
facility, such as radio, such failure is undisputedly a negligence. x x x Had defendants been mindful enough to
equip their vessel with a radio, a responsible crew member of the vessel would have been informed through the
radio of the incoming typhoon and the notice from the [Grand Cement] about the said typhoon would have been
of no concern to the defendant and/or the responsible crew members of the vessel. The safety of the vessel and
the avoidance of injury or damage to another should be the primary concern of the defendants and/or the crew
members themselves.
xxxx
The damage to [Grand Cements] private wharf was caused by the negligence of both defendants Sealoader and
Joyce Launch as well as their employees, who are the complements of the barge Toploader and the tugboat M/T
Viper. Said defendants are also responsible for the negligence of their employees, as the law says:
"Art. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but
also for those persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry." (Civil Code)
The Court finds sufficient and competent evidence to award [Grand Cement] actual or compensatory damages
in the amount of 2,362,358.20 x x x. Likewise, as [Grand Cement] has engaged the services of counsel because
of defendants act or omission and has incurred expenses to protect its interest (Art. 2208, par. (2), Civil Code),
[Grand Cement] should recover the sum of 50,000.00 as attorneys fees and another sum of 10,000.00 as
litigation expenses. The defendants are held liable to pay all these damages, and their liability is solidary (Art.
2194, Civil Code).
As to the counterclaim, considering the findings of Court, which are adverse to the defendants, the counterclaim
has become without basis, hence, should be dismissed.
WHEREFORE, premises considered, judgment is hereby rendered in favor of [Grand Cement] and against the
defendants by ordering the defendants Sealoader Shipping Corporation, Joyce Launch and Tug Company, Inc.
and Johnny Ponce to pay jointly and severally to the [Grand Cement] the sum of Pesos Two Millions Three
Hundred Sixty Two Thousand Three Hundred Fifty Eight and 20/ centavos (2,362,358.20) as actual or
compensatory damages, the sum of Fifty Thousand Pesos (50,000.00) as attorneys fees, the sum of Ten
Thousand Pesos (10,000.00) as litigation expenses, and the costs of the suit.
The counterclaim is hereby dismissed.58
Sealoader appealed the above ruling with the Court of Appeals, which appeal was docketed as CA-G.R. CV No.
65083. On the other hand, Joyce Launch and Johnny Ponce no longer questioned the trial courts decision.
Before the appellate court, Sealoader argued that the RTC erred in: (1) finding that the damage to the wharf of
Grand Cement was caused by the negligence of Sealoader; (2) holding Sealoader liable for damages despite the
fact that it was Grand Cement that had the last clear chance to avert the damage; (3) not holding that Grand
Cement was negligent for not loading the vessel on time; and (4) giving credence to the afterthought testimony
of Grand Cements rebuttal witness.59
In its Decision dated November 12, 2004, the Court of Appeals found no merit in the appeal of Sealoader,
adjudging thus:
On the first and second assignment of error, Sealoader attributes the cause of the damage to the negligence of
Grand Cement for not casting off the mooring lines of the barge at the height of the typhoon despite their having
the last clear chance to avert any damage. We find this contention untenable.
xxxx
Indeed, the people at the wharf could not just cast off the mooring lines absent any instructions from the crew
of the vessels to do so, considering that the barge was a dumb boat, i.e., without a propeller. In view of this,
Sealoader can not fault the people at the wharf for not acting. Although Sealoader presented a Mr. Renee
Cayang, Assistant Patron of D/B "Toploader", to rebut Mr. Noblezas testimony, the same did not reveal that any
command for the release of the mooring lines was made. Mr. Cayangs testimony revealed that they had no radio
on board x x x and that there were stevedores present at that time x x x.
Second, good seamanship dictates that, in cases of departure under extraordinary circumstances, as in the case
at bench, the tugboats crew has the obligation to cut off their mooring lines. The records reveal that the crew
did try to cut off the mooring lines but were unsuccessful due to the big waves. Consequently, the towing lines
between M/T "Viper" and D/B "Toploader" snapped. x x x.
Going to the third assignment of error, Sealoader contends that Grand Cement was negligent for not loading the
vessel on time. Yet again, we find this to be untenable. x x x. With the knowledge that a storm was approaching,
prudence would have dictated them to tug the barge to shelter and safety at the earliest possible time. Instead,
they waited until the last minute to take action which was already too late. Their experience would have
prompted them to take precautionary measures considering that the weather and the sea are capricious.
Whether Grand Cement was late in loading the barge or not is of no moment. It was the judgment of the vessels
captain and patron that was crucial.
As to the last assignment of error regarding the rebuttal witness of Grand Cement, we find no reversible error
committed by the court a quo in giving credence to the testimony of the said witness. The defendant-appellant
and defendants-appellees were given chance to cross-examine the witness. Moreover, no documentary or
testimonial evidence was given to rebut the crucial testimony that no command from the vessel was given to the
people at the wharf to release the mooring lines.
WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered by us DISMISSING the appeal
filed in this case. The decision dated April 19, 1999 rendered by the Regional Trial Court, Branch 58 in Cebu City
in Civil Case No. CEB-16602 is hereby AFFIRMED.60
On December 9, 2004, Sealoader filed a Motion for Reconsideration 61 of the above decision, arguing that the
obligation to pay the damages sustained by Grand Cement did not require solidarity given that Joyce Launch
was solely liable therefor. Sealoader insisted that the D/B Toploader would not have rammed the wharf if the
M/T Viper had towed the barge to safety on the morning of April 4, 1994. Sealoader also asserted that the delay
in the loading of the D/B Toploader partly contributed to the resulting damage to the wharf.
On March 3, 2005, the Court of Appeals issued an Amended Decision in CA-G.R. CV No. 65083, finding the above
stated motion of Sealoader partly meritorious. While upholding its earlier finding that Sealoader was negligent,
the appellate court determined that:
Like Sealoader, Grand Cement did not take any precaution to avoid the damages wrought by the storm. Grand
Cement waited until the last possible moment before informing Sealoader and Joyce about the impending
storm. In fact, it continued loading on another vessel (Cargo Lift 3) until 2:15 p.m. of April 4, 1994 (transcript of
the testimony of Jaime Nobleza, pp. 10-11) or roughly just before the storm hit. It is no wonder that Sealoader
did not immediately move away from the pier since the owner of the pier, Grand Cement, was continuing to load
another vessel despite the fast approaching storm. As for the conduct of Grand Cement when the storm hit, we
find the testimony of Sealoaders witness that there were no employees of Grand Cement manning the pier to be
more convincing. In totality, we find that Grand Cement also did not exercise due diligence in this case and that
its conduct contributed to the damages that it suffered.
Article 2179 of the New Civil Code states that where the plaintiffs negligence was only contributory, the
immediate and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover
damages, the courts shall mitigate the damages to be awarded. Contributory negligence is conduct on the part of
the plaintiff which falls below the standard to which he should conform for his own protection and which is
legally contributing cause, cooperating with the negligence of the defendant in bringing about the plaintiffs
harm. x x x
Due to its contributory negligence, Grand Cement must carry part of the brunt of the damages. This Court finds
it equitable that Grand Cement should bear FIFTY PER CENT (50%) or half of the actual damages. The other
pronouncements of the court regarding attorneys fees, litigation expenses and cost of suit shall, however, not
be disturbed.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us PARTIALLY MODIFYING
our earlier judgment by reducing the award for actual damages by FIFTY PER CENT (50%) or HALF. 62
Grand Cement filed a Motion for Reconsideration63 of the Amended Decision but the Court of Appeals denied
the same in a Resolution64 dated February 20, 2007.
Desirous of having the Amended Decision overturned, Sealoader and Grand Cement each filed their separate
Petitions for Review on Certiorari before this Court, which petitions were docketed as G.R. No. 167363 and G.R.
No. 177466, respectively. In a Resolution65 dated August 6, 2008, the Court ordered the consolidation of the two
petitions, as the same involved identical parties, identical sets of facts, and both petitions assailed the Amended
Decision dated March 3, 2005 of the Court of Appeals in CA-G.R. CV No. 65083.
Issues
In G.R. No. 167363, Sealoader raised the following issues in its Memorandum, to wit:
I
WHILE THE HONORABLE COURT OF APPEALS WAS CORRECT IN RULING THAT GRAND CEMENT
WAS GUILTY OF NEGLIGENCE, IT COMMITTED REVERSIBLE ERROR IN NOT HOLDING THAT GRAND
CEMENT WAS BARRED FROM RECOVERING DAMAGES UNDER THE DOCTRINE OF LAST CLEAR
CHANCE.
II
THE COURT OF APPEALS AND THE TRIAL COURT DEPARTED FROM THE USUAL COURSE OF
JUDICIAL PROCEEDINGS IN REFUSING TO DETERMINE THE ULTIMATE RIGHTS AND OBLIGATIONS
OF PETITIONER [SEALOADER] AND RESPONDENT JOYCE LAUNCH AS AGAINST EACH OTHER AND AS
AGAINST GRAND CEMENT.66
In G.R. No. 177466, Grand Cement set forth the following assignment of errors for our consideration:
I
 WHETHER OR NOT JOYCE LAUNCH SHOULD HAVE BEEN IMPLEADED AS ONE OF THE
RESPONDENTS HEREIN PURSUANT TO SECTIONS 3 AND 4, RULE 45 OF THE 1997 RULES OF CIVIL
PROCEDURE AND SUPREME COURT CIRCULAR NO. 19-91.
II
WHETHER OR NOT THE COURT OF APPEALS ERRED IN CREATING A PREVIOUSLY NON-EXISTENT
LEGAL DUTY BY SHIPPERS OF GOODS OR OWNERS OF PIERS TO WARN DOCKED VESSELS OF
APPROACHING TYPHOONS AND IN MAKING THE SAME AS ONE OF ITS BASES IN FINDING [GRAND
CEMENT] GUILTY OF CONTRIBUTORY NEGLIGENCE.
III
WHETHER OR NOT THE COURT OF APPEALS ERRED IN CREATING A PREVIOUSLY NON-EXISTENT
LEGAL DUTY ON AN OWNER OF A PIER TO STATION EMPLOYEES AT SUCH PIER WHEN A TYPHOON
HITS AND IN MAKING THE SAME AS ONE OF ITS BASES IN FINDING [GRAND CEMENT] GUILTY OF
CONTRIBUTORY NEGLIGENCE.
IV
WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO TAKE COGNIZANCE OF THE
ISSUES RAISED IN [GRAND CEMENTS] MOTION FOR RECONSIDERATION, ON THE GROUND THAT
ALL THE ISSUES HAD ALREADY BEEN DISCUSSED, WHEN NEITHER ITS ORIGINAL DECISION OR THE
AMENDED DECISION HAD RULED ON THE POINTS RAISED IN SAID MOTION FOR
RECONSIDERATION.67
Ultimately, the question that needs to be resolved by this Court is who, among the parties in this case, should be
liable for the damage sustained by the wharf of Grand Cement.
Sealoader assails the Amended Decision of the Court of Appeals insofar as it was found guilty of committing
negligent acts that partly caused damage to the wharf of Grand Cement. Instead, Sealoader directly lays the
blame on Grand Cement and Joyce Launch.
Sealoader argues that the negligence imputed on its part was not established, thus, it is absolved from any
liability. On the contrary, the negligent acts allegedly committed by Grand Cement should bar its recovery of
damages in view of the doctrine of last clear chance. Sealoader reiterates that the damage to the wharf was
ultimately caused by the failure of Grand Cement to cast off the mooring lines attached to the D/B Toploader at
the height of the typhoon. The second sentence of Article 2179 of the Civil Code on contributory negligence was
supposedly inapplicable in the instant case, considering that Sealoader was not negligent at all. Sealoader again
insists that the D/B Toploader was entirely dependent on the M/T Viper for movement. Thus, the failure of the
M/T Viper to tow the D/B Toploader to safety should not be charged to the latter.
On the other hand, Grand Cement disputes the Court of Appeals finding in the Amended Decision that it was
guilty of contributory negligence, and thus, likewise questions the reduction by 50% of the award of actual
damages to be paid by Sealoader.
Ruling
Sealoader contends that Grand Cement had the last clear chance to prevent the damage to the latters wharf.
Had Grand Cement cast off the mooring lines attached to the D/B Toploader early on, the barge could have been
towed away from the wharf and the damage thereto could have been avoided. As Grand Cement failed to act
accordingly, Sealoader argues that the former was barred from recovering damages.
Grand Cement counters that the determination as to who among the parties had the last clear chance to avoid
an impending harm or accident calls for a re-examination of the evidence adduced by the parties. As this Court
is not a trier of facts, Grand Cement posits that Sealoaders petition may already be dismissed. Furthermore,
Grand Cement asserts that the doctrine of last clear chance cannot aid Sealoader since the doctrine presumes
that Sealoaders negligence had ceased and the alleged negligence of Grand Cement came at a later time. Thus,
an appreciable time must have intervened, which effectively severed the negligence of Sealoader. Contrarily,
Grand Cement maintains that the negligence of Sealoader did not cease, while its own negligence was not
proven.
The Court had occasion to reiterate the well-established doctrine of last clear chance in Philippine National
Railways v. Brunty68 as follows:
The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is
appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused
the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the
loss. Stated differently, the antecedent negligence of plaintiff does not preclude him from recovering damages
caused by the supervening negligence of defendant, who had the last fair chance to prevent the impending harm
by the exercise of due diligence.69 (Emphasis ours.)
Upon the other hand, in Layugan v. Intermediate Appellate Court,70 the Court defined negligence as "the
omission to do something which a reasonable man, guided by those considerations which ordinarily regulate
the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would
not do, or as Judge Cooley defines it, (T)he failure to observe for the protection of the interests of another
person, that degree of care, precaution, and vigilance which the circumstances justly demand, whereby such
other person suffers injury."
Verily, the matter of negligence of either or both parties to a case is a question of fact since a determination of
the same "would entail going into factual matters on which the finding of negligence was based." 71 Generally,
questions of fact should not be raised in a petition for review.72 Section 1, Rule 4573 of the Rules of Court
explicitly states that a petition filed thereunder shall raise only questions of law, which must be distinctly set
forth.
Jurisprudence has provided for exceptions74 to this rule, however, one of which is when the findings of fact of
the Court of Appeals are contrary to those of the trial court. As will be further elaborated upon, this exception is
present in the instant case as the RTC and the Court of Appeals issued contrary findings of fact as to the
negligence of Grand Cement. Thus, an examination of the evidence adduced by the parties is warranted under
the circumstances.
After a thorough review of the records of this case, the Court finds that Sealoader was indeed guilty of
negligence in the conduct of its affairs during the incident in question.
One of the bases cited by the RTC for its finding that Sealoader was negligent was the lack of a radio or any
navigational communication facility aboard the D/B Toploader. To recall, Emar Acosta stated in his deposition
dated July 9, 1998 that Sealoader was equipped with a handheld radio while the M/T Viper had on board an SSB
radio. Marita Santos, on the other hand, explained that Sealoader communicated and transmitted weather
forecasts to the M/T Viper through the latters SSB radio. Before Typhoon Bising hit the province of Cebu on
April 4, 1994, Santos stated that Sealoader tried to relay the weather bulletins pertaining to the storm directly
with the M/T Viper but the radio signal was always poor. The foregoing statements were put to doubt, however,
when Sealoaders own witness, Renee Cayang, stated on cross-examination that there was no radio on board the
D/B Toploader. The Court, therefore, agrees with the conclusion of Grand Cement that there was either no radio
on board the D/B Toploader, the radio was not fully functional, or the head office of Sealoader was negligent in
failing to attempt to contact the D/B Toploader through radio. Either way, this negligence cannot be ascribed to
anyone else but Sealoader.
Correlated to the above finding is the manifest laxity of the crew of the D/B Toploader in monitoring the
weather. Despite the apparent difficulty in receiving weather bulletins from the head office of Sealoader, the
evidence on record suggests that the crew of the D/B Toploader failed to keep a watchful eye on the prevailing
weather conditions. Cayang, then the Assistant Barge Patron of the D/B Toploader, admitted that on the
afternoon of April 4, 1994, he only stayed inside the officers station in the barge, waiting for the barge patron to
arrive. He testified that nobody notified the crew of the barge of the impending typhoon and the latter knew
about the typhoon only when it hit their vessel.
In like manner, Acosta stated in his deposition dated July 9, 1998 that it was not his duty to receive weather
forecasts and the said information was gathered only from the crew of the M/T Viper. He was also not aware if
Sealoader had records of weather forecasts and how many of such were received. Acosta likewise gave
conflicting statements as to how and when he came to know of the typhoon. In his answer to the written cross-
interrogatories dated July 9, 1998, Acosta said that he found out about the incoming typhoon when Romulo
Diantan told him while the latter was already maneuvering the M/T Viper away from the wharf on April 4,
1994. However, in the Sworn Statement he executed before the Coast Guard Investigation Service Detachment
on July 26, 1994, Acosta declared as follow:
32. Q While on board did you hear any news about the approaching typhoon BISING?
A Yes about 1100H I heard a news about the typhoon.
33. Q How were you able to hear about this news of the typhoon approaching?
A I contacted another tugboat M/T BEEJAY and I heard that the typhoon was still far.
34. Q Did you inquire from them if San Fernando, Cebu is the path of the incoming typhoon?
A Yes I tried asking them but they said the place is safe for the incoming typhoon.
35. Q Did you inform your captain about this typhoon?
A Yes I informed him but he says the typhoon is far.
36. Q What was the weather condition during that time 1100H?
A The weather is fine the sea was calm, but it was cloudy.
xxxx
38. Q -- What did ROMULO DIANTAN do with xxx after 1100H of that day?
A He stood by at the tugboat.
39. Q Until what time?
A Until the time when the wind was becoming strong.
40. Q What time was this about the wind becoming strong?
A 1300H of that day I say 1500H not 1300H. [T]hat is 3:00 P.M.
41. Q What did the captain do at about x x x 1500H?
A He stood by the main engine for maneuvering.
42. Q What was the decision of the captain during that time?
A To pull out the BARGE TOPLOADER from the beaching area of Grand Cement Pier in order to
shelter at Sangat, San Fernando.75 (Emphases ours.)
Unmistakably, the crew of the D/B Toploader and the M/T Viper were caught unawares and unprepared when
Typhoon Bising struck their vicinity. According to the Sworn Statement of Acosta, which was taken barely three
months after the typhoon, he was already informed of the approaching typhoon. Regrettably, Acosta merely
relied on the assurances of the M/T Beejay crew and the opinion of Romulo Diantan that the typhoon was
nowhere near their area. As it turned out, such reliance was utterly misplaced. Within a few hours, the weather
quickly deteriorated as huge winds and strong waves began to batter the vessels. At the height of the typhoon,
the M/T Viper tried in vain to tow the D/B Toploader away from the wharf. Since the barge was still moored to
the wharf, the line connecting the same to the M/T Viper snapped and the latter vessel drifted to the Bohol area.
The violent waves then caused the D/B Toploader to ram against the wharf, thereby causing damage thereto.
Sealoader cannot pass to Grand Cement the responsibility of casting off the mooring lines connecting the D/B
Toploader to the wharf. The Court agrees with the ruling of the Court of Appeals in the Decision dated
November 12, 2004 that the people at the wharf could not just cast off the mooring lines without any
instructions from the crew of the D/B Toploader and the M/T Viper. As the D/B Toploader was without an
engine, casting off the mooring lines prematurely might send the barge adrift or even run the risk of the barge
hitting the wharf sure enough. Thus, Sealoader should have taken the initiative to cast off the mooring lines
early on or, at the very least, requested the crew at the wharf to undertake the same. In failing to do so,
Sealoader was manifestly negligent.
On the issue of the negligence of Grand Cement, the Court of Appeals initially affirmed the ruling of the RTC that
the damage to the wharf of Grand Cement was caused by the negligent acts of Sealoader, Joyce Launch and
Johnny Ponce. Upon motion of Sealoader, however, the Court of Appeals rendered an Amended Decision, finding
that Grand Cement was guilty of contributory negligence. The award of actual damages to Grand Cement was,
thus, reduced by 50%.
Article 2179 of the Civil Code defines the concept of contributory negligence as follows:
Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he cannot
recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury
being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded.
Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he
has suffered, which falls below the standard to which he is required to conform for his own protection. 76
We find that, contrary to the judgment of the Court of Appeals in the Amended Decision dated March 3, 2005,
Grand Cement was not guilty of negligent acts, which contributed to the damage that was incurred on its
wharf.1avvphi1
To recall, the Court of Appeals subsequently found that Grand Cement likewise did not exercise due diligence
since it belatedly informed Sealoader of the approaching typhoon and, thereafter, still continued to load another
vessel. The Court of Appeals further gave more credence to the claim of Sealoader that there were no employees
of Grand Cement manning the pier when the typhoon struck.
The Court holds that Sealoader had the responsibility to inform itself of the prevailing weather conditions in the
areas where its vessel was set to sail. Sealoader cannot merely rely on other vessels for weather updates and
warnings on approaching storms, as what apparently happened in this case. Common sense and reason dictates
this. To do so would be to gamble with the safety of its own vessel, putting the lives of its crew under the mercy
of the sea, as well as running the risk of causing damage to the property of third parties for which it would
necessarily be liable.
Be that as it may, the records of the instant case reveal that Grand Cement timely informed the D/B Toploader
of the impending typhoon. Jaime Nobleza testified that he warned Acosta of the typhoon as early as April 3,
1994 and even advised the latter to move the D/B Toploader to a safer place. On April 4, 1994, Nobleza twice
directed Acosta to remove the barge away from the wharf. The first order was given at about 9:00 a.m., while
the second was around 2:00 p.m.
In contrast, Acosta again gave contradictory statements regarding the advise of Grand Cement to remove the
D/B Toploader away from the wharf. In the deposition of Acosta dated March 16, 1998, he stated that the M/T
Viper did not tow the D/B Toploader away from the wharf before the typhoon intensified because there was no
instruction from Nobleza to pull out. However, in his Sworn Statement before the Coast Guard, Acosta declared
thus:
43. Q According to the representative of Grand Cement you were notified as early as the morning of April 4,
1994 to pull out your vessel but allegedly you did not do so. What can you say on this?
A They informed us at about 2:40 P.M. telling me that if ever the typhoon will become stronger we must pull
out the barge. I told MR. NOBLEZA about this that we will do so.77
Furthermore, the Court cannot subscribe to the ruling of the Court of Appeals in the Amended Decision that
Grand Cement was likewise negligent inasmuch as it continued to load the Cargo Lift Tres despite the fast
approaching typhoon. Such fact alone does not prove that Grand Cement was oblivious of the typhoon. As
testified upon by Nobleza, Sealoader was very much aware of this as he told Marita Santos that the D/B
Toploader would only be loaded with its cargo after the loading of the Cargo Lift Tres. The latter vessel was also
grounded in shallow waters at that time and already loaded with cement clinkers.

As regards the presence of employees at the wharf during the typhoon, Acosta stated in his deposition dated
March 16, 1998 that there was nobody on the wharf to cast off the mooring lines at that time. Nobleza refuted
this statement, however, responding that he was present at the wharf during the typhoon, together with a
roving guard and four other people from the arrastre. Notably, Sealoaders own witness, Renee Cayang, also
contradicted the statement of Acosta, testifying that there were actually stevedores present at the wharf who
were in a position to cast off the mooring lines.

In light of the foregoing, the Court finds that the evidence proffered by Sealoader to prove the negligence of
Grand Cement was marred by contradictions and are, thus, weak at best. We therefore conclude that the
contributory negligence of Grand Cement was not established in this case. Thus, the ruling of the Court of
Appeals in the Amended Decision, which reduced the actual damages to be recovered by Grand Cement, is
hereby revoked. Accordingly, the doctrine of last clear chance does not apply to the instant case.

WHEREFORE, the Court hereby rules that:

(1) The Petition for Review in G.R. No. 167363 is DENIED;

(2) The Petition for Review in G.R. No. 177466 is GRANTED;

(3) The Amended Decision dated March 3, 2005 of the Court of Appeals in CA-G.R. CV No. 65083 is
REVERSED and SET ASIDE; and

(4) The Decision dated November 12, 2004 of the Court of Appeals in CA-G.R. CV No. 65083 is
REINSTATED.

No costs.

SO ORDERED.

SECOND DIVISION
G.R. No. 149019 August 15, 2006
DELSAN TRANSPORT LINES, INC., Petitioner,
vs.
AMERICAN HOME ASSURANCE CORPORATION, Respondent.
DECISION
GARCIA, J.:
By this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Delsan Transport Lines,
Inc. (Delsan hereafter) assails and seeks to set aside the Decision, 1 dated July 16, 2001, of the Court of Appeals
(CA) in CA-G.R. CV No. 40951 affirming an earlier decision of the Regional Trial Court (RTC) of Manila, Branch
IX, in two separate complaints for damages docketed as Civil Case No. 85-29357 and Civil Case No. 85-30559.
The facts:
Delsan is a domestic corporation which owns and operates the vessel MT Larusan. On the other hand,
respondent American Home Assurance Corporation (AHAC for brevity) is a foreign insurance company duly
licensed to do business in the Philippines through its agent, the American-International Underwriters, Inc.
(Phils.). It is engaged, among others, in insuring cargoes for transportation within the Philippines.
On August 5, 1984, Delsan received on board MT Larusan a shipment consisting of 1,986.627 k/l Automotive
Diesel Oil (diesel oil) at the Bataan Refinery Corporation for transportation and delivery to the bulk depot in
Bacolod City of Caltex Phils., Inc. (Caltex), pursuant to a Contract of Afreightment. The shipment was insured by
respondent AHAC against all risks under Inland Floater Policy No. AH-IF64-1011549P and Marine Risk Note No.
34-5093-6.
On August 7, 1984, the shipment arrived in Bacolod City. Immediately thereafter, unloading operations
commenced. The discharging of the diesel oil started at about 1:30 PM of the same day. However, at about 10:30
PM, the discharging had to be stopped on account of the discovery that the port bow mooring of the vessel was
intentionally cut or stolen by unknown persons. Because there was nothing holding it, the vessel drifted
westward, dragged and stretched the flexible rubber hose attached to the riser, broke the elbow into pieces,
severed completely the rubber hose connected to the tanker from the main delivery line at sea bed level and
ultimately caused the diesel oil to spill into the sea. To avoid further spillage, the vessels crew tried water
flushing to clear the line of the diesel oil but to no avail. In the meantime, the shore tender, who was waiting for
the completion of the water flushing, was surprised when the tanker signaled a "red light" which meant stop
pumping. Unaware of what happened, the shore tender, thinking that the vessel would, at any time, resume
pumping, did not shut the storage tank gate valve. As all the gate valves remained open, the diesel oil that was
earlier discharged from the vessel into the shore tank backflowed. Due to non-availability of a pump boat, the
vessel could not send somebody ashore to inform the people at the depot about what happened. After almost an
hour, a gauger and an assistant surveyor from the Caltexs Bulk Depot Office boarded the vessel. It was only
then that they found out what had happened. Thereafter, the duo immediately went ashore to see to it that the
shore tank gate valve was closed. The loss of diesel oil due to spillage was placed at 113.788 k/l while some
435,081 k/l thereof backflowed from the shore tank.
As a result of spillage and backflow of diesel oil, Caltex sought recovery of the loss from Delsan, but the latter
refused to pay. As insurer, AHAC paid Caltex the sum of P479,262.57 for spillage, pursuant to Marine Risk Note
No. 34-5093-6, and P1,939,575.37 for backflow of the diesel oil pursuant to Inland Floater Policy No. AH-1F64-
1011549P.
On February 19, 1985, AHAC, as Caltexs subrogee, instituted Civil Case No. 85-29357 against Delsan before the
Manila RTC, Branch 9, for loss caused by the spillage. It likewise prayed that it be indemnified for damages
suffered in the amount of P652,432.57 plus legal interest thereon.
Also, on May 5, 1985, in the Manila RTC, Branch 31, AHAC instituted Civil Case No. 85-30559 against Delsan for
the loss caused by the backflow. It likewise prayed that it be awarded the amount of P1,939,575.37 for damages
and reasonable attorneys fees. As counterclaim in both cases, AHAC prayed for attorneys fees in the amount
ofP200,000.00 and P500.00 for every court appearance.
Since the cause of action in both cases arose out of the same incident and involved the same issues, the two
were consolidated and assigned to Branch 9 of the court.
On August 31, 1989, the trial court rendered its decision 2 in favor of AHAC holding Delsan liable for the loss of
the cargo for its negligence in its duty as a common carrier. Dispositively, the decision reads:
WHEREFORE, judgment is hereby rendered:
A). In Civil Case No. 85-30559:
(1) Ordering the defendant (petitioner Delsan) to pay plaintiff (respondent AHAC) the sum of P1,939,575.37
with interest thereon at the legal rate from November 21, 1984 until fully paid and satisfied; and
(2) Ordering defendant to pay plaintiff the sum of P10,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
B). In Civil Case No. 85-29357:
(1) Ordering defendant to pay plaintiff the sum of P479,262.57 with interest thereon at the legal rate from
February 6, 1985 until fully paid and satisfied;
(2) Ordering defendant to pay plaintiff the sum of P5,000.00 as and for attorneys fees.
For lack of merit, the counterclaim is hereby dismissed.
Costs against the defendant.
SO ORDERED.
In time, Delsan appealed to the CA whereat its recourse was docketed as CA-G.R. CV No. 40951.
In the herein challenged decision, 3 the CA affirmed the findings of the trial court. In so ruling, the CA declared
that Delsan failed to exercise the extraordinary diligence of a good father of a family in the handling of its cargo.
Applying Article 1736 4 of the Civil Code, the CA ruled that since the discharging of the diesel oil into Caltex bulk
depot had not been completed at the time the losses occurred, there was no reason to imply that there was
actual delivery of the cargo to Caltex, the consignee. We quote the fallo of the CA decision:
WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court of Manila, Branch 09 in
Civil Case Nos. 85-29357 and 85-30559 is hereby AFFIRMED with a modification that attorneys fees awarded
in Civil Case Nos. 85-29357 and 85-30559 are hereby DELETED.
SO ORDERED.
Delsan is now before the Court raising substantially the same issues proffered before the CA.
Principally, Delsan insists that the CA committed reversible error in ruling that Article 1734 of the Civil Code
cannot exculpate it from liability for the loss of the subject cargo and in not applying the rule on contributory
negligence against Caltex, the shipper-owner of the cargo, and in not taking into consideration the fact that the
loss due to backflow occurred when the diesel oil was already completely delivered to Caltex.
We are not persuaded.
In resolving this appeal, the Court reiterates the oft-stated doctrine that factual findings of the CA, affirmatory of
those of the trial court, are binding on the Court unless there is a clear showing that such findings are tainted
with arbitrariness, capriciousness or palpable error. 5
Delsan would have the Court absolve it from liability for the loss of its cargo on two grounds. First, the loss
through spillage was partly due to the contributory negligence of Caltex; and Second, the loss through backflow
should not be borne by Delsan because it was already delivered to Caltexs shore tank.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by
them. They are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or
deteriorated. 6 To overcome the presumption of negligence in case of loss, destruction or deterioration of the
goods, the common carrier must prove that it exercised extraordinary diligence. There are, however, exceptions
to this rule. Article 1734 of the Civil Code enumerates the instances when the presumption of negligence does
not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
1) Flood storm, earthquake, lightning, or other natural disaster or calamity;
2) Act of the public enemy in war, whether international or civil;
3) Act or omission of the shipper or owner of the goods;
oil entered into the tank of Caltex on shore, there was legally, at that moment, a complete delivery thereof to
Caltex. To be sure, the extraordinary responsibility of common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by, the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to a person who has the right to receive
them. 8 The discharging of oil products to Caltex Bulk Depot has not yet been finished, Delsan still has the duty
to guard and to preserve the cargo. The carrier still has in it the responsibility to guard and preserve the goods,
a duty incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence in vigilance over the goods and for the safety of the passengers transported
by them, according to all the circumstances of each case. 9 The mere proof of delivery of goods in good order to
the carrier, and their arrival in the place of destination in bad order, make out a prima facie case against the
carrier, so that if no explanation is given as to how the injury occurred, the carrier must be held responsible. It is
incumbent upon the carrier to prove that the loss was due to accident or some other circumstances inconsistent
with its liability. 10
All told, Delsan, being a common carrier, should have exercised extraordinary diligence in the performance of
its duties. Consequently, it is obliged to prove that the damage to its cargo was caused by one of the excepted
causes if it were to seek exemption from responsibility. 11 Having failed to do so, Delsan must bear the
consequences.

4) The character of the goods or defects in the packing or in the containers; WHEREFORE, petition is DENIED and the assailed decision of the CA is AFFIRMED in toto.

5) Order or act of competent public authority. Cost against petitioner.

Both the trial court and the CA uniformly ruled that Delsan failed to prove its claim that there was a SO ORDERED.
contributory negligence on the part of the owner of the goods Caltex. We see no reason to depart therefrom.
As aptly pointed out by the CA, it had been established that the proximate cause of the spillage and backflow of
the diesel oil was due to the severance of the port bow mooring line of the vessel and the failure of the shore
tender to close the storage tank gate valve even as a check on the drain cock showed that there was still a
product on the pipeline. To the two courts below, the actuation of the gauger and the escort surveyor, both
personnel from the Caltex Bulk Depot, negates the allegation that Caltex was remiss in its duties. As we see it,
the crew of the vessel should have promptly informed the shore tender that the port mooring line was cut off.
However, Delsan did not do so on the lame excuse that there was no available banca. As it is, Delsans personnel
signaled a "red light" which was not a sufficient warning because such signal only meant that the pumping of
diesel oil had been finished. Neither did the blowing of whistle suffice considering the distance of more than 2
kilometers between the vessel and the Caltex Bulk Depot, aside from the fact that it was not the agreed signal.
Had the gauger and the escort surveyor from Caltex Bulk Depot not gone aboard the vessel to make inquiries,
the shore tender would have not known what really happened. The crew of the vessel should have exerted
utmost effort to immediately inform the shore tender that the port bow mooring line was severed.

To be sure, Delsan, as the owner of the vessel, was obliged to prove that the loss was caused by one of the
excepted causes if it were to seek exemption from responsibility. 7 Unfortunately, it miserably failed to
discharge this burden by the required quantum of proof.

Delsans argument that it should not be held liable for the loss of diesel oil due to backflow because the same
had already been actually and legally delivered to Caltex at the time it entered the shore tank holds no water. It
had been settled that the subject cargo was still in the custody of Delsan because the discharging thereof has not
yet been finished when the backflow occurred. Since the discharging of the cargo into the depot has not yet
been completed at the time of the spillage when the backflow occurred, there is no reason to imply that there
was actual delivery of the cargo to the consignee. Delsan is straining the issue by insisting that when the diesel

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 94761 May 17, 1993
MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style of Ethegal
Laboratories, respondents.
Bito, Lozada, Ortega & Castillo for petitioner.
Humberto A. Jambora for private respondent.
BIDIN, J.:
Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines
through its general agent Compania General de Tabacos de Filipinas.
Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a firm engaged in
the manutacture of pharmaceutical products.
On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its (Eli Lilly,
Inc.'s) agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his
pharmaceutical products. The capsules were placed in six (6) drums of 100,000 capsules each valued at US
$1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6), the shipper Eli
Lilly, Inc. of Puerto Rico advised private respondent as consignee that the 600,000 empty gelatin capsules in six
(6) drums of 100,000 capsules each, were already shipped on board MV "Anders Maerskline" under Voyage No.
7703 for shipment to the Philippines via Oakland, California. In said Memorandum, shipper Eli Lilly, Inc.
specified the date of arrival to be April 3, 1977.
For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia, USA and then
transported back Oakland, Califorilia. The goods finally arrived in the Philippines on June 10, 1977 or after two
(2) months from the date specified in the memorandum. As a consequence, private respondent as consignee
refused to take delivery of the goods on account of its failure to arrive on time.
Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed an action before
the court a quo for rescission of contract with damages against petitioner and Eli Lilly, Inc. as defendants.
Denying that it committed breach of contract, petitioner alleged in its that answer that the subject shipment was
transported in accordance with the provisions of the covering bill of lading and that its liability under the law
on transportation of good attaches only in case of loss, destruction or deterioration of the goods as provided for
in Article 1734 of Civil Code (Rollo, p. 16).
Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its cross-claim,
it alleged that the delay in the arrival of the the subject merchandise was due solely to the gross negligence of
petitioner Maersk Line.
The issues having been joined, private respondent moved for the dismissal of the complaint against Eli Lilly,
Inc.on the ground that the evidence on record shows that the delay in the delivery of the shipment was
attributable solely to petitioner.
Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc.
Correspondingly, the latter withdraw its cross-claim against petitioner in a joint motion dated December 3,
1979.
After trial held between respondent and petitioner, the court a quo rendered judgment dated January 8, 1982 in
favor of respondent Castillo, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there was a
breach in the performance of their obligation by the defendant Maersk Line consisting of
their negligence to ship the 6 drums of empty Gelatin Capsules which under their own
memorandum shipment would arrive in the Philippines on April 3, 1977 which under Art.
1170 of the New Civil Code, they stood liable for damages.
Considering that the only evidence presented by the defendant Maersk line thru its agent the
Compania de Tabacos de Filipinas is the testimony of Rolando Ramirez who testified on Exhs.
"1" to "5" which this Court believe (sic) did not change the findings of this Court in its
decision rendered on September 4, 1980, this Court hereby renders judgment in favor of the
plaintiff Efren Castillo as against the defendant Maersk Line thru its agent, the COMPANIA
GENERAL DE TABACOS DE FILIPINAS and ordering:
(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED SIXTY
NINE THOUSAND PESOS, (P369,000.00) as unrealized profit;.
(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00),
as moral damages;
(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as exemplary
damages;
(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED EIGHTY PESOS
AND NINETY SEVEN CENTAVOS (P11,680.97) as cost of credit line; and
(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00), as
attorney's fees and to pay the costs of suit.
That the above sums due to the plaintiff will bear the legal rate of interest until they are fully
paid from the time the case was filed.
SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).
On appeal, respondent court rendered its decision dated August 1, 1990 affirming with modifications the lower
court's decision as follows:
WHEREFORE, the decision appealed from is affirmed with a modification, and, as modified,
the judgment in this case should read as follows:
 Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay plaintiff-
appellee (1) compensatory damages of P11,680.97 at 6% annual interest from filing of the
complaint until fully paid, (2) moral damages of P50,000.00, (3) exemplary damages of
P20,000,00, (3) attorney's fees, per appearance fees, and litigation expenses of P30,000.00,
(4) 30% of the total damages awarded except item (3) above, and the costs of suit.
SO ORDERED. (Rollo, p. 50)
In its Memorandum, petitioner submits the following "issues" for resolution of the court :
I of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor
Whether or not the respondent Court of Appeals committed an error when it ruled that a
defendant's cross-claim against a co-defendant survives or subsists even after the dismissal
of the complaint against defendant-cross claimant.
II
Whether or not respondent Castillo is entitled to damages resulting from delay in the
delivery of the shipment in the absence in the bill of lading of a stipulation on the period of
delivery.
III
Whether or not the respondent appellate court erred in awarding actual, moral and
exemplary damages and attorney's fees despite the absence of factual findings and/or legal
bases in the text of the decision as support for such awards.
IV
Whether or not the respondent Court of Appeals committed an error when it rendered an
ambiguous and unexplained award in the dispositive portion of the decision which is not
supported by the body or the text of the decision. (Rollo, pp.94-95).
With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim against co-
defendant (petitioner herein) survives or subsists even after the dismissal of the complaint against defendant-
cross-claimant (petitioner herein), we rule in the negative.
Apparently this issue was raised by reason of the declaration made by respondent court in its questioned
decision, as follows:
Re the first assigned error: What should be rescinded in this case is not the "Memorandum of
Shipment" but the contract between appellee and defendant Eli Lilly (embodied in three
documents, namely: Exhs. A, A-1 and A-2) whereby the former agreed to buy and the latter to
sell those six drums of gelatin capsules. It is by virtue of the cross-claim by appellant Eli Lilly
against defendant Maersk Line for the latter's gross negligence in diverting the shipment thus
causing the delay and damage to appellee that the trial court found appellant Maersk Line
liable. . . .
xxx xxx xxx
Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no cause of
action against it and appellant Eli Lilly because the shipment was delivered in good order
and condition, and the bill of lading in question contains "stipulations, exceptions and
conditions" Maersk Line's liability only to the "loss, destruction or deterioration," indeed, this
issue of lack of cause of action has already been considered in our foregoing discussion on the
second assigned error, and our resolution here is still that appellee has a cause of action against
appellant Eli Lilly. Since the latter had filed a cross-claim against appellant Maersk Line, the
trial court committed no error, therefore, in holding the latter appellant ultimately liable to
appellee. (Rollo, pp. 47-50; Emphasis supplied)
Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-claim filed
its co-defendant Eli Lilly, Inc. which cross-claim has been dismissed, the original complaint against it should
likewise be dismissed. We disagree. It should be recalled that the complaint was filed originally against Eli Lilly,
Inc. as shipper-supplier and petitioner as carrier. Petitioner being an original party defendant upon whom the
delayed shipment is imputed cannot claim that the dismissal of the complaint against Eli Lilly, Inc. inured to its
benefit.
Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-claim of Eli
Lilly, Inc. As borne out by the record, the trial court anchored its decision on petitioner's delay or negligence to
deliver the six (6) drums of gelatin capsules within a reasonable time on the basis of which petitioner was held
liable for damages under Article 1170 of the New Civil Code which provides that those who in the performance
thereof, are liable for damages.
Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay in the delivery of the
600,000 empty gelatin capsules since it acted in good faith and there was no special contract under which the
carrier undertook to deliver the shipment on or before a specific date (Rollo, p. 103).
On the other hand, private respondent claims that during the period before the specified date of arrival of the
goods, he had made several commitments and contract of adhesion. Therefore, petitioner can be held liable for
the damages suffered by private respondent for the cancellation of the contracts he entered into.
We have carefully reviewed the decisions of respondent court and the trial court and both of them show that, in
finding petitioner liable for damages for the delay in the delivery of goods, reliance was made on the rule that
contracts of adhesion are void. Added to this, the lower court stated that the exemption against liability for
delay is against public policy and is thus, void. Besides, private respondent's action is anchored on Article 1170
of the New Civil Code and not under the law on Admiralty (AC-GR CV No. 10340, Rollo, p. 14).
The bill of lading covering the subject shipment among others, reads:
6. GENERAL
(1) The Carrier does not undertake that the goods shall arive at the port of discharge or the
place of delivery at any particular time or to meet any particular market or use and save as is
provided in clause 4 the Carrier shall in no circumstances be liable for any direct, indirect or
consequential loss or damage caused by delay. If the Carrier should nevertheless be held
legally liable for any such direct or indirect or consequential loss or damage caused by delay,
such liability shall in no event exceed the freight paid for the transport covered by this Bill of
Lading. (Exh. "1-A"; AC-G.R. CV No. 10340, Folder of Exhibits, p. 41)
It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a contract of
adhesion. Generally, contracts of adhesion are considered void since almost all the provisions of these types of
contracts are prepared and drafted only by one party, usually the carrier (Sweet Lines v. Teves, 83 SCRA 361
[1978]). The only participation left of the other party in such a contract is the affixing of his signature thereto,
hence the term "Adhesion" (BPI Credit Corporation v. Court of Appeals, 204 SCRA 601 [1991]; Angeles v.
Calasanz, 135 SCRA 323 [1985]).
Nonetheless, settled is the rule that bills of lading are contracts not entirely prohibited (Ong Yiu v. Court of
Appeals, et al., 91 SCRA 223 [1979]; Servando, et al. v. Philippine Steam Navigation Co., 117 SCRA 832 [1982]).
One who adheres to the contract is in reality free to reject it in its entirety; if he adheres, he gives his consent
(Magellan Manufacturing Marketing Corporation v. Court of Appeals, et al., 201 SCRA 102 [1991]).
In Magellan, (supra), we ruled:
It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as
contract to transport and deliver the same a therein stipulated. As a contract, it names the
parties, which includes the consignee, fixes the route, destination, and freight rates or
charges, and stipulates the rights and obligations assumed by the parties. Being a contract, it
is the law between the parties who are bound by its terms and conditions provided that
these are not contrary to law, morals, good customs, public order and public policy. A bill of
lading usually becomes effective upon its delivery to and acceptance by the shipper. It is
presumed that the stipulations of the bill were, in the absence of fraud, concealment or
improper conduct, known to the shipper, and he is generally bound by his acceptance whether
he reads the bill or not. (Emphasis supplied)
However, the aforequoted ruling applies only if such contracts will not create an absurd situation as in the case
at bar. The questioned provision in the subject bill of lading has the effect of practically leaving the date of
arrival of the subject shipment on the sole determination and will of the carrier.
While it is true that common carriers are not obligated by law to carry and to deliver merchandise, and persons
are not vested with the right to prompt delivery, unless such common carriers previously assume the obligation
to deliver at a given date or time (Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836 [1952]), delivery of
shipment or cargo should at least be made within a reasonable time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special
contract, a carrier is not an insurer against delay in transportation of goods. When a common
carrier undertakes to convey goods, the law implies a contract that they shall be delivered at
destination within a reasonable time, in the absence, of any agreement as to the time of
delivery. But where a carrier has made an express contract to transport and deliver properly
within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter
from what cause it may have arisen. This result logically follows from the well-settled rule
that where the law creates a duty or charge, and the default in himself, and has no remedy
over, then his own contract creates a duty or charge upon himself, he is bound to make it
good notwithstanding any accident or delay by inevitable necessity because he might have
provided against it by contract. Whether or not there has been such an undertaking on the
part of the carrier is to be determined from the circumstances surrounding the case and by
application of the ordinary rules for the interpretation of contracts.
An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p. 41) shows that
the subject shipment was estimated to arrive in Manila on April 3, 1977. While there was no special contract
entered into by the parties indicating the date of arrival of the subject shipment, petitioner nevertheless, was
very well aware of the specific date when the goods were expected to arrive as indicated in the bill of lading
itself. In this regard, there arises no need to execute another contract for the purpose as it would be a mere
superfluity.
In the case before us, we find that a delay in the delivery of the goods spanning a period of two (2) months and
seven (7) days falls was beyond the realm of reasonableness. Described as gelatin capsules for use in
pharmaceutical products, subject shipment was delivered to, and left in, the possession and custody of
petitioner-carrier for transport to Manila via Oakland, California. But through petitioner's negligence was
mishipped to Richmond, Virginia. Petitioner's insitence that it cannot be held liable for the delay finds no merit.
Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are not valid since
there are no factual findings or legal bases stated in the text of the trial court's decision to support the award
thereof.
Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v. Macasaet. 189
SCRA 561 [1990]). In the case at bar, private respondent was able to sufficiently prove through an invoice (Exh.
'A-1'), certification from the issuer of the letter of credit (Exh.'A-2') and the Memorandum of Shipment (Exh.
"B"), the amount he paid as costs of the credit line for the subject goods. Therefore, respondent court acted
correctly in affirming the award of eleven thousand six hundred eighty pesos and ninety seven centavos
(P11,680.97) as costs of said credit line.
As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral damages
may be awarded in "breaches of contract where the defendant acted fraudulently or in bad faith" (Pan American
World Airways v. Intermediate Appellate Court, 186 SCRA 687 [1990]).
In the case before us, we that the only evidence presented by petitioner was the testimony of Mr. Rolando
Ramirez, a claims manager of its agent Compania General de Tabacos de Filipinas, who merely testified on Exhs.
'1' to '5' (AC-GR CV No. 10340, p. 2) and nothing else. Petitioner never even bothered to explain the course for
the delay, i.e. more than two (2) months, in the delivery of subject shipment. Under the circumstances of the
case, we hold that petitioner is liable for breach of contract of carriage through gross negligence amounting to
bad faith. Thus, the award of moral damages if therefore proper in this case.
In line with this pronouncement, we hold that exemplary damages may be awarded to the private respondent.
In contracts, exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless,
oppresive or malevolent manner. There was gross negligence on the part of the petitioner in mishiping the
subject goods destined for Manila but was inexplicably shipped to Richmond, Virginia, U.S.A. Gross carelessness
or negligence contitutes wanton misconduct, hence, exemplary damages may be awarded to the aggrieved party
(Radio Communication of the Phils., Inc. v. Court of Appeals, 195 SCRA 147 [1991]).
Although attorney's fees are generally not recoverable, a party can be held lible for such if exemplary damages
are awarded (Artice 2208, New Civil Code). In the case at bar, we hold that private respondent is entitled to
reasonable attorney`s fees since petitioner acte with gross negligence amounting to bad faith.
However, we find item 4 in the dispositive portion of respondent court`s decision which awarded thirty (30)
percent of the total damages awarded except item 3 regarding attorney`s fees and litigation expenses in favor of
private respondent, to be unconsionable, the same should be deleted.
WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s decision, the
appealed decision is is hereby AFFIRMED in all respects.
SO ORDERED.
Feliciano, Davide, Jr., Romero and Melo, JJ., concur.
SECOND DIVISION
[G.R. No. 137775. March 31, 2005]
FGU INSURANCE CORPORATION, petitioner, vs. THE COURT OF APPEALS, SAN MIGUEL CORPORATION,
and ESTATE OF ANG GUI, represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO
TO, respondents.
[G.R. No. 140704. March 31, 2005]
ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO
TO, petitioners, vs. THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU
INSURANCE CORP.,respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision [1] of the Court of Appeals in CA-G.R.
CV No. 49624 entitled, San Miguel Corporation, Plaintiff-Appellee versus Estate of Ang Gui, represented by
Lucio, Julian and Jaime, all surnamed Ang, and Co To, Defendants-Appellants, ThirdParty Plaintiffs versus FGU
Insurance Corporation, Third-Party Defendant-Appellant, which affirmedin toto the decision[2] of the Regional
Trial Court of Cebu City, Branch 22. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an
interest of 6% per annum to be reckoned from the filing of this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for
attorneys fees and an additional sum of P10,000.00 as litigation expenses;
3) With cost against defendants.
For the Third-Party Complaint:
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants the amount of
P632,700.00.[3]
The Facts
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was
engaged in the shipping business. It owned the M/T ANCO tugboat and the D/B Lucio barge which were
operated as common carriers. Since the D/B Lucio had no engine of its own, it could not maneuver by itself and
had to be towed by a tugboat for it to move from one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the
D/B Lucio, for towage by M/T ANCO, the following cargoes:
Bill of Lading No. Shipment Destination
1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing Division (BMD)-
Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes covered by Bill of Lading No. 2
was SMCs BMD-San Jose Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose, Antique. The
vessels arrived at San Jose, Antique, at about one oclock in the afternoon of 30 September 1979. The tugboat
M/T ANCO left the barge immediately after reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979, the
clouds over the area were dark and the waves were already big. The arrastre workers unloading the cargoes of
SMC on board the D/B Lucio began to complain about their difficulty in unloading the cargoes. SMCs District
Sales Supervisor, Fernando Macabuag, requested ANCOs representative to transfer the barge to a safer place
because the vessel might not be able to withstand the big waves.
ANCOs representative did not heed the request because he was confident that the barge could withstand
the waves. This, notwithstanding the fact that at that time, only the M/T ANCO was left at the wharf of San Jose,
Antique, as all other vessels already left the wharf to seek shelter. With the waves growing bigger and bigger,
only Ten Thousand Seven Hundred Ninety (10,790) cases of beer were discharged into the custody of the
arrastre operator.
At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio abandoned the
vessel because the barges rope attached to the wharf was cut off by the big waves. At around midnight, the
barge run aground and was broken and the cargoes of beer in the barge were swept away.
As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two Hundred Ten (29,210)
cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The value per case of Pale Pilsen was
Forty-Five Pesos and Twenty Centavos (P45.20). The value of a case of Cerveza Negra was Forty-Seven Pesos
and Ten Centavos (P47.10), hence, SMCs claim against ANCO amounted to One Million Three Hundred Forty-Six
Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00).
As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and Damages
against ANCO for the amount of One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven
Pesos (P1,346,197.00) plus interest, litigation expenses and Twenty-Five Percent (25%) of the total claim as
attorneys fees.
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC filed a
second amended complaint which was admitted by the Court impleading the surviving partner, Co To and the
Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang. The substituted defendants adopted
the original answer with counterclaim of ANCO since the substantial allegations of the original complaint and
the amended complaint are practically the same.
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the complaint were
indeed loaded on the vessel belonging to ANCO. It claimed however that it had an agreement with SMC that
ANCO would not be liable for any losses or damages resulting to the cargoes by reason of fortuitous event. Since
the cases of beer Pale Pilsen and Cerveza Negra were lost by reason of a storm, a fortuitous event which
battered and sunk the vessel in which they were loaded, they should not be held liable. ANCO further asserted
that there was an agreement between them and SMC to insure the cargoes in order to recover indemnity in case
of loss. Pursuant to that agreement, the cargoes to the extent of Twenty Thousand (20,000) cases was insured
with FGU Insurance Corporation (FGU) for the total amount of Eight Hundred Fifty-Eight Thousand Five
Hundred Pesos (P858,500.00) per Marine Insurance Policy No. 29591.
 Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging that before
the vessel of ANCO left for San Jose, Antique with the cargoes owned by SMC, the cargoes, to the extent of
Twenty Thousand (20,000) cases, were insured with FGU for a total amount of Eight Hundred Fifty-Eight
Thousand Five Hundred Pesos (P858,500.00) under Marine Insurance Policy No. 29591. ANCO further alleged
that on or about 02 October 1979, by reason of very strong winds and heavy waves brought about by a passing
typhoon, the vessel run aground near the vicinity of San Jose, Antique, as a result of which, the vessel was totally
wrecked and its cargoes owned by SMC were lost and/or destroyed. According to ANCO, the loss of said cargoes
occurred as a result of risks insured against in the insurance policy and during the existence and lifetime of said
insurance policy. ANCO went on to assert that in the remote possibility that the court will order ANCO to pay
SMCs claim, the third-party defendant corporation should be held liable to indemnify or reimburse ANCO
whatever amounts, or damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence of the
Insurance Policy under Marine Cover Note No. 29591 but maintained that the alleged loss of the cargoes
covered by the said insurance policy cannot be attributed directly or indirectly to any of the risks insured
against in the said insurance policy. According to FGU, it is only liable under the policy to Third-party Plaintiff
ANCO and/or Plaintiff SMC in case of any of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to exercise ordinary
diligence or the diligence of a good father of the family in the care and supervision of the cargoes insured to
prevent its loss and/or destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked for actual,
moral, and exemplary damages and attorneys fees.[1]
The trial court found that while the cargoes were indeed lost due to fortuitous event, there was failure on
ANCOs part, through their representatives, to observe the degree of diligence required that would exonerate
them from liability. The trial court thus held the Estate of Ang Gui and Co To liable to SMC for the amount of the
lost shipment. With respect to the Third-Party complaint, the court a quo found FGU liable to bear Fifty-Three
Percent (53%) of the amount of the lost cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and was broken and
the beer cargoes on the said barge were swept away. It is the sense of this Court that the risk insured against was
the cause of the loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the amount of the policy
was only for P858,500.00, defendants as assured, therefore, were considered co-insurers of third-party defendant
FGU Insurance Corporation to the extent of 975,405.00 value of the cargo. Consequently, inasmuch as there was
partial loss of only P1,346,197.00, the assured shall bear 53% of the loss[4] [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the motion for
reconsideration and the supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into two: 1)
Whether or not respondent Court of Appeals committed grave abuse of discretion in holding FGU liable under
the insurance contract considering the circumstances surrounding the loss of the cargoes; and 2) Whether or
not the Court of Appeals committed an error of law in holding that the doctrine of res judicataapplies in the
instant case.
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate court based
on the following assignments of error: 1) The Court of Appeals committed grave abuse of discretion in affirming
the findings of the lower court that the negligence of the crewmembers of the D/B Lucio was the proximate
cause of the loss of the cargoes; and 2) The respondent court acted with grave abuse of discretion when it ruled
that the appeal was without merit despite the fact that said court had accepted the decision in Civil Case No. R-
19341, as affirmed by the Court of Appeals and the Supreme Court, as res judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in their respective
petitions for review, that is, whether or not the doctrine of res judicata applies in the instant case.
It is ANCOs contention that the decision in Civil Case No. R-19341,[5] which was decided in its favor,
constitutes res judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No. R-19341 and the
case at bar. In order for res judicata to be made applicable in a case, the following essential requisites must be
present: 1) the former judgment must be final; 2) the former judgment must have been rendered by a court
having jurisdiction over the subject matter and the parties; 3) the former judgment must be a judgment or order
on the merits; and 4) there must be between the first and second action identity of parties, identity of subject
matter, and identity of causes of action.[6]
There is no question that the first three elements of res judicata as enumerated above are indeed satisfied
by the decision in Civil Case No. R-19341. However, the doctrine is still inapplicable due to the absence of the
last essential requisite of identity of parties, subject matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in the instant
case, SMC is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang and
Co To as defendants, with the latter merely impleading FGU as third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by ANCO, the owner
of the vessel, with FGU covering the vessel D/B Lucio, while in the instant case, the subject matter of litigation is
the loss of the cargoes of SMC, as shipper, loaded in the D/B Lucio and the resulting failure of ANCO to deliver to
SMCs consignees the lost cargo. Otherwise stated, the controversy in the first case involved the rights and
liabilities of the shipowner vis--vis that of the insurer, while the present case involves the rights and liabilities of
the shipper vis--vis that of the shipowner. Specifically, Civil Case No. R-19341 was an action for Specific
Performance and Damages based on FGU Marine Hull Insurance Policy No. VMF-MH-13519 covering the vessel
D/B Lucio, while the instant case is an action for Breach of Contract of Carriage and Damages filed by SMC
against ANCO based on Bill of Lading No. 1 and No. 2, with defendant ANCO seeking reimbursement from FGU
under Insurance Policy No. MA-58486, should the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different from that in
Civil Case No. R-19341. In the latter, ANCO was suing FGU for the insurance contract over the vessel while in the
former, the third-party complaint arose from the insurance contract covering the cargoes on board the D/B
Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already passed upon by
a court of competent jurisdiction in a former judgment, in another action between the same parties based on a
different claim or cause of action. The judgment in the prior action operates as estoppel only as to those matters
in issue or points controverted, upon the determination of which the finding or judgment was rendered.[7] If a
particular point or question is in issue in the second action, and the judgment will depend on the determination
of that particular point or question, a former judgment between the same parties or their privies will be final
and conclusive in the second if that same point or question was in issue and adjudicated in the first suit. [8]
Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341, only findings
with respect to matters passed upon by the court in the former judgment are conclusive in the disposition of the
instant case. A careful perusal of the decision in Civil Case No. R-19341 will reveal that the pivotal issues
resolved by the lower court, as affirmed by both the Court of Appeals and the Supreme Court, can be
summarized into three legal conclusions: 1) that the D/B Lucio before and during the voyage was seaworthy; 2)
that there was proper notice of loss made by ANCO within the reglementary period; and 3) that the vessel D/B
Lucio was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent therein was any
discussion regarding the liability of ANCO for the loss of the cargoes. Neither did the lower court pass upon the
issue of the alleged negligence of the crewmembers of the D/B Lucio being the cause of the loss of the cargoes
owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of Appeals that
there is res judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in concluding that the
negligence of ANCOs representatives was the proximate cause of the loss, said issue is a question of fact
assailing the lower courts appreciation of evidence on the negligence or lack thereof of the crewmembers of the
D/B Lucio. As a rule, findings of fact of lower courts, particularly when affirmed by the appellate court, are
deemed final and conclusive. The Supreme Court cannot review such findings on appeal, especially when they
are borne out by the records or are based on substantial evidence.[9] As held in the case of Donato v. Court of
Appeals,[10] in this jurisdiction, it is a fundamental and settled rule that findings of fact by the trial court are
entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because the
trial court is in a better position to examine real evidence, as well as to observe the demeanor of the witnesses
while testifying in the case.[11]
It is not the function of this Court to analyze or weigh evidence all over again, unless there is a showing
that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute
palpable error or grave abuse of discretion.[12]
A careful study of the records shows no cogent reason to fault the findings of the lower court, as sustained
by the appellate court, that ANCOs representatives failed to exercise the extraordinary degree of diligence
required by the law to exculpate them from liability for the loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine Thousand
Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio had no engine
of its own and could not maneuver by itself. Yet, the patron of ANCOs tugboat M/T ANCO left it to fend for itself
notwithstanding the fact that as the two vessels arrived at the port of San Jose, Antique, signs of the impending
storm were already manifest. As stated by the lower court, witness Mr. Anastacio Manilag testified that the
captain or patron of the tugboat M/T ANCO left the barge D/B Lucio immediately after it reached San Jose,
Antique, despite the fact that there were already big waves and the area was already dark. This is corroborated
by defendants own witness, Mr. Fernando Macabueg.[13]
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe extraordinary diligence in
the vigilance over the cargo of the plaintiff, the patron or captain of M/T ANCO, representing the defendant
could have placed D/B Lucio in a very safe location before they left knowing or sensing at that time the coming
of a typhoon. The presence of big waves and dark clouds could have warned the patron or captain of M/T ANCO
to insure the safety of D/B Lucio including its cargo. D/B Lucio being a barge, without its engine, as the patron
or captain of M/T ANCO knew, could not possibly maneuver by itself. Had the patron or captain of M/T ANCO,
the representative of the defendants observed extraordinary diligence in placing the D/B Lucio in a safe place,
the loss to the cargo of the plaintiff could not have occurred. In short, therefore, defendants through their
representatives, failed to observe the degree of diligence required of them under the provision of Art. 1733 of
the Civil Code of the Philippines.[14]
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention of
respondents SMC and FGU that the crewmembers of D/B Lucio should have left port at the onset of the typhoon
is like advising the fish to jump from the frying pan into the fire and an advice that borders on madness. [15]
The argument does not persuade. The records show that the D/B Lucio was the only vessel left at San Jose,
Antique, during the time in question. The other vessels were transferred and temporarily moved to Malandong,
5 kilometers from wharf where the barge remained.[16] Clearly, the transferred vessels were definitely safer in
Malandong than at the port of San Jose, Antique, at that particular time, a fact which petitioners failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by the typhoonSisang, a
fortuitous event (caso fortuito), and there was no fault or negligence on their part. In fact, ANCO claims that
their crewmembers exercised due diligence to prevent or minimize the loss of the cargoes but their efforts
proved no match to the forces unleashed by the typhoon which, in petitioners own words was, by any yardstick,
a natural calamity, a fortuitous event, an act of God, the consequences of which petitioners could not be held
liable for.[17]
The Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported
by them, according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735, and 1745
Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
...
Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster
must have been the proximate and only cause of the loss. However, the common carrier must exercise due
diligence to prevent or minimize loss before, during and after the occurrence of flood, storm, or other natural
disaster in order that the common carrier may be exempted from liability for the loss, destruction, or
deterioration of the goods . . . (Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from
liability)[18] by definition, are extraordinary events not foreseeable or avoidable, events that could not be
foreseen, or which though foreseen, were inevitable. It is therefore not enough that the event should not have
been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid.[19]
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable.
In fact, the other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance
which prompted SMCs District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no
avail. The D/B Lucio had no engine and could not maneuver by itself. Even if ANCOs representatives wanted to
transfer it, they no longer had any means to do so as the tugboat M/T ANCO had already departed, leaving the
barge to its own devices. The captain of the tugboat should have had the foresight not to leave the barge alone
considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO could
not escape liability to respondent SMC. The records clearly show the failure of petitioners representatives to
exercise the extraordinary degree of diligence mandated by law. To be exempted from responsibility, the
natural disaster should have been the proximate and only cause of the loss. [20] There must have been no
contributory negligence on the part of the common carrier. As held in the case ofLimpangco Sons v. Yangco
Steamship Co.:[21]
. . . To be exempt from liability because of an act of God, the tug must be free from any previous negligence or
misconduct by which that loss or damage may have been occasioned. For, although the immediate or proximate
cause of the loss in any given instance may have been what is termed an act of God, yet, if the tug unnecessarily
exposed the two to such accident by any culpable act or omission of its own, it is not excused. [22]
Therefore, as correctly pointed out by the appellate court, there was blatant negligence on the part of M/T
ANCOs crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of the storm without the
assistance of the tugboat, and again in failing to heed the request of SMCs representatives to have the barge
transferred to a safer place, as was done by the other vessels in the port; thus, making said blatant negligence
the proximate cause of the loss of the cargoes.
We now come to the issue of whether or not FGU can be held liable under the insurance policy to
reimburse ANCO for the loss of the cargoes despite the findings of the respondent court that such loss was
occasioned by the blatant negligence of the latters employees.
One of the purposes for taking out insurance is to protect the insured against the consequences of his own
negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and negligence of the
insured or his agents constitute no defense on the part of the insurer. [23] This rule however presupposes that
the loss has occurred due to causes which could not have been prevented by the insured, despite the exercise of
due diligence.
The question now is whether there is a certain degree of negligence on the part of the insured or his
agents that will deprive him the right to recover under the insurance contract. We say there is. However, to
what extent such negligence must go in order to exonerate the insurer from liability must be evaluated in light
of the circumstances surrounding each case. When evidence show that the insureds negligence or recklessness
is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,[24] the United States Supreme Court held
that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk which the insurer
takes upon himself, and the existence of which, where it is the proximate cause of the loss, does not absolve the
insurer from liability. But willful exposure, gross negligence, negligence amounting to misconduct, etc., have often
been held to release the insurer from such liability.[25] [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the owners of an insured
vessel attempted to put her across the bar at Hatteras Inlet. She struck on the bar and was wrecked. The master
knew that the depth of water on the bar was such as to make the attempted passage dangerous. Judge Clifford
held that, under the circumstances, the loss was not within the protection of the policy, saying:
Authorities to prove that persons insured cannot recover for a loss occasioned by their own wrongful acts are
hardly necessary, as the proposition involves an elementary principle of universal application. Losses may be
recovered by the insured, though remotely occasioned by the negligence or misconduct of the master or crew, if
proximately caused by the perils insured against, because such mistakes and negligence are incident to
navigation and constitute a part of the perils which those who engage in such adventures are obliged to
incur; but it was never supposed that the insured could recover indemnity for a loss occasioned by his own
wrongful act or by that of any agent for whose conduct he was responsible.[26] [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a distinction between
ordinary negligence and gross negligence or negligence amounting to misconduct and its effect on the insureds
right to recover under the insurance contract. According to the Court, while mistake and negligence of the
master or crew are incident to navigation and constitute a part of the perils that the insurer is obliged to incur,
such negligence or recklessness must not be of such gross character as to amount to misconduct or wrongful
acts; otherwise, such negligence shall release the insurer from liability under the insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the evidence that the
crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants when the patron (operator)
of the tug boat immediately left the barge at the San Jose, Antique wharf despite the looming bad weather.
Negligence was likewise exhibited by the defendants-appellants representative who did not heed Macabuags
request that the barge be moved to a more secure place. The prudent thing to do, as was done by the other sea
vessels at San Jose, Antique during the time in question, was to transfer the vessel to a safer wharf. The
negligence of the defendants-appellants is proved by the fact that on 01 October 1979, the only simple vessel left at
the wharf in San Jose was the D/B Lucio.[27] [Emphasis ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by the lower
court, as sustained by the Court of Appeals, that ANCOs representatives had failed to exercise extraordinary
diligence required of common carriers in the shipment of SMCs cargoes. Such blatant negligence being the
proximate cause of the loss of the cargoes amounting to One Million Three Hundred Forty-Six Thousand One
Hundred Ninety-Seven Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that the blatant
negligence of ANCOs employees is of such gross character that it amounts to a wrongful act which must
exonerate FGU from liability under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February 1999 is
hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
THIRD DIVISION
[G.R. No. 135377. October 7, 2003]DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC., petitioners,
vs.FEDERAL PHOENIX ASSURANCE CO., INC., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari[1] assailing the Decision[2] dated June 5, 1998 of the Court of
Appeals in CA-G.R. CV No. 50833 which affirmed the Decision of the Regional Trial Court (RTC), Manila City,
Branch 16, in Civil Case No. 94-69699, Federal Phoenix Assurance Company, Inc. vs. DSR-Senator Lines and C.F.
Sharp & Co., Inc., for damages arising from the loss of cargo while in transit.
Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp and Company, Inc. (C.F.
Sharp), the General Ship Agent of DSR-Senator Lines, a foreign shipping corporation, for transportation and
delivery to the consignee, Al-Mohr International Group, in Riyadh, Saudi Arabia. C.F. Sharp issued International
Bill of Lading No. SENU MNL-26548[3] for the cargo with an invoice value of $34,579.60. Under the Bill of
Lading, the port of discharge for the cargo was at the Khor Fakkan port and the port of delivery was Riyadh,
Saudi Arabia, via Port Dammam. The cargo was loaded in M/S Arabian Senator.
Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the cargo against all risks
in the amount of P941,429.61.[4]
On June 7, 1993, M/S Arabian Senator left the Manila South Harbor for Saudi Arabia with the cargo on
board. When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board DSR-Senator Lines feeder
vessel, M/V Kapitan Sakharov, bound for Port Dammam, Saudi Arabia. However, while in transit, the vessel and
all its cargo caught fire.
On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V Kapitan Sakharov with its cargo was
gutted by fire and sank on or about July 4, 1993. On December 16, 1993, C.F. Sharp issued a certification to that
effect.
Consequently, Federal Phoenix Assurance paid Berde Plants P941,429.61 corresponding to the amount of
insurance for the cargo. In turn Berde Plants executed in its favor a Subrogation Receipt[5]dated January 17,
1994.
On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment
ofP941,429.61 on the basis of the Subrogation Receipt. C.F. Sharp denied any liability on the ground that such
liability was extinguished when the vessel carrying the cargo was gutted by fire.
Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16, Manila a complaint for
damages against DSR-Senator Lines and C.F. Sharp, praying that the latter be ordered to pay actual damages
of P941,429.61, compensatory damages of P100,000.00 and costs.
On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix Assurance, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the defendants
who are hereby ordered jointly and severally to pay plaintiff:
I. The amount of P941,439.61 (should be P941,429.61[6]) with legal interest of 6% per annum from
the date of the letter of demand of February 8, 1993 (EXH. L) and 12% per annum from the date
the judgment becomes final and executory until its satisfaction (Eastern Shipping Lines vs. Court
of Appeals, G.R. No. 97412, July 12, 1994);
II. The amount of P15,000.00 by way of reasonable attorneys fees; and
III. To pay costs.
The counterclaim of defendants is DISMISSED.
SO ORDERED.[7]
On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming the RTC Decision, thus:
In the present recourse, the appellant carrier was presumed to have acted negligently for the fire that gutted the
feeder vessel and the consequent loss or destruction of the cargo. Hence, the appellant carrier is liable for
appellees claim under the New Civil Code of the Philippines.
Contrary to C.F. Sharp and Co., Inc.s pose, its liability as ship agent continued and remained until the cargo was
delivered to the consignee. The status of the appellant as ship agent subsisted and its liability as a ship agent
was co-terminous with and subsisted as long as the cargo was not delivered to the consignee under the terms of
the Bill of Lading.
IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED. The Decision appealed from is
affirmed. With costs against the appellants.
SO ORDERED.[8]
On September 7, 1998, the Court of Appeals denied the motion for reconsideration of DSR-Senator Lines
and C.F. Sharp, prompting them to file with this Court the instant petition.
We find the petition bereft of merit.
Article 1734 of the Civil Code provides:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless
the same is due to any of the following causes only:
(1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Fire is not one of those enumerated under the above provision which exempts a carrier from liability for
loss or destruction of the cargo.
In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court,[9] we ruled that since the peril of fire is not
comprehended within the exceptions in Article 1734, then the common carrier shall be presumed to have been
at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required
by law.
Even if fire were to be considered a natural disaster within the purview of Article 1734, it is required
under Article 1739[10] of the same Code that the natural disaster must have been the proximate and only cause
of the loss, and that the carrier has exercised due diligence to prevent or minimize the loss before, during
or after the occurrence of the disaster.
We have held that a 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. When the goods shipped either are 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.[11]
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. Accordingly, they are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated. There are very few instances when the presumption of negligence
does not attach and these instances are enumerated in Article 1734. In those cases where the presumption is
applied, the common carrier must prove that it exercised extraordinary diligence in order to overcome the
presumption.[12]
Respondent Federal Phoenix Assurance raised the presumption of negligence against
petitioners.However, they failed to overcome it by sufficient proof of extraordinary diligence.
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals dated June 5,
1998, in CA-G.R. CV No. 50833 is hereby AFFIRMED.
SO ORDERED.
Puno, J., (Chairman), Panganiban, and Carpio Morales JJ., concur.
Corona, J., on leave.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 101426 May 17, 1993
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and TRANSPACIFIC TOWAGE, INC., respondents.
Linsangan Law Office for petitioner.
Misa, Castro & Associates for private respondent.
PADILLA, J.:
In this petition for review on certiorari, Philippine American General Insurance Company, Incorporated assails
the decision * of the Court of Appeals, dated 31 July 1991, rendered in CA-G.R. CV. No. 21252, which reversed
and set aside the decision of the Regional Trial Court of Manila, Branch 16 1 and entered a new one dismissing
the petitioner's complaint which sought to collect the sum of P1,511,210.00 from the private respondent.
The facts of the case, as found by the Court of Appeals,2 are as follows:
On September 4, 1985 the Davao Union Marketing Corporation of Davao City shipped on
board the vessel M/V "Crazy Horse" operated by the Transpacific Towage, Inc. cargo
consisting of 9,750 sheets of union brand GI sheets with a declared value of P1,086,750.00
and 86,860 bags of union Pozzolan and union Portland Cement with a declared value of
P4,300,000.00. The cargo was consigned to the Bicol Union Center of Pasacao, Camarines Sur,
with a certain Pedro Olivan as the "Notify-Party."
The cargo was insured by the Philippine American General Insurance Co., Inc., under Marine
Note No. 023408 covering 86,000, of Union Pozzolan and POrtland cement for the amount of
P3,440,000.00.
The vessel M/V "Crazy Horse" arrived on September 7, 1985 as scheduled as the port of
Pasacao, Camarines Sur. Upon arrival the shipmaster notified the consignee's "Notify-Party"
that the vessel was already (sic) to discharge the cargo. The discharging could not be affected
immediately and continuously because of certain reasons. First, the buoys were installed
only on September 11, 1985; second, the dischrage permit was secured by the consignee only
on September 13, 1985; third a wooden catwalk had to be installed and extension of the
wharf had to be made, which was completed only on September 26, 1985; fourth, the
discharging was not continuous because there were intermittent rains and the stevedores
supplied by the consignee did not work during the town fiesta. (Emphasis supplied ours)
On October 16, 1985, a super typhoon code named "Saling" entered the Philippine area of
responsibility and was felt in the eastern coast of the country on October 17, 1985. It had a
strength of 240 KPH and Pasacao was placed under Storm Signal No. 3. The discharging of the
cargo had to be suspended at 11:40 A.M. on October 17, 1985 due to the heavy downpour,
strong winds, and turbulent sea. To prevent damage to the cargo all hatches of the vessel were
closed and secured. (Emphasis supplied ours)
At the time the discharging of the cargo was suspended, a total of 59,625 bags of cement and
26 crates of GI sheets had already been discharged.
In further preparation for the typhoon the vessel was loaded with 22 tons of fresh water and
3,000 liters of fuel. The shipmaster ordered the vessel to be moved about 300 meters
seaward in order that it would not hit the cat walk or the wooden bridge or the wharf, or the
rocks. The vessel was ready for any maneuver that may have to be made.
According to the shipmaster who was plotting the typhoon's path in a chart, the radius was
so wide that there was no way the typhoon could be evaded. From 8:00 P.M. of October 17,
1985 to 8:00 P.M. of October 18, 1985 the typhoon raged in the area. It was at about 5:20
A.M. of October 18, 1985 when the shipmaster ordered the maneuvering of the vessel but it
could not be steered on account of the strong winds and rough seas. The vessel's lines
snapped, causing her to be dragged against the rocks, and the anchor chain stopper gave
way. The vessel sustained holes in the engine room and there was a power failure in the
vessel. Water started to fill the engine room and at about 6:15 A.M. the engine broke down.
The shipmaster had no choice but to order the ship to be abandoned. He told the crew to
secure the vessel while he went to the Municipal Mayor of Pasacao to request for police
assistance to prevent pilferage of the vessel and its cargo. He was, however, unable to get any
assistance. When he returned to the vessel he found that it was being continuously pounded
by the strong sea waves against the rocks. This caused the vessel to break into two (2) parts
and to sink partially. The shipmaster reported the incident to the Philippine Coast Guard but
inspite the presence of three (3) coast guards, nothing could be done about the pilferage
done on the vessel and its cargo. Almost the whole barrio and because there were so many of
them the crew and the guards were helpless to stop the pilferage and looting. As a result of
the incident the cargo of cement was damaged while the GI sheets were looted and nothing
was left of the undischarged pieces.
The total number of cement bags damaged and/or lost was 26,424 costing P1,056,960.00
while there were 4,000 pieces of the GI sheets unrecovered, the cost of which was
P454,250.00.
Because the cargo was insured by it the Philippine American General Insurance Co., Inc. paid
the shipper Davao Union Marketing Corporation the sum of P1,511,210.00. Thereafter, the
said insurer made demands upon the Transpacific Towage, Inc. for the payment of said
amount as subrogee of the insured, claiming that the loss of the cargo was directly and
exclusively brought about by the fault and negligence of the shipmaster and the crew of M/V
"Crazy Horse". Because the latter refused to pay the amount of P1,511,210.00 demanded, the
Philippine American General Insurance Co., Inc. filed the present complaint.
The lower court found that although the immediate cause of the loss may have been due to
an act of God, the defendant carrier had exposed the property to the accident. The court also
found plaintiff guilty of contributory negligence and mitigated the plaintiff's claim to three-
fourths (3/4) of its value. Thus the lower court, in its Decision, ordered the defendant:
1) To pay plaintiff the mitigated amount of P1,133,408.00 plus 12% legal interest per
annumcomputed from the date of the filing of herein complaint on May 15, 1986, until duly
paid;
2) To pay P8,000.00 as attorney's fees; and
3) To pay costs of suit.
 SO ORDERED.
In its now assailed decision, respondent Court of Appeals reversed the decision of the trial court and ruled
instead that private respondent, as a common carrier, is not responsible for the loss of the insured cargo
involved in the case at bar, as said loss was due solely to a fortituous event.
Petitioner in the present petition contends that respondent appellate court erred in not holding private
respondent liable for the loss of the said insured cargo.
We affirm the decision of the Court of Appeals.
It is not disputed that private respondent is a common carrier as defined in Article 1732 of the Civil Code. 3 The
following facts are also not contested: (1) that the cargo-carrying vessel was wrecked and partially sank on 18
October 1985 due to typhoon "Saling"; (2) that typhoon "Saling" was a fortuitous event; and (3) that at the time
said vessel sank, the remaining undischarged cargo, consisting of 26,424 cement bags and 4,000 pieces of G.I.
sheets, were still on board the vessel.
However, the Court notes the fact that as of 17 October 1985, the time when the Pasacao area was placed under
storm signal No. 3 due to "Saling", the unloading of the cargo from the vessel was still unfinished,
notwithstanding the lapse of forty (40) days from the time the vessel arrived in Pasacao on 7 September 1985,
or the lapse of thirty-four (34) days from the time actual discharge of the cargo commenceds on 13 September
1985.
In the opinion of the trial court, this lapse of thirty four (34) days with private respondent not having completed
the unloading of the goods, is tantamount to unreasonable delay, which delay exposed the unloaded cargo to
accident. The trial court held private respondent liable for the loss of goods under Article 1740 of the Civil Code
which provides that if the common carrier negligently incurs in delay in transporting the goods, a natural
disaster shall not free the carrier from responsibility.
On the other hand, the appellate court ruled out any negligence committed by private respondent and held that
the delay in fully unloading the cargo from the vessel "was occasioned by causes that may not be attributed
solely to human factors, among which were the natural conditions of the port where the M/V "Crazy Horse" had
docked, the customs of the place and the weather conditions.4
The appellate court in exempting private respondent from liability applied Article 1739 of the Civil Code which
provides as follows:
In order that the common carrier may be exempted from responsibility, the natural disaster
must have been the proximate and only cause of the loss. However, the common carrier must
exercise due diligence to prevent or minimize loss before, during and after the occurrence of
flood, storm, or other natural disaster in order that the common carrier may be exempted
from liability for the loss, destruction, or deterioration of the goods.
The appellate court ruled that the los of cargo in the present case was due solely to typhoon "Saling" and that
private respondent had shown that it had observed due diligence before, during and after the occurrence of
"Saling"; hence, it should not be liable under Article 1739.
Considering the disputed fact that there really was delay in completing the unloading of the goods from the
vessel, the Court believes that the real issue at bar centers on the application of Article 1740 of the Civil Code. In
short, the principal question, in determining which of the parties in the present case should bear the loss of the
goods, is whether the delay involved in the unloading of the goods is deemed negligently incurred in, so as not
to free private respondent from liability, notwithstanding the fact that the ultimate cause of the loss of the
goods was the sinking of the vessel brought about by typhoon "Saling."
Indeed, from the time the vessel arrived at port Pasacao on 7 September 1985 up to 17 October 1985 when the
Pasacao area was placed under storm signal No. 3 due to typhoon "Saling", forty (40) days had passed. Under
normal conditions, a period of forty (40) days is undoubtedly more than enough time within which the
unloading of the cargo (given its nature) from the vessel could be completed. Hence, the question boils down
further to which party should be faulted for this delay.
Private respondent argues that its duty to unload ceased on 7 September 1985 when the shipmaster notified
the consignee's "Notify-Party" that the vessel was ready to discharge the cargo. On the other hand, petitioner
contends that the duty to unload the cargo from the vessel continued to remain with private respondent.
Respondent appellate court, however, ruled that the question as to which party had the task to discharge the
cargo is actually immaterial under the circumstances, as the delay could not be attributed to any of the parties,
but to several causes such as the natural conditions of the Pasacao port, the customs of the place and the
weather conditions obtaining at the time. The appellate court made the following observations:
xxx xxx xxx
To our mind whichever of the parties had the obligation to unload the cargo is not material.
For, analyzing the causes for the delay in such unloading, we find that such delay was not due
to the negligence of any party but was occasioned by causes that may not be attributed solely
to human factors, among which were the natural conditions of the port where the M/V
"Crazy Horse" had docked, the customs of the place, and the weather conditions.
The wharf where the vessel had to dock was shallow and rocky, hence it had to drop anchor
some distance away in a private port. Buoys had to be constructed in order that the vessel
may properly moored. After the buoys were installed a wooden stage had to be constructed
so that the stevedores could reach the vessel. For this they needed a floating crane which was
not immediately available. The barges that were to load the cargo from the vessel could not
go near the wharf because of the shallow and rocky condition. A catwalk had to be installed
between the barge and the wharf. This necessitated the dismantling of the wooden stage
previously installed.
Apart from these preparations and constructions that had to be made, the weather was not
cooperative. Even before the typhoon struck there were intermittent rains, hence the
unloading was not continuous. The actual unloading started on September 13, 1985 and
could have been finished in 4 or 5 days but because of the rains it was delayed. Another
factor that caused further delay was the fact that the fiesta of the Virgin of Penafrancia was
celebrated and for the length of time that the celebrations were held, the stevedores who
were from the place refused to work.
xxx xxx xxx
The Court of Appeals summarized the reasons which adversely affected the completion of the unloading of the
cargo from the time the vessel arrived at the Pasacao area on 7 September 1985, namely: first, the buoys were
installed only on 11 September 1985; second, the consignee secured the discharge permit only on 13 September
1985; third, a wooden catwalk had to be installed and the extension of the wharf had to be made, which was
completed only on 16 September 1985; fourth, there were intermittent rains and the stevedores supplied by the
consignee did not work during the town fiesta of the Virgin of Penafrancia, hence, the unloading was not SO ORDERED.
continuous.
Narvasa, C.J., Regalado and Nocon, JJ., concur.
We respect the above-mentioned factual findings of the appellate court as to the natural conditions of the port
of Pasacao were the vessel was docked, and several other factors which harshly affected the completion of the
discharge of the cargo, as these findings of fact are substantially supported by evidence.6

While it is true that there was indeed delay in discharging the cargo from the vessel, we agree with the Court of
Appeals that neither of the parties herein could be faulted for such delay, for the same (delay) was due not to
negligence, but to several factors earlier discussed. The cargo having been lost due to typhoon "Saling", and the
delay incurred in its unloading not being due to negligence, private respondent is exempt from liability for the
loss of the cargo, pursuant to Article 1740 of the Civil Code.

The records also show that before, during and after the occurrence of typhoon "Saling", private respondent
through its shipmaster exercised due negligence to prevent or minimize the loss of the cargo, as shown by the
following facts: (1) at 5:20 a.m. of 18 October 1985, as typhoon "Saling" continued to batter the Pasacao area,
the shipmaster tried to maneuver the vesel amidst strong winds and rough seas; (2) when water started to
enter the engine room and later the engine broke down, the shipmaster ordered ths ship to be abandoned, but
he sought police assistance to prevent pilferage of the vessel and its cargo; (3) after the vessel broke into two
(2) parts and sank partially, the shipmaster reported th eincident to the Philippine Coast Guard, but
unfortunately, despite the presence of three (3) coast guards, nothing could be done to stop the pilferage as
almost the entire barrio folk came to loot the vessel and its cargo, including the G.I. sheets.

The diligennced exercised by the shipmaster further supports the exemption of private respondent from
liability for the loss of the cargo, in accordance with Article 1739 of the Civil Code.

Although we find private respondent free from liability for the loss of the cargo, we disagree with its contention
that the doctrine of res judicata applies in the case at bar, because the Board of Marine Inquiry rendered a
decision dated 11 April 1988 (acting on the marine protest filed on 19 October 1985 by the shipmaster of M/V
"Crazy Horse") holding that said shipmaster was not guilty of "negligence as the proximate cause of the
grounding and subsequent wreckage of M/S "Crazy Horse", hence, recommending that the captain, his officers
and crew be absolved from any administrative liability arising out of the subject incident."7

The resolution of the present case is not barred by the judgment of the Board of Marine Inquiry. One of the
requisites of the principle of res judicata is that there must be, among other things, identity of subject matters
and causes of action between a first and second case in order that the judgment in the prior case may bar that in
the subsequent case.8

The cause of action in the marine protest was to enforce the administrative liability of the shipmaster/captain
of M/V "Crazy Horse", its officers and crew for the wreckage and sinking of the subject vessel. On the other
hand, the cause of action at bar is to enforce the civil liability of private respondent, a common carrier, for its
failure to unload the subject cargo within a period of time considered unreasonably long by the petitioner.
While it may be true that the Court is bound to accord great weight to factual findings of the Board, 9 we hold
that the protest filed before it and the present case assert different causes of action and seek different reliefs.

All told, we find private respondent not legally liable for the loss of the insured cargo involved in the present
case.

WHEREFORE, the petition is DENIED. The appealed decision of the Court of Appeals, dated 31 July 1991,
rendered in CA-G.R. CV No. 21252, is hereby AFFIRMED.
THIRD DIVISION
[G.R. No. 143133. June 5, 2002]
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES,
INC., petitioners, vs. PHILIPPINE FIRST INSURANCE CO., INC., respondent.
DECISION
PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their
destination constitutes prima facie fault or negligence on the part of the carrier. If no adequate explanation is
given as to how the loss, the destruction or the deterioration of the goods happened, the carrier shall be held
liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998
Decision[1] and the May 2, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR CV No. 53571. The decretal
portion of the Decision reads as follows:
WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby REVERSED and
SET ASIDE. Defendants-appellees are ORDERED to jointly and severally pay plaintiffs-appellants the following:
1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as
actual damages, representing the value of the damaged cargo, plus interest at the legal rate
from the time of filing of the complaint on July 25, 1991, until fully paid;
2) Attorneys fees amounting to 20% of the claim; and
3) Costs of suit.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had
disposed as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as well as
defendants counterclaim.[5]
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:
On June 13, 1990, CMC Trading A.G. shipped on board the MN Anangel Sky at Hamburg, Germany 242 coils of
various Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading
Corporation. On July 28, 1990, MN Anangel Sky arrived at the port of Manila and, within the subsequent days,
discharged the subject cargo. Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding
the four (4) coils in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel
Trading Corporation declared the same as total loss.
Despite receipt of a formal demand, defendants-appellees refused to submit to the consignees
claim. Consequently, plaintiff-appellant paid the consignee five hundred six thousand eighty six & 50/100 pesos
(P506,086.50), and was subrogated to the latters rights and causes of action against defendants-appellees.
Subsequently, plaintiff-appellant instituted this complaint for recovery of the amount paid by them, to the
consignee as insured.
Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or loss
was due to pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and
accidents of the sea, or to insufficiency of packing thereof, or to the act or omission of the shipper of the goods
or their representatives. In addition thereto, defendants-appellees argued that their liability, if there be any,
should not exceed the limitations of liability provided for in the bill of lading and other pertinent laws. Finally,
defendants-appellees averred that, in any event, they exercised due diligence and foresight required by law to
prevent any damage/loss to said shipment.[6]
Ruling of the Trial Court
The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of
proof required by law.[7]
It likewise debunked petitioners counterclaim, because respondents suit was not manifestly frivolous or
primarily intended to harass them.[8]
Ruling of the Court of Appeals
In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the
goods shipped, because they had failed to overcome the presumption of negligence imposed on common
carriers.
The CA further held as inadequately proven petitioners claim that the loss or the deterioration of the
goods was due to pre-shipment damage.[9] It likewise opined that the notation metal envelopes rust stained and
slightly dented placed on the Bill of Lading had not been the proximate cause of the damage to the four (4)
coils.[10]
As to the extent of petitioners liability, the CA held that the package limitation under COGSA was not
applicable, because the words L/C No. 90/02447 indicated that a higher valuation of the cargo had been
declared by the shipper.The CA, however, affirmed the award of attorneys fees.
Hence, this Petition.[11]
Issues
In their Memorandum, petitioners raise the following issues for the Courts consideration:
I
Whether or not plaintiff by presenting only one witness who has never seen the subject shipment and whose
testimony is purely hearsay is sufficient to pave the way for the applicability of Article 1735 of the Civil Code;
II
Whether or not the consignee/plaintiff filed the required notice of loss within the time required by law;
III
Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-shipment damage
and to exempt herein defendants from liability;
IV
Whether or not the PACKAGE LIMITATION of liability under Section 4 (5) of COGSA is applicable to the case at
bar.[12]
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
 3. Whether the package limitation of liability is applicable
This Courts Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence
Petitioners contend that the presumption of fault imposed on common carriers should not be applied on
the basis of the lone testimony offered by private respondent. The contention is untenable.
Well-settled is the rule that common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and the
passengers they transport.[13] Thus, common carriers are required to render service with the greatest skill and
foresight and to use all reason[a]ble means to ascertain the nature and characteristics of the goods tendered for
shipment, and to exercise due care in the handling and stowage, including such methods as their nature
requires.[14] The extraordinary responsibility lasts from the time the goods are unconditionally placed in the
possession of and received for transportation by the carrier until they are delivered, actually or constructively,
to the consignee or to the person who has a right to receive them.[15]
This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such
contract, the riding public enters into a contract of transportation with common carriers.[16] Even if it wants to,
it cannot submit its own stipulations for their approval.[17] Hence, it merely adheres to the agreement prepared
by them.
Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed
to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. [18] That is,
unless they prove that they exercised extraordinary diligence in transporting the goods.[19] In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that they observed such
diligence.[20]
However, the presumption of fault or negligence will not arise [21] if the loss is due to any of the following
causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the public
enemy in war, whether international or civil; (3) an act or omission of the shipper or owner of the goods; (4) the
character of the goods or defects in the packing or the container; or (5) an order or act of competent public
authority.[22] This is a closed list. If the cause of destruction, loss or deterioration is other than the enumerated
circumstances, then the carrier is liable therefor.[23]
Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of
their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the
carrier. If no adequate explanation is given as to how the deterioration, the loss or the destruction of the goods
happened, the transporter shall be held responsible.[24]
That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by
a review of the records and more so by the evidence adduced by respondent.[25]
First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition
in Hamburg, Germany.[26]
Second, prior to the unloading of the cargo, an Inspection Report[27] prepared and signed by
representatives of both parties showed the steel bands broken, the metal envelopes rust-stained and heavily
buckled, and the contents thereof exposed and rusty.
Third, Bad Order Tally Sheet No. 154979[28] issued by Jardine Davies Transport Services, Inc., stated that
the four coils were in bad order and condition. Normally, a request for a bad order survey is made in case there
is an apparent or a presumed loss or damage.[29]
Fourth, the Certificate of Analysis[30] stated that, based on the sample submitted and tested, the steel
sheets found in bad order were wet with fresh water.
Fifth, petitioners -- in a letter[31] addressed to the Philippine Steel Coating Corporation and dated October
12, 1990 -- admitted that they were aware of the condition of the four coils found in bad order and condition.
These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. Pertinent
portions of his testimony are reproduce hereunder:
Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court with what
company you are connected?
A. BM Santos Checkers Agency, sir.
Q. How is BM Santos Checkers Agency related or connected with defendant Jardine Davies Transport
Services?
A. It is the company who contracts the checkers, sir.
Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and
responsibilities?
A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes.
xxxxxxxxx
Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a Head Checker?
A. Yes, sir.
Q. And, on or about that date, do you recall having attended the discharging and inspection of cold steel
sheets in coil on board the MV/AN ANGEL SKY?
A. Yes, sir, I was there.
xxxxxxxxx
Q. Based on your inspection since you were also present at that time, will you inform this Honorable Court
the condition or the appearance of the bad order cargoes that were unloaded from the MV/ANANGEL
SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets and the
best evidence is the document itself, Your Honor that shows the condition of the steel sheets.
COURT:
Let the witness answer.
A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the sides. [32]
All these conclusively prove the fact of shipment in good order and condition and the consequent damage
to the four coils while in the possession of petitioner,[33] who notably failed to explain why.[34]
 Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which
the law requires a common carrier to know and to follow, to avoid damage to or destruction of the goods
entrusted to it for safe carriage and delivery.[35]
True, the words metal envelopes rust stained and slightly dented were noted on the Bill of Lading;
however, there is no showing that petitioners exercised due diligence to forestall or lessen the loss. [36] Having
been in the service for several years, the master of the vessel should have known at the outset that metal
envelopes in the said state would eventually deteriorate when not properly stored while in transit. [37] Equipped
with the proper knowledge of the nature of steel sheets in coils and of the proper way of transporting them, the
master of the vessel and his crew should have undertaken precautionary measures to avoid possible
deterioration of the cargo. But none of these measures was taken.[38] Having failed to discharge the burden of
proving that they have exercised the extraordinary diligence required by law, petitioners cannot escape liability
for the damage to the four coils.[39]
In their attempt to escape liability, petitioners further contend that they are exempted from liability under
Article 1734(4) of the Civil Code. They cite the notation metal envelopes rust stained and slightly dented
printed on the Bill of Lading as evidence that the character of the goods or defect in the packing or the
containers was the proximate cause of the damage. We are not convinced.
From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due
to the condition noted on the Bill of Lading.[40] The aforecited exception refers to cases when goods are lost or
damaged while in transit as a result of the natural decay of perishable goods or the fermentation or evaporation
of substances liable therefor, the necessary and natural wear of goods in transport, defects in packages in which
they are shipped, or the natural propensities of animals.[41] None of these is present in the instant case.
Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon
ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the
goods notwithstanding such condition.[42] Thus, petitioners have not successfully proven the application of any
of the aforecited exceptions in the present case.[43]
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act [44] (COGSA),
respondent should have filed its Notice of Loss within three days from delivery. They assert that the cargo was
discharged on July 31, 1990, but that respondent filed its Notice of Claim only on September 18, 1990.[45]
We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim need not
be given if the state of the goods, at the time of their receipt, has been the subject of a joint inspection or
survey. As stated earlier, prior to unloading the cargo, an Inspection Report [46] as to the condition of the goods
was prepared and signed by representatives of both parties.[47]
Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar
recovery if it is nonetheless filed within one year.[48] This one-year prescriptive period also applies to the
shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading.[49]
In Loadstar Shipping Co., Inc. v. Court of Appeals,[50] we ruled that a claim is not barred by prescription as
long as the one-year period has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.:
Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the
matter, the Carriage of Goods by Sea Act (COGSA)--which provides for a one-year period of limitation on claims
for loss of, or damage to, cargoes sustained during transit--may be applied suppletorily to the case at bar.
In the present case, the cargo was discharged on July 31, 1990, while the Complaint [51] was filed by
respondent on July 25, 1991, within the one-year prescriptive period.
Third Issue:
Package Limitation
Assuming arguendo they are liable for respondents claims, petitioners contend that their liability should
be limited to US$500 per package as provided in the Bill of Lading and by Section 4(5)[52] of COGSA.[53]
On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of the
subject shipment was declared by petitioners beforehand, as evidenced by the reference to and the insertion of
the Letter of Credit or L/C No. 90/02447 in the said Bill of Lading.[54]
A bill of lading serves two functions. First, it is a receipt for the goods shipped.[55] Second, it is a contract by
which three parties -- namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities
and assume stipulated obligations.[56] In a nutshell, the acceptance of the bill of lading by the shipper and the
consignee, with full knowledge of its contents, gives rise to the presumption that it constituted a perfected and
binding contract.[57]
Further, a stipulation in the bill of lading limiting to a certain sum the common carriers liability for loss or
destruction of a cargo -- unless the shipper or owner declares a greater value[58] -- is sanctioned by
law.[59] There are, however, two conditions to be satisfied: (1) the contract is reasonable and just under the
circumstances, and (2) it has been fairly and freely agreed upon by the parties.[60] The rationale for, this rule is
to bind the shippers by their agreement to the value (maximum valuation) of their goods.[61]
It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed
amount per package.[62] In all matters not regulated by the Civil Code, the right and the obligations of common
carriers shall be governed by the Code of Commerce and special laws.[63] Thus, the COGSA, which is suppletory
to the provisions of the Civil Code, supplements the latter by establishing a statutory provision limiting the
carriers liability in the absence of a shippers declaration of a higher value in the bill of lading. [64] The provisions
on limited liability are as much a part of the bill of lading as though physically in it and as though placed there
by agreement of the parties.[65]
In the case before us, there was no stipulation in the Bill of Lading [66] limiting the carriers liability. Neither
did the shipper declare a higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of
the words L/C No. 90/02447 cannot be the basis for petitioners liability.
First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the
shipper for the importation of steel sheets did not effect a declaration of the value of the goods as required by
the bill.[67] That notation was made only for the convenience of the shipper and the bank processing the Letter
of Credit.[68]
Second, in Keng Hua Paper Products v. Court of Appeals,[69] we held that a bill of lading was separate from
the Other Letter of Credit arrangements. We ruled thus:
(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently
of the contract of sale between the seller and the buyer, and the contract of issuance of a letter of credit between
the amount of goods described in the commercial invoice in the contract of sale and the amount allowed in the
letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of
lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to
the letter of credit, neither can the carrier be expected to go beyond the representations of the shipper in the
bill of lading and to verify their accuracy vis--vis the commercial invoice and the letter of credit. Thus, the
discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot
negate petitioners obligation to private respondent arising from the contract of transportation. [70]
In the light of the foregoing, petitioners liability should be computed based on US$500 per package and
not on the per metric ton price declared in the Letter of Credit.[71] In Eastern Shipping Lines, Inc. v. Intermediate
Appellate Court[72] we explained the meaning of package:
When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the
number of such units is disclosed in the shipping documents, each of those units and not the container
constitutes the package referred to in the liability limitation provision of Carriage of Goods by Sea Act.

Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly
disclosed the contents of the containers, the number of units, as well as the nature of the steel sheets, the four
damaged coils should be considered as the shipping unit subject to the US$500 limitation.
WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners liability is
reduced to US$2,000 plus interest at the legal rate of six percent from the time of the filing of the Complaint on
July 25, 1991 until the finality of this Decision, and 12 percent thereafter until fully paid. No pronouncement as
to costs.
SO ORDERED.
Sandoval-Gutierrez, and Carpio, JJ., concur.
Puno, J., (Chairman), abroad, on official leave.
THIRD DIVISION
[G.R. No. 146018. June 25, 2003]
EDGAR COKALIONG SHIPPING LINES, INC., petitioner, vs. UCPB GENERAL INSURANCE COMPANY,
INC., respondent.
DECISION
PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to
the value declared by the shipper. On the other hand, the liability of the insurer is determined by the actual
value covered by the insurance policy and the insurance premiums paid therefor, and not necessarily by the
value declared in the bill of lading.
The Case
Before the Court is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the
August 31, 2000 Decision[2] and the November 17, 2000 Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP
No. 62751. The dispositive part of the Decision reads:
IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from
is REVERSED.[Petitioner] is hereby condemned to pay to [respondent] the total amount of P148,500.00, with
interest thereon, at the rate of 6% per annum, from date of this Decision of the Court. [Respondents] claim for
attorneys fees [is]DISMISSED. [Petitioners] counterclaims are DISMISSED.[5]
The assailed Resolution denied petitioners Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Courts[6] Decision,[7] which was later reversed by
the CA, states:
WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.
No cost.[8]
The Facts
The facts of the case are summarized by the appellate court in this wise:
Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now
Cokaliong Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of Christmas dcor and
two (2) sacks of plastic toys, to be transported on board the M/V Tandag on its Voyage No. T-189 scheduled to
depart from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. [Petitioner] issued Bill of Lading
No. 58, freight prepaid, covering the cargo. Nestor Angelia was both the shipper and consignee of the cargo
valued, on the face thereof, in the amount of P6,500.00. Zosimo Mercado likewise delivered cargo to
[petitioner], consisting of two (2) cartons of plastic toys and Christmas decor, one (1) roll of floor mat and one
(1) bundle of various or assorted goods for transportation thereof from Cebu City to Tandag, Surigao del Sur, on
board the said vessel, and said voyage.[Petitioner] issued Bill of Lading No. 59 covering the cargo which, on the
face thereof, was valued in the amount ofP14,000.00. Under the Bill of Lading, Zosimo Mercado was both the
shipper and consignee of the cargo.
On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the UCPB
General Insurance Co., Inc., [respondent] for brevity, for the amount of P100,000.00 against all risks
under Open Policy No. 002/91/254 for which she was issued, by [respondent], Marine Risk Note No.
18409 on said date. She also insured the cargo covered by Bill of Lading No. 58, with [respondent], for the
amount of P50,000.00, underOpen Policy No. 002/91/254 on the basis of which [respondent] issued Marine
Risk Note No. 18410 on said date.
When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the goods of
Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine room, and,
despite earnest efforts of the officers and crew of the vessel, the fire engulfed and destroyed the entire vessel
resulting in the loss of the vessel and the cargoes therein. The Captain filed the required Marine Protest.
Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured
under Marine Risk Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of her
claim, a Receipt, dated December 11, 1991, purportedly signed by Zosimo Mercado, and Order
Slips purportedly signed by him for the goods he received from Feliciana Legaspi valued in the amount
of P110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and issued UCPB Check No.
612939, dated March 9, 1992, in the net amount ofP99,000.00, in settlement of her claim after which she
executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent]. She also filed a claim for the
value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent] a Receipt, dated December
11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the goods he received from Feliciana
Legaspi valued at P60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi the net
amount of P49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in favor of
[respondent].
On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against
[petitioner], with the Regional Trial Court of Makati City, for the collection of the total principal amount
ofP148,500.00, which it paid to Feliciana Legaspi for the loss of the cargo, praying that judgment be rendered in
its favor and against the [petitioner] as follows:
WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be rendered
ordering [petitioner] to pay [respondent] the following.
1. Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate from the time of filing of
this complaint until fully paid;
2. Attorneys fees in the amount of P10,000.00; and
3. Cost of suit.
[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just and
equitable under the premises.
[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to, and
received by, [petitioner] for transportation to Tandag, Surigao del Sur under Bill of Ladings, Annexes A and B
of the complaint; that the loss of the cargo was due to the negligence of the [petitioner]; and that Feliciana
Legaspi had executedSubrogation Receipts/Deeds in favor of [respondent] after paying to her the value of the
cargo on account of theMarine Risk Notes it issued in her favor covering the cargo.
In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of Marine
Inquiry of any negligence in the burning of the vessel; (b) the complaint stated no cause of action against
[petitioner]; and (c) the shippers/consignee had already been paid the value of the goods as stated in the Bill of
Lading and, hence, [petitioner] cannot be held liable for the loss of the cargo beyond the value thereof declared
in the Bill of Lading.
After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take the
depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and a resident
of Cebu City, and of Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a resident of
Cebu City, to be given before the Presiding Judge of Branch 106 of the Regional Trial Court of Cebu City. Chester
Cokaliong and Noel Tanyu did testify, by way of deposition, before the Court and declared inter alia, that:
[petitioner] is a family corporation like the Chester Marketing, Inc.; Nestor Angelia had been doing business
with [petitioner] and Chester Marketing, Inc., for years, and incurred an account with Chester Marketing, Inc. for
his purchases from said corporation; [petitioner] did issue Bills of Lading Nos. 58 and 59 for the cargo
described therein with Zosimo Mercado and Nestor Angelia as shippers/consignees, respectively; the engine
room of the M/V Tandag caught fire after it passed the Mandaue/Mactan Bridge resulting in the total loss of the
vessel and its cargo; an investigation was conducted by the Board of Marine Inquiry of the Philippine Coast
Guard which rendered a Report, dated February 13, 1992 absolving [petitioner] of any responsibility on
account of the fire, which Report of the Board was approved by the District Commander of the Philippine Coast
Guard; a few days after the sinking of the vessel, a representative of the Legaspi Marketing filed claims for the
values of the goods under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees, Nestor Angelia
and Zosimo Mercado; [petitioner] was able to ascertain, from the shippers/consignees and the representative of
the Legaspi Marketing that the cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing and
consigned to Zosimo Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor Angelia
from the Legaspi Marketing; that [petitioner] approved the claim of Legaspi Marketing for the value of the cargo
under Bill of Lading No. 59 and remitted to Legaspi Marketing the said amount under Equitable Banking
Corporation Check No. 20230486 dated August 12, 1992, in the amount of P14,000.00 for which the
representative of the Legaspi Marketing signed Voucher No. 4379, dated August 12, 1992, for the said amount
of P14,000.00 in full payment of claims underBill of Lading No. 59; that [petitioner] approved the claim of
Nestor Angelia in the amount of P6,500.00 but that since the latter owed Chester Marketing, Inc., for some
purchases, [petitioner] merely set off the amount due to Nestor Angelia under Bill of Lading No. 58 against his
account with Chester Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check after it was received
by Legaspi Marketing, hence, the production of the microfilm copy by Noel Tanyu of the Equitable Banking
Corporation; [petitioner] never knew, before settling with Legaspi Marketing and Nestor Angelia that the cargo
under both Bills of Lading were insured with [respondent], or that Feliciana Legaspi filed claims for the value
of the cargo with [respondent] and that the latter approved the claims of Feliciana Legaspi and paid the total
amount of P148,500.00 to her; [petitioner] came to know, for the first time, of the payments by [respondent] of
the claims of Feliciana Legaspi when it was served with the summons and complaint, on October 8, 1992; after
settling his claim, Nestor Angelia x x x executed the Release and Quitclaim, dated July 2, 1993, andAffidavit,
dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was absolved of any liability for the loss of the
cargo covered by Bills of Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of
the cargo as stated in the Bills of Lading.
[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x[9] (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed to prove that the fire which consumed the vessel and its cargo was
caused by something other than its negligence in the upkeep, maintenance and operation of the vessel. [10]
Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59.The CA,
however, held that the payment did not extinguish petitioners obligation to respondent, because there was no
evidence that Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. The CA also
pointed out the impropriety of treating the claim under Bill of Lading No. 58 -- covering cargo valued therein
at P6,500 -- as a setoff against Nestor Angelias account with Chester Enterprises, Inc.
Finally, it ruled that respondent is not bound by the valuation of the cargo under the Bills of Lading, x x
x nor is the value of the cargo under said Bills of Lading conclusive on the [respondent]. This is so because, in
the first place, the goods were insured with the [respondent] for the total amount ofP150,000.00, which amount
may be considered as the face value of the goods.[11]
Hence this Petition.[12]
Issues
Petitioner raises for our consideration the following alleged errors of the CA:
I
The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that petitioners
liability should be based on the actual insured value of the goods and not from actual valuation declared by the
shipper/consignee in the bill of lading.
II
The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained by the trial
court a quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58 and 59 was due
to force majeure and due diligence was [exercised] by petitioner prior to, during and immediately after the fire
on [petitioners] vessel.
III
The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of action
against the petitioner.[13]
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the extent
of its liability?
This Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds
that its exercise of due diligence was adequately proven by the findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V
Tandag sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted
out of the crack and dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack
was located on the side of the fuel oil tank, which had a mere two-inch gap from the engine room walling, thus
precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been caused
by force majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that caused by
a lightning, an earthquake, a tempest or a public enemy.[14] Hence, fire is not considered a natural disaster or
calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,[15] we explained:
x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not fall
within the category of an act of God unless caused by lighting or by other natural disaster or calamity. It may
even be caused by the actual fault or privity of the carrier.
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or rural
lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost due to such
event, considering that the law adopts a protective policy towards agriculture.
As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the Civil
Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law.
Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as
to discover the existence of cracked parts, that loss cannot be attributed to force majeure, but to the negligence
of those officials.[16]
The law provides that a common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is the
first step in exercising the required vigilance. Petitioner did not present sufficient evidence showing what
measures or acts it had undertaken to ensure the seaworthiness of the vessel. It failed to show when the last
inspection and care of the auxiliary engine fuel oil service tank was made, what the normal practice was for its
maintenance, or some other evidence to establish that it had exercised extraordinary diligence. It merely stated
that constant inspection and care were not possible, and that the last time the vessel was dry-docked was in
November 1990. Necessarily, in accordance with Article 1735[17] of the Civil Code, we hold petitioner
responsible for the loss of the goods covered by Bills of Lading Nos. 58 and 59.
Second Issue:
Extent of Liability
Respondent contends that petitioners liability should be based on the actual insured value of the goods,
subject of this case. On the other hand, petitioner claims that its liability should be limited to the value declared
by the shipper/consignee in the Bill of Lading.
The records[18] show that the Bills of Lading covering the lost goods contain the stipulation that in case of
claim for loss or for damage to the shipped merchandise or property, [t]he liability of the common carrier x x x
shall not exceed the value of the goods as appearing in the bill of lading.[19] The attempt by respondent to make
light of this stipulation is unconvincing. As it had the consignees copies of the Bills of Lading,[20] it could have
easily produced those copies, instead of relying on mere allegations and suppositions. However, it presented
mere photocopies thereof to disprove petitioners evidence showing the existence of the above stipulation.
A stipulation that limits liability is valid[21] as long as it is not against public policy. In Everett Steamship
Corporation v. Court of Appeals,[22] the Court stated:
A stipulation in the bill of lading limiting the common carriers liability for loss or destruction of a cargo to a
certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles
1749 and 1750 of the Civil Code which provides:
Art. 1749. A stipulation that the common carriers liability is limited to the value of the goods appearing in the
bill of lading, unless the shipper or owner declares a greater value, is binding.
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and
fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in Sea-
Land Service, Inc. vs. Intermediate Appellate Court, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and
binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the
basis alone of the cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the
fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the
shipment in the bill of lading. To hold otherwise would amount to questioning the justness and fairness of the
law itself, and this the private respondent does not pretend to do. But over and above that consideration, the
just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of
avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the
nature and value of the shipment in the bill of lading.
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carriers
liability for loss must be reasonable and just under the circumstances, and has been freely and fairly agreed
upon.
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shippers net
invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss
of possible profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount
exceeding One Hundred Thousand Yen in Japanese Currency (100,000.00) or its equivalent in any other
currency per package or customary freight unit (whichever is least) unless the value of the goods higher than this
amount is declared in writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of
Lading and extra freight is paid as required.
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that
its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman
Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited liability
of the carrier.Considering that the shipper did not declare a higher valuation, it had itself to blame for not
complying with the stipulations. (Italics supplied)
In the present case, the stipulation limiting petitioners liability is not contrary to public policy. In fact, its
just and reasonable character is evident. The shippers/consignees may recover the full value of the goods by the
simple expedient of declaring the true value of the shipment in the Bill of Lading. Other than the payment of a
higher freight, there was nothing to stop them from placing the actual value of the goods therein. In fact, they
committed fraud against the common carrier by deliberately undervaluing the goods in their Bill of Lading, thus
depriving the carrier of its proper and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common
carrier. Such stipulation obliges the shipper/consignee to notify the common carrier of the amount that the
latter may be liable for in case of loss of the goods. The common carrier can then take appropriate measures --
getting insurance, if needed, to cover or protect itself. This precaution on the part of the carrier is reasonable
and prudent. Hence, a shipper/consignee that undervalues the real worth of the goods it seeks to transport does
not only violate a valid contractual stipulation, but commits a fraudulent act when it seeks to make the common
carrier liable for more than the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their
respective Bills of Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it, and from
which it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance
company was paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower than
what it was entitled to for transporting the goods that had been deliberately undervalued by the shippers in the
Bill of Lading. Between the two of them, the insurer should bear the loss in excess of the value declared in the
Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,[23] the description of the nature and the value of the
goods shipped were declared and reflected in the bill of lading, like in the present case. The Court therein
considered this declaration as the basis of the carriers liability and ordered payment based on such
amount. Following this ruling, petitioner should not be held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of lading.
We find no cogent reason to disturb the CAs finding that Feliciana Legaspi was the owner of the goods
covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor Angelia and
Zosimo Mercado, respectively; thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the goods
or, in case of loss, to compensation therefor. There is no evidence showing that petitioner paid her for the loss of
those goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading
No. 59, for which the latter subsequently paid P14,000. But nothing in the records convincingly shows that the
former was the owner of the goods. Respondent was, however, able to prove that it was Feliciana Legaspi who
owned those goods, and who was thus entitled to payment for their loss. Hence, the claim for the goods under
Bill of Lading No. 59 cannot be deemed to have been extinguished, because payment was made to a person who
was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued atP6,500, the
parties have not convinced us to disturb the findings of the CA that compensation could not validly take
place. Thus, we uphold the appellate courts ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision isMODIFIED in the sense
that petitioner is ORDERED to pay respondent the sums of P14,000 andP6,500, which represent the value of the
goods stated in Bills of Lading Nos. 59 and 58, respectively. No costs.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.
THIRD DIVISION
[G.R. No. 108897. October 2, 1997]
SARKIES TOURS PHILIPPINES, INC. petitioner vs. HONORABLE COURT OF APPEALS (TENTH DIVISION),
DR. ELINO G. FORTADES, MARISOL A. FORTADES and FATIMA A. FORTADES., respondent.
DECISION
ROMERO, J.:
This petition for review is seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No.
18979 promulgated on January 13, 1993, as well as its resolution of February 19, 1993, denying petitioners
motion for reconsideration for being a mere rehash of the arguments raised in the appellants brief.
The case arose from a damage suit filed by private respondents Elino, Marisol, and Fatima Minerva, all
surnamed Fortades, against petitioner for breach of contract of carriage allegedly attended by bad faith.
On August 31, 1984, Fatima boarded petitioners De Luxe Bus No. 5 in Manila on her way to Legazpi
City. Her brother Raul helped her load three pieces of luggage containing all of her optometry review books,
materials and equipment, trial lenses, trial contact lenses, passport and visa, as well as her mother Marisols U.S.
immigration (green) card, among other important documents and personal belongings. Her belongings was
kept in the baggage compartment of the bus, but during a stopover at Daet, it was discovered that all but one
bag remained in the open compartment. The others, including Fatimas things, were missing and could have
dropped along the way. Some of the passengers suggested retracing the route to try to recover the lost items,
but the driver ignored them and proceeded to Legazpi City.
Fatima immediately reported the loss to her mother who, in turn, went to petitioners office in Legazpi City
and later at its head office in Manila. The latter, however, merely offered her P1,000.00 for each piece of luggage
lost, which she turned down. After returning to Bicol disappointed but not defeated, they asked assistance from
the radio stations and even from Philtranco bus drivers who plied the same route on August 31st. The effort
paid off when one of Fatimas bags was recovered. Marisol also reported the incident to the National Bureau of
Investigations field office in Legazpi City, and to the local police.
On September 20, 1984, respondents, through counsel, formally demanded satisfaction of their complaint
from petitioner. In a letter dated October 1, 1984, the latter apologized for the delay and said that (a) team has
been sent out to Bicol for the purpose of recovering or at least getting the full detail [1] of the incident.
After more than nine months of fruitless waiting, respondents decided to file the case below to recover the
value of the remaining lost items, as well as moral and exemplary damages, attorneys fees and expenses of
litigation. They claimed that the loss was due to petitioners failure to observe extraordinary diligence in the
care of Fatimas luggage and that petitioner dealt with them in bad faith from the start. Petitioner, on the other
hand, disowned any liability for the loss on the ground that Fatima allegedly did not declare any excess baggage
upon boarding its bus.
On June 15, 1988, after trial on the merits, the court a quo adjudged the case in favor of herein
respondents, viz:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs (herein respondents) and
against the herein defendant Sarkies Tours Philippines, Inc., ordering the latter to pay to the former the
following sums of money, to wit:
1. The sum of P30,000.00 equivalent to the value of the personal belongings of plaintiff Fatima Minerva
Fortades, etc. less the value of one luggage recovered;
2. The sum of P90,000.00 for the transportation expenses, as well as moral damages;
3. The sum of P10,000.00 by way of exemplary damages;
4. The sum of P5,000.00 as attorneys fees; and
5. The sum of P5,000.00 as litigation expenses or a total of One Hundred Forty Thousand (P140,000.00) Pesos.
to be paid by herein defendant Sarkies Tours Philippines, Inc. to the herein plaintiffs within 30 days from
receipt of this Decision.
SO ORDERED.
On appeal, the appellate court affirmed the trial courts judgment, but deleted the award of moral and
exemplary damages. Thus,
WHEREFORE, premises considered, except as above modified, fixing the award for transportation expenses
atP30,000.00 and the deletion of the award for moral and exemplary damages, the decision appealed from is
AFFIRMED, with costs against defendant-appellant.
SO ORDERED."
Its motion for reconsideration having was likewise rejected by the Court of Appeals, so petitioner elevated
its case to this Court for a review.
After a careful scrutiny of the records of this case, we are convinced that the trial and appellate courts
resolved the issues judiciously based on the evidence at hand.
Petitioner claims that Fatima did not bring any piece of luggage with her, and even if she did, none was
declared at the start of the trip. The documentary and testimonial evidence presented at the trial, however,
established that Fatima indeed boarded petitioners De Luxe Bus No. 5 in the evening of August 31, 1984, and
she brought three pieces of luggage with her, as testified by her brother Raul,[2]who helped her pack her things
and load them on said bus. One of the bags was even recovered with the help of a Philtranco bus driver. In its
letter dated October 1, 1984, petitioner tacitly admitted its liability by apologizing to respondents and assuring
them that efforts were being made to recover the lost items.
The records also reveal that respondents went to great lengths just to salvage their loss. The incident was
reported to the police, the NBI, and the regional and head offices of petitioner. Marisol even sought the
assistance of Philtranco bus drivers and the radio stations. To expedite the replacement of her mothers lost U.S.
immigration documents, Fatima also had to execute an affidavit of loss.[3] Clearly, they would not have gone
through all that trouble in pursuit of a fancied loss.
Fatima was not the only one who lost her luggage. Other passengers suffered a similar fate: Dr. Lita
Samarista testified that petitioner offered her P1,000.00 for her lost baggage and she accepted it;[4]Carleen
Carullo-Magno also lost her chemical engineering review materials, while her brother lost abaca products he
was transporting to Bicol.[5]
Petitioners receipt of Fatimas personal luggage having been thus established, it must now be determined
if, as a common carrier, it is responsible for their loss. Under the Civil Code, (c)ommon carriers, from the nature
of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance
over the goods x x x transported by them,[6] and this liability lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the same are delivered, actually
or constructively, by the carrier for transportation until the same are delivered, actually or constructively, by
the carrier to x x x the person who has a right to receive them,[7] unless the loss is due to any of the excepted
causes under Article 1734 thereof.[8]
 The cause of the loss in the case at bar was petitioners negligence in not ensuring that the doors of the
baggage compartment of its bus were securely fastened. As a result of this lack of care, almost all of the luggage
was lost, to the prejudice of the paying passengers. As the Court of Appeals correctly observed:
x x x. Where the common carrier accepted its passengers baggage for transportation and even had it placed in
the vehicle by its own employee, its failure to collect the freight charge is the common carriers own lookout. It is
responsible for the consequent loss of the baggage. In the instant case, defendant appellants employee even
helped Fatima Minerva Fortades and her brother load the luggages/baggages in the bus baggage compartment,
without asking that they be weighed, declared, receipted or paid for (TSN, August 4, 1986, pp. 29, 34, 54, 57, 70;
December 23, 1987, p. 35).Neither was this required of the other passengers (TSN, August 4, 1986, p. 104;
February 5, 1988, p. 13).

Finally, petitioner questions the award of actual damages to respondents. On this point, we likewise agree
with the trial and appellate courts conclusions. There is no dispute that of the three pieces of luggage of Fatima,
only one was recovered. The other two contained optometry books, materials, equipment, as well as vital
documents and personal belongings. Respondents had to shuttle between Bicol and Manila in their efforts to be
compensated for the loss. During the trial, Fatima and Marisol had to travel from the United States just to be
able to testify. Expenses were also incurred in reconstituting their lost documents. Under these circumstances,
the Court agrees with the Court of Appeals in awardingP30,000.00 for the lost items and P30,000.00 for the
transportation expenses, but disagrees with the deletion of the award of moral and exemplary damages which,
in view of the foregoing proven facts, with negligence and bad faith on the fault of petitioner having been duly
established, should be granted to respondents in the amount of P20,000.00 and P5,000.00, respectively.
WHEREFORE, the assailed decision of the Court of Appeals dated January 13, 1993, and its resolution
dated February 19, 1993, are hereby AFFIRMED with the MODIFICATION that petitioner is ordered to pay
respondent an additional P20,000.00 as moral damages and P5,000.00 as exemplary damages. Costs against
petitioner.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.
THIRD DIVISION
[G.R. No. 102316. June 30, 1997]
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., petitioner, vs.COURT OF APPEALS AND SEVEN
BROTHERS SHIPPING CORPORATION,respondents.
DECISION
PANGANIBAN, J.:
Is a stipulation in a charter party that the (o)wners shall not be responsible for loss, split, short-landing,
breakages and any kind of damages to the cargo[1] valid? This is the main question raised in this petition for
review assailing the Decision of Respondent Court of Appeals[2] in CA-G.R. No. CV-20156 promulgated on
October 15, 1991. The Court of Appeals modified the judgment of the Regional Trial Court of Valenzuela, Metro
Manila, Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc. to pay plaintiff
the sum of TWO MILLION PESOS (P2,000,000.00) representing the value of the policy of the lost logs with legal
interest thereon from the date of demand on February 2, 1984 until the amount is fully paid or in the
alternative, defendant Seven Brothers Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS
(P2,000,000.00) representing the value of lost logs plus legal interest from the date of demand on April 24,
1984 until full payment thereof; the reasonable attorneys fees in the amount equivalent to five (5) percent of
the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of TWO HUNDRED
THIRTY THOUSAND PESOS (P230,000.00) representing the balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Companys counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability of the Seven
Brothers Shipping Corporation to the plaintiff is concerned which is hereby REVERSED and SET ASIDE. [3]
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an
agreement with the defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on
board its vessel M/V Seven Ambassador the formers lauan round logs numbering 940 at the port of Maconacon,
Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and
Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229
forP2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr.
Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the
plaintiffs insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. E) to cover payment of the premium and documentary stamps
due on the policy was tendered due to the insurer but was not accepted. Instead, the South Sea Surety and
Insurance Co., Inc. cancelled the insurance policy it issued as of the date of the inception for non-payment of the
premium due in accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment
of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim
with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the
claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants. Both
defendants shipping corporation and the surety company appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the following
assignment of errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven Ambassadors,
was not due to fortuitous event but to the negligence of the captain in stowing and securing the logs on board,
causing the iron chains to snap and the logs to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping Corporation
from logs (sic) of the cargo stipulated in the charter party is void for being contrary to public policy invoking
article 1745 of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation liable in the
alternative and ordering/directing it to pay plaintiff-appellee the amount of two million (P2,000,000.00) pesos
representing the value of the logs plus legal interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation to pay appellee
reasonable attorneys fees in the amount equivalent to 5% of the amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its counter-claim for
attorneys fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant South Sea Surety and
Insurance Company, Inc. and likewise erred in not holding that he was the representative of the insurance
broker Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission on the premiums paid
on the policies issued by the defendant-appellant South Sea Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the receipt of payment clause attached to and forming part of the Marine
Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of premium and between the petitioner and the private respondent exempting the latter from liability for the loss of petitioners
documentary stamps to be paid on the policy by the plaintiff-appellee. logs arising from the negligence of its (Seven Brothers) captain.[9]
The Courts Ruling
F. The trial court erred in disregarding the indorsement of cancellation of the policy due to non-payment of
premium and documentary stamps.
The petition is not meritorious.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance Company, Inc. to pay
plaintiff-appellee P2,000,000.00 representing value of the policy with legal interest from 2 February 1984 until Validity of Stipulation is Lis Mota
the amount is fully paid,

The charter party between the petitioner and private respondent stipulated that the (o)wners shall not be
H. The trial court erred in not awarding to the defendant-appellant the attorneys fees alleged and proven in its
responsible for loss, split, short-landing, breakages and any kind of damages to the cargo.[10] The validity of
counterclaim.
this stipulation is the lis mota of this case.

The primary issue to be resolved before us is whether defendants shipping corporation and the surety company
are liable to the plaintiff for the latters lost logs.[4]
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea Surety and
Insurance Company (South Sea), but modified it by holding that Seven Brothers Shipping Corporation (Seven
Brothers) was not liable for the lost cargo.[5] In modifying the RTC judgment, the respondent appellate court
ratiocinated thus:
It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in
case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability
of the shipping corporation. The provisions on common carriers should not be applied where the carrier is not
acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier.
It should be noted at the outset that there is no dispute between the parties that the proximate cause of
the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the snapping of the iron chains and
the subsequent rolling of the logs to the portside due to the negligence of the captain in stowing and securing
the logs on board the vessel and not due to fortuitous event.[11] Likewise undisputed is the status of Private
Respondent Seven Brothers as a private carrier when it contracted to transport the cargo of Petitioner
Valenzuela. Even the latter admits this in its petition.[12]
The trial court deemed the charter party stipulation void for being contrary to public policy, [13] citing
Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;

As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid
(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a family, or of
(Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).
a man of ordinary prudence in the vigilance over the movables transported;

The shipping corporation should not therefore be held liable for the loss of the logs.[6]
(5) That the common carrier shall not be responsible for the acts or omissions of his or its employees;

South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. (Valenzuela) filed
separate petitions for review before this Court. In a Resolution dated June 2, 1995, this Court denied the petition
of South Sea.[7] There the Court found no reason to reverse the factual findings of the trial court and the Court of
Appeals that Chua was indeed an authorized agent of South Sea when he received Valenzuelas premium
payment for the marine cargo insurance policy which was thus binding on the insurer.[8]
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA
Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuelas arguments revolve around a single issue: whether or not respondent Court (of
Appeals) committed a reversible error in upholding the validity of the stipulation in the charter party executed
(6) That the common carriers liability for acts committed by thieves, or of robbers who do not act with grave or
irresistible threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on account of
the defective condition of the car, vehicle, ship, airplane or other equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of the
Code of Commerce[14] and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and paragraph 1, Article
1409 of the Civil Code,[15] petitioner further contends that said stipulation gives no duty or obligation to the
private respondent to observe the diligence of a good father of a family in the custody and transportation of the
cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had acted as
a private carrier in transporting petitioners lauan logs. Thus, Article 1745 and other Civil Code provisions on
common carriers which were cited by petitioner may not be applied unless expressly stipulated by the parties
in their charter party.[16]
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo rests
solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo caused even
by the negligence of the ship captain. Pursuant to Article 1306[17] of the Civil Code, such stipulation is valid
because it is freely entered into by the parties and the same is not contrary to law, morals, good customs, public
order, or public policy. Indeed, their contract of private carriage is not even a contract of adhesion. We stress
that in a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce
would be binding on them. Unlike in a contract involving a common carrier,private carriage does not involve the
general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general
public cannot justifiably be applied to a ship transporting commercial goods as a private carrier. Consequently,
the public policy embodied therein is not contravened by stipulations in a charter party that lessen or remove
the protection given by law in contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were resolved long
ago by this Court in Home Insurance Co. vs. American Steamship Agencies, Inc.[18] In that case, the trial court
similarly nullified a stipulation identical to that involved in the present case for being contrary to public policy
based on Article 1744 of the Civil Code and Article 587 of the Code of Commerce. Consequently, the trial court
held the shipowner liable for damages resulting from the partial loss of the cargo. This Court reversed the trial
court and laid down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under American
jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special person only,
becomes a private carrier. As a private carrier, a stipulation exempting the owner from liability for the
negligence of its agent is not against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied where
the carrier is not acting as such but as a private carrier. The stipulation in the charter party absolving the owner
from liability for loss due to the negligence of its agent would be void only if the strict public policy governing
common carriers is applied. Such policy has no force where the public at large is not involved, as in this case of a
ship totally chartered for the use of a single party.[19] (Underscoring supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public enters into a
contract of transportation with common carriers without a hand or a voice in the preparation thereof.The riding
public merely adheres to the contract; even if the public wants to, it cannot submit its own stipulations for the
approval of the common carrier. Thus, the law on common carriers extends its protective mantle against one-
sided stipulations inserted in tickets, invoices or other documents over which the riding public has no
understanding or, worse, no choice. Compared to the general public, a charterer in a contract of private carriage
is not similarly situated. It can -- and in fact it usually does -- enter into a free and voluntary agreement. In
practice, the parties in a contract of private carriage can stipulate the carriers obligations and liabilities over the
shipment which, in turn, determine the price or consideration of the charter. Thus, a charterer, in exchange for
convenience and economy, may opt to set aside the protection of the law on common carriers. When the
charterer decides to exercise this option,he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present case because it covers
only a stipulation exempting a private carrier from liability for the negligence of his agent, but it does not apply
to a stipulation exempting a private carrier like private respondent from the negligence of his employee or
servant which is the situation in this case.[20] This contention of petitioner is bereft of merit, for it raises a
distinction without any substantive difference. The case of Home Insurancespecifically dealt with the liability of
the shipowner for acts or negligence of its captain and crew[21] and a charter party stipulation which exempts
the owner of the vessel from any loss or damage or delay arising from any other source, even from the neglect
or fault of the captain or crew or some other person employed by the owner on board, for whose acts the owner
would ordinarily be liable except for said paragraph.[22] Undoubtedly, Home Insurance is applicable to the case
at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the rule in
the Philippines[23] deserves scant consideration. The Court there categorically held that said rule was
reasonable and proceeded to apply it in the resolution of that case. Petitioner miserably failed to show such
circumstances or arguments which would necessitate a departure from a well-settled rule.Consequently, our
ruling in said case remains a binding judicial precedent based on the doctrine of stare decisis and Article 8 of the
Civil Code which provides that (j)udicial decisions applying or interpreting the laws or the Constitution shall
form part of the legal system of the Philippines.
In fine, the respondent appellate court aptly stated that [in the case of] a private carrier, a stipulation
exempting the owner from liability even for the negligence of its agent is valid.[24]
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the Court, however, will
discuss the other arguments of petitioner for the benefit and satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of the
Code of Commerce which confer on petitioner the right to recover damages from the shipowner and ship agent
for the acts or conduct of the captain.[25] We are not persuaded. Whatever rights petitioner may have under the
aforementioned statutory provisions were waived when it entered into the charter party.
Article 6 of the Civil Code provides that (r)ights may be waived, unless the waiver is contrary to law,
public order, public policy, morals, or good customs, or prejudicial to a person with a right recognized by
law. As a general rule patrimonial rights may be waived as opposed to rights to personality and family rights
which may not be made the subject of waiver.[26] Being patently and undoubtedly patrimonial, petitioners right
conferred under said articles may be waived. This, the petitioner did by acceding to the contractual stipulation
that it is solely responsible for any damage to the cargo, thereby exempting the private carrier from any
responsibility for loss or damage thereto. Furthermore, as discussed above, the contract of private carriage
binds petitioner and private respondent alone; it is not imbued with public policy considerations for the general
public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to
Articles 1170 and 1173 of the Civil Code[27] which read:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by
the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of a
good father of a family shall be required.
 The Court notes that the foregoing articles are applicable only to the obligor or the one with an obligation
to perform. In the instant case, Private Respondent Seven Brothers is not an obligor in respect of the cargo, for
this obligation to bear the loss was shifted to petitioner by virtue of the charter party. This shifting of
responsibility, as earlier observed, is not void. The provisions cited by petitioner are, therefore, inapplicable to
the present case.
Moreover, the factual milieu of this case does not justify the application of the second paragraph of Article
1173 of the Civil Code which prescribes the standard of diligence to be observed in the event the law or the
contract is silent. In the instant case, Article 362 of the Code of Commerce [28] provides the standard of ordinary
diligence for the carriage of goods by a carrier. The standard of diligence under this statutory provision may,
however, be modified in a contract of private carriage as the petitioner and private respondent had done in
their charter party.
Cases Cited by Petitioner Inapplicable
ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated
the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any
reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

Petitioner cites Shewaram vs. Philippine Airlines, Inc.[29] which, in turn, quoted Juan Ysmael & Co. vs. Gabino
Barreto & Co.[30] and argues that the public policy considerations stated there vis--viscontractual stipulations
limiting the carriers liability be applied with equal force to this case.[31] It also citesManila Railroad Co. vs.
Compaia Transatlantica[32] and contends that stipulations exempting a party from liability for damages due to
negligence should not be countenanced and should be strictly construed against the party claiming its
benefit.[33] We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify the
application of such policy considerations and concomitantly stricter rules. As already discussed above, the
public policy considerations behind the rigorous treatment of common carriers are absent in the case of private
carriers. Hence, the stringent laws applicable to common carriers are not applied to private carriers. The case
of Manila Railroad is also inapplicable because the action for damages there does not involve a contract for
transportation. Furthermore, the defendant therein made a promise to use due care in the lifting operations
and, consequently, it was bound by its undertaking; besides, the exemption was intended to cover accidents due
to hidden defects in the apparatus or other unforseeable occurrences not caused by its personal
negligence. This promise was thus construed to make sense together with the stipulation against liability for
damages.[34] In the present case, we stress that the private respondent made no such promise. The agreement of
the parties to exempt the shipowner from responsibility for any damage to the cargo and place responsibility
over the same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo,[35] Walter A. Smith & Co. vs.
Cadwallader Gibson Lumber Co.,[36] N. T. Hashim and Co. vs. Rocha and Co.,[37] Ohta Development Co. vs.
SteamshipPompey[38] and Limpangco Sons vs. Yangco Steamship Co.[39] in support of its contention that the
shipowner be held liable for damages.[40] These however are not on all fours with the present case because they
do not involve a similar factual milieu or an identical stipulation in the charter party expressly exempting the
shipowner from responsibility for any damage to the cargo.
Effect of the South Sea Resolution

In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because this
Court has earlier affirmed the liability of South Sea for the loss suffered by petitioner. Private respondent
submits that petitioner is not legally entitled to collect twice for a single loss. [41] In view of the above
disquisition upholding the validity of the questioned charter party stipulation and holding that petitioner may
not recover from private respondent, the present issue is moot and academic. It suffices to state that the
Resolution of this Court dated June 2, 1995[42] affirming the liability of South Sea does not, by itself, necessarily
preclude the petitioner from proceeding against private respondent. An aggrieved party may still recover the
deficiency from the person causing the loss in the event the amount paid by the insurance company does not
fully cover the loss. Article 2207 of the Civil Code provides:
THIRD DIVISION
[G.R. No. 113003. October 17, 1997]
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, vs. COURT OF APPEALS, LENY TUMBOY, ARDEE
TUMBOY and JASMIN TUMBOY,respondents.
DECISION
ROMERO, J.:
In this petition for review on certiorari of the decision of the Court of Appeals, the issue is whether or not
the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that exempts the carrier from
liability for the death of a passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin,
boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17,
Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around three (3) feet
from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy and physical
injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and attorneys fees was
filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver,
before the Regional Trial Court of Davao City. When the defendants therein filed their answer to the complaint,
they raised the affirmative defense of caso fortuito. They also filed a third-party complaint against Philippine
Phoenix Surety and Insurance, Inc. This third-party defendant filed an answer with compulsory counterclaim.
At the pre-trial conference, the parties agreed to a stipulation of facts.[1]
Upon a finding that the third party defendant was not liable under the insurance contract, the lower court
dismissed the third party complaint. No amicable settlement having been arrived at by the parties, trial on the
merits ensued.
The plaintiffs asserted that violation of the contract of carriage between them and the defendants was
brought about by the drivers failure to exercise the diligence required of the carrier in transporting passengers
safely to their place of destination. According to Leny Tumboy, the bus left Mangagoy at 3:00 oclock in the
afternoon. The winding road it traversed was not cemented and was wet due to the rain; it was rough with
crushed rocks. The bus which was full of passengers had cargoes on top. Since it was running fast, she cautioned
the driver to slow down but he merely stared at her through the mirror. At around 3:30 p.m., in Trento, she
heard something explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was due to a fortuitous event. Abundio
Salce, who was the bus conductor when the incident happened, testified that the 42-seater bus was not full as
there were only 32 passengers, such that he himself managed to get a seat. He added that the bus was running
at a speed of 60 to 50 and that it was going slow because of the zigzag road. He affirmed that the left front tire
that exploded was a brand new tire that he mounted on the bus on April 21, 1988 or only five (5) days before
the incident. The Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao Toyo
Parts on April 20, 1988 and she was present when it was mounted on the bus by Salce. She stated that all driver
applicants in Yobido Liner underwent actual driving tests before they were employed. Defendant Cresencio
Yobido underwent such test and submitted his professional drivers license and clearances from the barangay,
the fiscal and the police.
On August 29, 1991, the lower court rendered a decision[2] dismissing the action for lack of merit. On the
issue of whether or not the tire blowout was a caso fortuito, it found that the falling of the bus to the cliff was a
result of no other outside factor than the tire blow-out. It held that the ruling in the La Mallorca and Pampanga
Bus Co. v. De Jesus[3] that a tire blowout is a mechanical defect of the conveyance or a fault in its equipment
which was easily discoverable if the bus had been subjected to a more thorough or rigid check-up before it took
to the road that morning is inapplicable to this case. It reasoned out that in said case, it was found that the
blowout was caused by the established fact that the inner tube of the left front tire was pressed between the
inner circle of the left wheel and the rim which had slipped out of the wheel. In this case, however, the cause of
the explosion remains a mystery until at present. As such, the court added, the tire blowout was a caso
fortuito which is completely an extraordinary circumstance independent of the will of the defendants who
should be relieved of whatever liability the plaintiffs may have suffered by reason of the explosion pursuant to
Article 1174[4] of the Civil Code.
Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court the following
errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to hold that the defendants did not
exercise utmost and/or extraordinary diligence required of carriers under Article 1755 of the Civil Code, and (c)
deciding the case contrary to the ruling in Juntilla v. Fontanar,[5] and Necesito v. Paras.[6]
On August 23, 1993, the Court of Appeals rendered the Decision[7] reversing that of the lower court. It held
that:
To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the blow-out, if due to a
factory defect, improper mounting, excessive tire pressure, is not an unavoidable event. On the other hand,
there may have been adverse conditions on the road that were unforeseeable and/or inevitable, which could
make the blow-out a caso fortuito. The fact that the cause of the blow-out was not known does not relieve the
carrier of liability. Owing to the statutory presumption of negligence against the carrier and its obligation to
exercise the utmost diligence of very cautious persons to carry the passenger safely as far as human care and
foresight can provide, it is the burden of the defendants to prove that the cause of the blow-out was a fortuitous
event. It is not incumbent upon the plaintiff to prove that the cause of the blow-out is not caso-fortuito.
Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge defendants burden. As
enunciated in Necesito vs. Paras, the passenger has neither choice nor control over the carrier in the selection
and use of its equipment, and the good repute of the manufacturer will not necessarily relieve the carrier from
liability.
Moreover, there is evidence that the bus was moving fast, and the road was wet and rough. The driver could
have explained that the blow-out that precipitated the accident that caused the death of Toto Tumboy could not
have been prevented even if he had exercised due care to avoid the same, but he was not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set aside and another one entered ordering defendants to pay
plaintiffs the sum of P50,000.00 for the death of Tito Tumboy, P30,000.00 in moral damages, and P7,000.00 for
funeral and burial expenses.
SO ORDERED.
The defendants filed a motion for reconsideration of said decision which was denied on November 4, 1993
by the Court of Appeals. Hence, the instant petition asserting the position that the tire blowout that caused the
death of Tito Tumboy was a caso fortuito. Petitioners claim further that the Court of Appeals, in ruling contrary
to that of the lower court, misapprehended facts and, therefore, its findings of fact cannot be considered final
which shall bind this Court. Hence, they pray that this Court review the facts of the case.
The Court did re-examine the facts and evidence in this case because of the inapplicability of the
established principle that the factual findings of the Court of Appeals are final and may not be reviewed on
appeal by this Court. This general principle is subject to exceptions such as the one present in this case, namely,
that the lower court and the Court of Appeals arrived at diverse factual findings.[8] However, upon such re-
examination, we found no reason to overturn the findings and conclusions of the Court of Appeals.
As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of travel
he has taken. After all, a carrier is not an insurer of the safety of its passengers and is not bound absolutely and
at all events to carry them safely and without injury.[9] However, when a passenger is injured or dies while
travelling, the law presumes that the common carrier is negligent. Thus, the Civil Code provides:
Art. 1756. In case of death or injuries to passengers, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles
1733 and 1755.
Article 1755 provides that (a) common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances. Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is presumed to
have been at fault or to have acted negligently. This disputable presumption may only be overcome by evidence
that the carrier had observed extraordinary diligence as prescribed by Articles 1733,[10] 1755 and 1756 of the
Civil Code or that the death or injury of the passenger was due to a fortuitous event.[11] Consequently, the court
need not make an express finding of fault or negligence on the part of the carrier to hold it responsible for
damages sought by the passenger.[12]
In view of the foregoing, petitioners contention that they should be exempt from liability because the tire
blowout was no more than a fortuitous event that could not have been foreseen, must fail. A fortuitous event is
possessed of the following characteristics: (a) the cause of the unforeseen and unexpected occurrence, or the
failure of the debtor to comply with his obligations, must be independent of human will; (b) it must be
impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor.[13] As Article 1174 provides, no person shall be responsible for a fortuitous event
which could not be foreseen, or which, though foreseen, was inevitable. In other words, there must be an entire
exclusion of human agency from the cause of injury or loss.[14]
It may be impracticable, as appellee argues, to require of carriers to test the strength of each and every part of
its vehicles before each trip; but we are of the opinion that a due regard for the carriers obligations toward the
traveling public demands adequate periodical tests to determine the condition and strength of those vehicle
portions the failure of which may endanger the safety of the passengers.[18]
Having failed to discharge its duty to overthrow the presumption of negligence with clear and convincing
evidence, petitioners are hereby held liable for damages. Article 1764[19] in relation to Article 2206[20] of the
Civil Code prescribes the amount of at least three thousand pesos as damages for the death of a
passenger. Under prevailing jurisprudence, the award of damages under Article 2206 has been increased to fifty
thousand pesos (P50,000.00).[21]
Moral damages are generally not recoverable in culpa contractual except when bad faith had been
proven. However, the same damages may be recovered when breach of contract of carriage results in the death
of a passenger,[22] as in this case. Exemplary damages, awarded by way of example or correction for the public
good when moral damages are awarded,[23] may likewise be recovered in contractual obligations if the
defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.[24] Because petitioners
failed to exercise the extraordinary diligence required of a common carrier, which resulted in the death of Tito
Tumboy, it is deemed to have acted recklessly.[25] As such, private respondents shall be entitled to exemplary
damages.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the modification that
petitioners shall, in addition to the monetary awards therein, be liable for the award of exemplary damages in
the amount of P20,000.00. Costs against petitioners.

Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous SO ORDERED.
event. There are human factors involved in the situation. The fact that the tire was new did not imply that it was Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.
entirely free from manufacturing defects or that it was properly mounted on the vehicle.Neither may the fact
that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that
it could not explode within five days use. Be that as it may, it is settled that an accident caused either by defects
in the automobile or through the negligence of its driver is not acaso fortuito that would exempt the carrier
from liability for damages.[15]
Moreover, a common carrier may not be absolved from liability in case of force majeure or fortuitous
event alone. The common carrier must still prove that it was not negligent in causing the death or injury
resulting from an accident.[16] This Court has had occasion to state:
While it may be true that the tire that blew-up was still good because the grooves of the tire were still visible,
this fact alone does not make the explosion of the tire a fortuitous event. No evidence was presented to show
that the accident was due to adverse road conditions or that precautions were taken by the jeepney driver to
compensate for any conditions liable to cause accidents. The sudden blowing-up, therefore, could have been
caused by too much air pressure injected into the tire coupled by the fact that the jeepney was overloaded and
speeding at the time of the accident.[17]

It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus was running
at 60-50 kilometers per hour only or within the prescribed lawful speed limit. However, they failed to rebut the
testimony of Leny Tumboy that the bus was running so fast that she cautioned the driver to slow down. These
contradictory facts must, therefore, be resolved in favor of liability in view of the presumption of negligence of
the carrier in the law. Coupled with this is the established condition of the road rough, winding and wet due to
the rain. It was incumbent upon the defense to establish that it took precautionary measures considering
partially dangerous condition of the road. As stated above, proof that the tire was new and of good quality is not
sufficient proof that it was not negligent. Petitioners should have shown that it undertook extraordinary
diligence in the care of its carrier, such as conducting daily routinary check-ups of the vehicles parts. As the late
Justice J.B.L. Reyes said: