G.R. No.
70462 August 11, 1988 By virtue of the above agreements, plaintiff Pangan caused
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG
BASTOS PRODUCTIONS and ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
CORTES, J.:
Before the Court is a petition filed by an international air carrier seeking to limit
its liability for lost baggage, containing promotional and advertising materials
for films to be exhibited in Guam and the U.S.A., clutch bags, barong tagalogs
and personal belongings, to the amount specified in the airline ticket absent a
declaration of a higher valuation and the payment of additional charges.
The undisputed facts of the case, as found by the trial court and adopted by
the appellate court, are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and
general manager of the plaintiffs Sotang Bastos and Archer
Production while in San Francisco, Califonia and Primo
Quesada of Prime Films, San Francisco, California, entered
into an agreement (Exh. A) whereby the former, for and in
consideration of the amount of US $2,500.00 per picture,
bound himself to supply the latter with three films. 'Ang
Mabait, Masungit at ang Pangit,' 'Big Happening with Chikiting
and Iking,' and 'Kambal Dragon' for exhibition in the United
States. It was also their agreement that plaintiffs would
provide the necessary promotional and advertising materials
for said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited
Guam where he contacted Leo Slutchnick of the Hafa Adai
Organization. Plaintiff Pangan likewise entered into a verbal
agreement with Slutchnick for the exhibition of two of the films
above-mentioned at the Hafa Adai Theater in Guam on May
30, 1978 for the consideration of P7,000.00 per picture (p. 11,
tsn, June 20, 1979). Plaintiff Pangan undertook to provide the
necessary promotional and advertising materials for said films
on or before the exhibition date on May 30,1978.
the preparation of the requisite promotional handbills and still
pictures for which he paid the total sum of P12,900.00 (Exhs.
B, B-1, C and C1). Likewise in preparation for his trip abroad
to comply with his contracts, plaintiff Pangan purchased
fourteen clutch bags, four capiz lamps and four barong
tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and
F).
On May 18, 1978, plaintiff Pangan obtained from defendant
Pan Am's Manila Office, through the Your Travel Guide, an
economy class airplane ticket with No. 0269207406324 (Exh.
G) for passage from Manila to Guam on defendant's Flight No.
842 of May 27,1978, upon payment by said plaintiff of the
regular fare. The Your Travel Guide is a tour and travel office
owned and managed by plaintiffs witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff
Pangan was at the defendant's ticket counter at the Manila
International Airport and presented his ticket and checked in
his two luggages, for which he was given baggage claim
tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two
luggages contained the promotional and advertising
materials, the clutch bags, barong tagalog and his personal
belongings. Subsequently, Pangan was informed that his
name was not in the manifest and so he could not take Flight
No. 842 in the economy class. Since there was no space in
the economy class, plaintiff Pangan took the first class
because he wanted to be on time in Guam to comply with his
commitment, paying an additional sum of $112.00.
When plaintiff Pangan arrived in Guam on the date of May 27,
1978, his two luggages did not arrive with his flight, as a
consequence of which his agreements with Slutchnick and
Quesada for the exhibition of the films in Guam and in the
United States were cancelled (Exh. L). Thereafter, he filed a
written claim (Exh. J) for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer,
who made the necessary representations to protest as to the
treatment which he received from the employees of the
defendant and the loss of his two luggages (Exh. M, O, Q, S,
and T). Defendant Pan Am assured plaintiff Pangan that his
grievances would be investigated and given its immediate
consideration (Exhs. N, P and R). Due to the defendant's
failure to communicate with Pangan about the action taken on
 his protests, the present complaint was filed by the plaintiff.
(Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]
1. The airline ticket (Exh. "G') contains the following conditions:
On the basis of these facts, the Court of First Instance found petitioner liable
and rendered judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to
pay all the plaintiffs the sum of P83,000.00, for actual
damages, with interest thereon at the rate of 14% per annum
from December 6, 1978, when the complaint was filed, until
the same is fully paid, plus the further sum of P10,000.00 as
attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to
pay plaintiff Rene V. Pangan the sum of P8,123.34, for
additional actual damages, with interest thereon at the rate of
14% per annum from December 6, 1978, until the same is fully
paid;
(3) Dismissing the counterclaim interposed by defendant Pan
American World Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to
pay the costs of suit. [Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court
decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their
respective memoranda. In due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner
assigned the following errors:
1. The respondent court erred as a matter of law in affirming the trial court's
award of actual damages beyond the limitation of liability set forth in the
Warsaw Convention and the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's
award of actual damages consisting of alleged lost profits in the face of this
Court's ruling concerning special or consequential damages as set forth
in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim
NOTICE
If the passenger's journey involves an ultimate destination or
stop in a country other than the country of departure the
Warsaw Convention may be applicable and the Convention
governs and in most cases limits the liability of carriers for
death or personal injury and in respect of loss of or damage
to baggage. See also notice headed "Advice to International
Passengers on Limitation of Liability.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket
and baggage check of which these conditions and the notices
form part, "carriage" is equivalent to "transportation," "carrier"
means all air carriers that carry or undertake to carry the
passenger or his baggage hereunder or perform any other
service incidental to such air carriage. "WARSAW
CONVENTION" means the convention for the Unification of
Certain Rules Relating to International Carriage by Air signed
at Warsaw, 12th October 1929, or that Convention as
amended at The Hague, 28th September 1955, whichever
may be applicable.
2. Carriage hereunder is subject to the rules and limitations
relating to liability established by the Warsaw Convention
unless such carriage is not "international carriage" as defined
by that Convention.
3. To the extent not in conflict with the foregoing carriage and
other services performed by each carrier are subject to: (i)
provisions contained in this ticket, (ii) applicable tariffs, (iii)
carrier's conditions of carriage and related regulations which
are made part hereof (and are available on application at the
offices of carrier), except in transportation between a place in
the United States or Canada and any place outside thereof to
which tariffs in force in those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
 Liability for loss, delay, or damage to baggage is limited as
follows unless a higher value is declared in advance and
additional charges are paid: (1)for most international travel
(including domestic portions of international journeys) to
approximately $9.07 per pound ($20.00 per kilo) for checked
baggage and $400 per passenger for unchecked baggage:
(2) for travel wholly between U.S. points, to $750 per
passenger on most carriers (a few have lower limits). Excess
valuation may not be declared on certain types of valuable
articles. Carriers assume no liability for fragile or perishable
articles. Further information may be obtained from the carrier.
[Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket,
petitioner contends that its liability for the lost baggage of private respondent
Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not declare a
higher value for his baggage and pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of
Appeals [G.R. No. L-40597, June 29, 1979, 91 SCRA 223], where the Court
sustained the validity of a printed stipulation at the back of an airline ticket
limiting the liability of the carrier for lost baggage to a specified amount and
ruled that the carrier's liability was limited to said amount since the passenger
did not declare a higher value, much less pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said
case, the Court, through Justice Melencio Herrera, stated:
Petitioner further contends that respondent Court committed
grave error when it limited PAL's carriage liability to the
amount of P100.00 as stipulated at the back of the ticket....
We agree with the foregoing finding. The pertinent Condition
of Carriage printed at the back of the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability
of the Carrier for lost or damage baggage of
the passenger is LIMITED TO P100.00 for
each ticket unless a passenger declares a
higher valuation in excess of P100.00, but not
in excess, however, of a total valuation of
Pl,000.00 and additional charges are paid
pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher
value for his luggage, much less (lid he pay any additional
transportation charge.
But petitioner argues that there is nothing in the evidence to
show that he had actually entered into a contract with PAL
limiting the latter's liability for loss or delay of the baggage of
its passengers, and that Article 1750 * of the Civil Code has
not been complied with.
While it may be true that petitioner had not signed the plane
ticket (Exh. "12"), he is nevertheless bound by the provisions
thereof. "Such provisions have been held to be a part of the
contract of carriage, and valid and binding upon the
passenger regardless of the latter's lack of knowledge or
assent to the regulation." [Tannebaum v. National Airline, Inc.,
13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern
Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc.,
Fla., 63 So. 2d 634.] It is what is known as a contract of
"adhesion," in regards which it has been said that contracts of
adhesion wherein one party imposes a ready made form of
contract on the other, as the plane ticket in the case at bar,
are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres,
he gives his consent,[Tolentino, Civil Code, Vol. IV, 1962 ed.,
p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan.
31, 1951, p. 49]. And as held in Randolph v. American
Airlines, 103 Ohio App. 172,144 N.E. 2d 878; Rosenchein v.
Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract
limiting liability upon an agreed valuation does not offend
against the policy of the law forbidding one from contracting
against his own negligence."
Considering, therefore, that petitioner had failed to declare a
higher value for his baggage, he cannot be permitted a
recovery in excess of P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R.
No. L-20099, July 2, 1966, 17 SCRA 606], where the Court held that the
stipulation limiting the carrier's liability to a specified amount was invalid, finds
no application in the instant case, as the ruling in said case was premised on
the finding that the conditions printed at the back of the ticket were so small
and hard to read that they would not warrant the presumption that the
passenger was aware of the conditions and that he had freely and fairly agreed
thereto. In the instant case, similar facts that would make the case fall under
the exception have not been alleged, much less shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per
kilo or $600.00, as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it
necessary to state that the Court of Appeal's reliance on a quotation
from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425, August 31, 1965,
14 SCRA 1063] to sustain the view that "to apply the Warsaw Convention
which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in
cases of contractual breach of carriage ** is against public policy" is utterly
misplaced, to say the least. In said case, while the Court, as quoted in the
Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air
"carrier is liable only" in the event of death of a passenger or
injury suffered by him, or of destruction or loss of, or damages
to any checked baggage or any goods, or of delay in the
transportation by air of passengers, baggage or goods. This
pretense is not borne out by the language of said Articles. The
same merely declare the carrier liable for damages in
enumerated cases, if the conditions therein specified are
present. Neither said provisions nor others in the
aforementioned Convention regulate or exclude liability for
other breaches of contract by the carrier. Under petitioner's
theory, an air carrier would be exempt from any liability for
damages in the event of its absolute refusal, in bad faith, to
comply with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by
certiorari, upon the ground that the lower court has erred: (1)
in holding that the Warsaw Convention of October 12, 1929,
relative to transportation by air is not in force in the
Philippines: (2) in not holding that respondent has no cause
of action; and (3) in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the First assignment
of error because the same is the basis of the second
assignment of error, and the latter is devoid of merit, even if
we assumed the former to be well taken. (Emphasis
supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did,
rule against the validity of provisions of the Warsaw Convention.
Consequently, by no stretch of the imagination may said quotation
from Northwest be considered as supportive of the appellate court's statement
that the provisions of the Warsaw Convention limited a carrier's liability are
against public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and
affirmed by the Court of Appeals, awarding private respondents damages as
and for lost profits when their contracts to show the films in Guam and San
Francisco, California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)]
cannot be any clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like
the defendant herein, may be held liable only for damages that
were foreseen or might have been foreseen at the time the
contract of transportation was entered into. The trial court
correctly found that the defendant company could not have
foreseen the damages that would be suffered by Mendoza
upon failure to deliver the can of film on the 17th of
September, 1948 for the reason that the plans of Mendoza to
exhibit that film during the town fiesta and his preparations,
specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the
defendant's attention.
In our research for authorities we have found a case very similar to the one
under consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p.
1049, the plaintiff in Troy, New York, delivered motion picture films to the
defendant Fargo, an express company, consigned and to be delivered to him
in Utica. At the time of shipment the attention of the express company was
called to the fact that the shipment involved motion picture films to be exhibited
in Utica, and that they should be sent to their destination, rush. There was
delay in their delivery and it was found that the plaintiff because of his failure
to exhibit the film in Utica due to the delay suffered damages or loss of profits.
But the highest court in the State of New York refused to award him special
damages. Said appellate court observed:
But before defendant could be held to special damages, such
as the present alleged loss of profits on account of delay or
failure of delivery, it must have appeared that he had notice at
the time of delivery to him of the particular circumstances
attending the shipment, and which probably would lead to
such special loss if he defaulted. Or, as the rule has been
stated in another form, in order to purpose on the defaulting
party further liability than for damages naturally and directly,
 i.e., in the ordinary course of things, arising from a breach of SO ORDERED.
contract, such unusual or extraordinary damages must have
been brought within the contemplation of the parties as the
probable result of breach at the time of or prior to contracting.
Generally, notice then of any special circumstances which will
show that the damages to be anticipated from a breach would
be enhanced has been held sufficient for this effect.

As may be seen, that New York case is a stronger one than the present case
for the reason that the attention of the common carrier in said case was called
to the nature of the articles shipped, the purpose of shipment, and the desire
to rush the shipment, circumstances and facts absent in the present case.
[Emphasis supplied.]

Thus, applying the foregoing ruling to the facts of the instant case, in the
absence of a showing that petitioner's attention was called to the special
circumstances requiring prompt delivery of private respondent Pangan's
luggages, petitioner cannot be held liable for the cancellation of private
respondents' contracts as it could not have foreseen such an eventuality when
it accepted the luggages for transit.

The Court is unable to uphold the Intermediate Appellate Court's disregard of

the rule laid down in Mendoza and affirmance of the trial court's conclusion
that petitioner is liable for damages based on the finding that "[tlhe undisputed
fact is that the contracts of the plaintiffs for the exhibition of the films in Guam
and California were cancelled because of the loss of the two luggages in
question." [Rollo, p. 36] The evidence reveals that the proximate cause of the
cancellation of the contracts was private respondent Pangan's failure to deliver
the promotional and advertising materials on the dates agreed upon. For this
petitioner cannot be held liable. Private respondent Pangan had not declared
the value of the two luggages he had checked in and paid additional charges.
Neither was petitioner privy to respondents' contracts nor was its attention
called to the condition therein requiring delivery of the promotional and
advertising materials on or before a certain date.

3. With the Court's holding that petitioner's liability is limited to the amount
stated in the ticket, the award of attorney's fees, which is grounded on the
alleged unjustified refusal of petitioner to satisfy private respondent's just and
valid claim, loses support and must be set aside.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the

Intermediate Appellate Court is SET ASIDE and a new judgment is rendered
ordering petitioner to pay private respondents damages in the amount of US
$600.00 or its equivalent in Philippine currency at the time of actual payment.

ROESKE v. LAMB et al.
39 N.M. 111; 41 P.2d 522
No. 3980
Feb. 11, 1935
41 P.(2d) 522
Supreme Court of New Mexico.
See, also, 38 N. M. 309, 32 P.(2d) 257.
David A. Grammer, of Albuquerque, for appellant.
E. K. Neumann, Atty. Gen., and Quincy D. Adams, Asst. Atty. Gen., for
appellees.
ÉICKLET, Justice.
Appellant, plaintiff below, alleges in his complaint that he is engaged in the
business of letting passenger motor vehicles for hire; that he lets his motor
vehicles, as any chattel is leased; that he does not furnish drivers or operators
for the said motor vehicles; and that he has no custody nor control over the
said motor vehicles so long as the bailment continues. Plaintiff below, and
appellant here, further alleges that he is not engaged in the business of carrier
for hire, either common, contract, or private; nor is he, nor the business which
he carries on, within the provisions of chapter 154 of the Session Laws of New
Mexico 1933.
Appellant further alleges that he is informed that the defendant below, and
appellee here, the state corporation commission, is about to interfere with
appellant in the lawful conduct of his business; that the threatened action of
the appellee will work irreparable harm and injury to the appellant in his
business; and that the appellant is without remedy at the law. He prays in his
complaint for an order restraining the appellee from interfering with the conduct
of the appellant’s business, and for general relief.
The appellee filed a demurrer to the complaint on the ground that “The Plaintiff
comes within the definition of ‘contract motor carrier of Passengers’ as defined
in section 14 (b) of Chapter 154, Laws of 1933.” The demurrer was sustained.
From the order sustaining the demurrer, the appellant appeals.
No question is raised as to the power of the Legislature to confer upon the
state corporation commission the power to regulate the use of the public
¡highways by common carriers and contract carriers for hire, whether what is
transported be passengers or property.
The following allegations of the complaint, the truth of which is confessed by
the demurrer, identify the nature of the appellant’s business:
“That the Plaintiff is engaged in the business of letting passenger motor
vehicles in the State of New Mexico for hire.
“III. That the said Plaintiff lets his motor vehicles, as any chattel is leased; and
that he, the said plaintiff, does not furnish drivers or operators for the said
motor vehicles ; and that the said Plaintiff has no custody or control over the
said motor vehicles so long as the bailment continues, and so long as the
relation of lessor and lessee exists between the said Plaintiff and his casual
lessees.
“IV. That this Plaintiff is not engaged in the business of carrier for hire, either
common, contract or private; nor is he, nor the business which he carries on,
within the provisions of Chapter 154 of the Session Laws of New Mexico of
1933.”
A carrier has been defined: “A carrier is one that undertakes the transportation
of persons or movable property. * * * A private carrier is one who, without being
engaged in such business undertakes to deliver goods in a particular case for
hire or reward.” 10 Corpus Juris 37, quoting Abbott’s Law Dictionary.
“Carrier: (2) One * * * employed in, or engaged in the business of carrying
goods for others for hire. * * * ” Webster’s New International Dictionary.
Counsel for appellant says: “In the business of carrier, there is inherently
connected with the business the idea of a bailment of goods (or persons) for
delivery by the carrier. The essential element distinguishing the business of
Appellant from that of Carrier is this: That Appellant does not deliver anything;
That he is bailor of the means of transportation only.”
Counsel for both parties cite the cases of State v. Dabney, 176 Ark. 1071, 5
S.W.(2d) 304, and State v. Bee Hive Auto Service Co., 137 Wash. 372, 242
P. 384, 385, as illuminating on the question of the status of driver-less car
companies as carriers. In the first, it was said: “The undisputed testimony
shows that the appellee was not engaged in the business of operating a jitney,
taxicab, or motorbus line, but only in renting or hiring to individuals, who
applied therefor, cars of different styles and sizes to be operated by the hirer
at his own risk and discretion. Such operation of such business did not
constitute appellee either a private or public carrier of passengers or his
business the using of motor vehicles for the transportation or delivery of
persons or passengers for hire within the meaning of the act. He was not a
carrier of passengers at all, nor liable to the payment of the additional tax
required under section 36 (d) of the Act.” (The emphasis is ours.) •

In the second: “* * * It is true, of course, that the lessor, by the act of leasing,
enters into certain obligations, so well understood as not to require
enumeration here; but we think it manifest that he does not by. the act
undertake to carry any one, and much less does he become by the act either
a public or a private common carrier of pmsengers for hire. His situation is not
different in legal effect from that of the old-time occupation of livery stable
keeper, who keeps teams and carriages to let for hire. No court, in so far as
we are aware, has ever held such a keeper to be a common carrier of
passengers, and we think a like rule must apply to the defendants in this
instance. The judgments are affirmed.” (Italics ours.)

The Attorney General further concedes that the Legislature cannot, by fiat,
convert one into a carrier when in fact he is not. But he argues the statute is
sufficiently broad to include regulation by the commission of all “Public Service
Vehicles” whether used by the owner in the business of carrier or not. '

The title of the act (chapter 154, Sess. Laws 1933) in part is as follows: “An
Act Relating to the Supervision and Regulation of the Business of the
Transportation by Motor Vehicles for Hire Over the Public Highways of the
State of New Mexico.”

The title nowhere gives notice of an intention to regulate public service vehicles
not used in the “Business of Transportation.”

By its terms, the act regulates, not public service vehicles, but carriers, and
carriers only. The act nowhere uses the phrase “Public Service Vehicles.” If it
was the legislative intention to regulate “Public Service Vehicles” regardless of
whether such vehicles are used in the business of a carrier of property or
passengers for hire, or not, it would have used language appropriate to
indicate such intention.

The power of the Legislature has been adverted to. The question here involved
is not the power of the Legislature to regulate “Public Service Vehicles,”
independently of their use in the carrier business, but has it undertaken to do
so? We think it has not.

The judgment is reversed and the cause remanded with directions that the
demurrer be overruled, and it is so ordered.

SADLER, O. J., and HUDSPETH, WATSON, and ZINN, JJ., concur.

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 petitioner’s
niece, Meriam Menor, was respondent company’s ticketing manager.
Pursuant to said contract, Menor went to her aunt’s residence on June 12,
1991 – a Wednesday – to deliver petitioner’s 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 petitioner’s 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 petitioner’s 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 respondent’s 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 petitioner’s 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 attorney’s fees;
3. Dismissing the defendant’s 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 petitioner’s 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 Menor’s 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 attorney’s 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, petitioner’s 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 employee’s
gross negligence.
Petitioner’s 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. Respondent’s
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. Respondent’s
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 petitioner’s contractual relation with respondent is the latter’s
service of arranging and facilitating petitioner’s 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. Petitioner’s 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 latter’s
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. Petitioner’s testimony was
accepted as indubitable evidence of Menor’s 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 petitioner’s uncontradicted testimony to be sufficient proof
of her claim.
On the other hand, respondent has consistently denied that Menor was
negligent and maintains that petitioner’s 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.
Respondent’s failure to present Menor as witness to rebut petitioner’s
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
Menor’s testimony, the presumption under Rule 131, Section 3(e) would still
not apply. The opportunity and possibility for obtaining Menor’s testimony
belonged to both parties, considering that Menor was not just respondent’s
employee, but also petitioner’s 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 Menor’s
negligence concurred with the negligence of petitioner and resultantly caused
damage to the latter. Menor’s negligence was not sufficiently proved,
considering that the only evidence presented on this score was petitioner’s
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 In the case at bar, the evidence on record shows that respondent company
of action, fails to show in a satisfactory manner facts upon which he bases his performed its duty diligently and did not commit any contractual breach.
claim, the defendant is under no obligation to prove his exception or defense.18 Hence, petitioner cannot recover and must bear her own damage.

Contrary to petitioner’s 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 ticket19 issued to petitioner clearly
reflected the departure date and time, contrary to petitioner’s 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 petitioner’s hotel accommodation as
well as food, land transfers and sightseeing excursions, in accordance with its
avowed undertaking.
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.

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 1âwphi1

The lower court declared that respondent’s 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
G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC., Petitioners,
vs.
MALAYAN INSURANCE CO., INC.,* Respondent.
DECISION
PANGANIBAN, J.:
Common carriers are bound to observe extraordinary diligence in their
vigilance over the goods entrusted to them, as required by the nature of their
business and for reasons of public policy. Consequently, the law presumes
that common carriers are at fault or negligent for any loss or damage to the
goods that they transport. In the present case, the evidence submitted by
petitioner to overcome this presumption was sorely insufficient.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
assailing the October 9, 2002 Decision2 and the December 29, 2003
Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 66028. The
challenged Decision disposed as follows:
"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of
the Regional Trial Court of Manila, Branch 42 in Civil Case No. 92-63159 is
hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein
respondent] the value of the lost cargo in the amount of ₱565,000.00. Costs
against the [herein petitioner]."4
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries,
Inc., for the shipment of 900 metric tons of silica sand valued at
₱565,000.5 Consigned to Vulcan Industrial and Mining Corporation, the cargo
was to be transported from Palawan to Manila. On October 25, 1991, the silica
sand was placed on board Judy VII, a barge leased by Lea Mer.6 During the
voyage, the vessel sank, resulting in the loss of the cargo.7
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost
cargo.8 To recover the amount paid and in the exercise of its right of
subrogation, Malayan demanded reimbursement from Lea Mer, which refused
to comply. Consequently, Malayan instituted a Complaint with the Regional
Trial Court (RTC) of Manila on September 4, 1992, for the collection of
₱565,000 representing the amount that respondent had paid Vulcan.9
On October 7, 1999, the trial court dismissed the Complaint, upon finding that
the cause of the loss was a fortuitous event. 10 The RTC noted that the vessel
had sunk because of the bad weather condition brought about by Typhoon
Trining. The court ruled that petitioner had no advance knowledge of the
incoming typhoon, and that the vessel had been cleared by the Philippine
Coast Guard to travel from Palawan to Manila.11
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy when
it sailed for Manila. Thus, the loss of the cargo was occasioned by petitioner’s
fault, not by a fortuitous event.12
Hence, this recourse.13
The Issues
Petitioner states the issues in this wise:
"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who
had not been presented as a witness of the said report during the trial of this
case before the lower court can be admitted in evidence to prove the alleged
facts cited in the said report.
"B. Whether or not the respondent, Court of Appeals, had validly or legally
reversed the finding of fact of the Regional Trial Court which clearly and
unequivocally held that the loss of the cargo subject of this case was caused
by fortuitous event for which herein petitioner could not be held liable.
"C. Whether or not the respondent, Court of Appeals, had committed serious
error and grave abuse of discretion in disregarding the testimony of the witness
from the MARINA, Engr. Jacinto Lazo y Villegal, to the effect that the vessel
‘Judy VII’ was seaworthy at the time of incident and further in disregarding the
testimony of the PAG-ASA weather specialist, Ms. Rosa Barba y Saliente, to
the effect that typhoon ‘Trining’ did not hit Metro Manila or Palawan."14
In the main, the issues are as follows: (1) whether petitioner is liable for the
loss of the cargo, and (2) whether the survey report of Jesus Cortez is
admissible in evidence.
The Court’s Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was
due to a fortuitous event. This issue involves primarily a question of fact,
notwithstanding petitioner’s claim that it pertains only to a question of law. As
a general rule, questions of fact may not be raised in a petition for
review.15 The present case serves as an exception to this rule, because the
factual findings of the appellate and the trial courts vary.16 This Court
meticulously reviewed the records, but found no reason to reverse the CA.
Rule on Common Carriers
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 -- when this service is offered to the public for
compensation.17 Petitioner is clearly a common carrier, because it offers to the
public its business of transporting goods through its vessels.18
Thus, the Court corrects the trial court’s finding that petitioner became a private
carrier when Vulcan chartered it.19Charter parties are classified as contracts
of demise (or bareboat) and affreightment, which are distinguished as follows:
"Under the demise or bareboat charter of the vessel, the charterer will
generally be considered as owner for the voyage or service stipulated. The
charterer mans the vessel with his own people and becomes, in effect, the
owner pro hac vice, subject to liability to others for damages caused by
negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the
charterer; anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all."20
The distinction is significant, because a demise or bareboat charter indicates
a business undertaking that is privatein character. 21 Consequently, the rights
and obligations of the parties to a contract of private carriage are governed
principally by their stipulations, not by the law on common carriers. 22
The Contract in the present case was one of affreightment, as shown by the
fact that it was petitioner’s crew that manned the tugboat M/V Ayalit and
controlled the barge Judy VII.23 Necessarily, petitioner was a common carrier,
and the pertinent law governs the present factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their
vigilance over the goods and the safety of the passengers they transport, as
required by the nature of their business and for reasons of public
policy.24Extraordinary diligence requires rendering service with the greatest
skill and foresight to avoid damage and destruction to the goods entrusted for
carriage and delivery.25
Common carriers are presumed to have been at fault or to have acted
negligently for loss or damage to the goods that they have transported.26 This
presumption can be rebutted only by proof that they observed extraordinary
diligence, or that the loss or damage was occasioned by any of the following
causes:27
"(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."28
Rule on Fortuitous Events
Article 1174 of the Civil Code provides that "no person shall be responsible for
a fortuitous event which could not be foreseen, or which, though foreseen, was
inevitable." Thus, if the loss or damage was due to such an event, a common
carrier is exempted from liability.
Jurisprudence defines the elements of a "fortuitous event" as follows: (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.29
To excuse the common carrier fully of any liability, the fortuitous event must
have been the proximate and only cause of the loss.30 Moreover, it should
have exercised due diligence to prevent or minimize the loss before, during
and after the occurrence of the fortuitous event.31
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As
the common carrier, petitioner bore the burden of proving that it had exercised
extraordinary diligence to avoid the loss, or that the loss had been occasioned
by a fortuitous event -- an exempting circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea
Mer claimed that the loss of the cargo was due to the bad weather condition
brought about by Typhoon Trining.32 Evidence was presented to show that
petitioner had not been informed of the incoming typhoon, and that the
Philippine Coast Guard had given it clearance to begin the voyage. 33 On
October 25, 1991, the date on which the voyage commenced and the barge
sank, Typhoon Trining was allegedly far from Palawan, where the storm
warning was only "Signal No. 1."34
The evidence presented by petitioner in support of its defense of fortuitous
event was sorely insufficient. As required by the pertinent law, it was not
enough for the common carrier to show that there was an unforeseen or
unexpected occurrence. It had to show that it was free from any fault -- a fact
it miserably failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or
prevent the loss before, during or after the alleged fortuitous event. 35 Its
witness, Joey A. Draper, testified that he could no longer remember whether
anything had been done to minimize loss when water started entering the
barge.36 This fact was confirmed during his cross-examination, as shown by
the following brief exchange:
"Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary
measure[s] exercised by you and the crew of Judy VII so as to prevent the
los[s] or sinking of barge Judy VII?
xxxxxxxxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers and
crew of tugboat Ayalit and barge Judy VII x x x to prevent the sinking of barge
Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save
the barge Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago."37
Second, the alleged fortuitous event was not the sole and proximate cause of
the loss. There is a preponderance of evidence that the barge was not
seaworthy when it sailed for Manila.38 Respondent was able to prove that, in
the hull of the barge, there were holes that might have caused or aggravated
the sinking.39 Because the presumption of negligence or fault applied to
petitioner, it was incumbent upon it to show that there were no holes; or, if
there were, that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness,
Domingo A. Luna, testified that the barge was in "tip-top" or excellent
condition,40 but that he had not personally inspected it when it left Palawan. 41
The submission of the Philippine Coast Guard’s Certificate of Inspection
of Judy VII, dated July 31, 1991, did not conclusively prove that the barge was
seaworthy.42 The regularity of the issuance of the Certificate is disputably
presumed.43 It could be contradicted by competent evidence, which
respondent offered. Moreover, this evidence did not necessarily take into
account the actual condition of
the vessel at the time of the commencement of the voyage.44
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo
surveyor, should not have been admitted in evidence. The Court partly agrees.
Because he did not testify during the trial,46 then the Report that he had
prepared was hearsay and therefore inadmissible for the purpose of proving admissibility of that Report as part of the testimonies of the witnesses was
the truth of its contents. correctly ruled upon by the trial court.

The Survey Report Not the Sole Evidence At any rate, even without the Survey Report, petitioner has already failed to
overcome the presumption of fault that applies to common carriers.
The facts reveal that Cortez’s Survey Report was used in the testimonies of
respondent’s witnesses -- Charlie M. Soriano; and Federico S. Manlapig, a WHEREFORE, the Petition is DENIED and the assailed Decision and
cargo marine surveyor and the vice-president of Toplis and Harding Resolution are AFFIRMED. Costs against petitioner.
Company.47 Soriano testified that the Survey Report had been used in
preparing the final Adjustment Report conducted by their company.48 The final SO ORDERED.
Report showed that the barge was not seaworthy because of the existence of
the holes. Manlapig testified that he had prepared that Report after taking into
account the findings of the surveyor, as well as the pictures and the sketches
of the place where the sinking occurred.49 Evidently, the existence of the holes
was proved by the testimonies of the witnesses, not merely by Cortez’ Survey
Report.

Rule on Independently

Relevant Statement

That witnesses must be examined and presented during the trial, 50 and that
their testimonies must be confined to personal knowledge is required by the
rules on evidence, from which we quote:

"Section 36. Testimony generally confined to personal knowledge; hearsay

excluded. –A witness can testify only to those facts which he knows of his
personal knowledge; that is, which are derived from his own perception, except
as otherwise provided in these rules."51

On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit,
which respondent had offered as evidence.52 Well-settled is the rule that,
unless the affiant is presented as a witness, an affidavit is considered
hearsay.53

An exception to the foregoing rule is that on "independently relevant

statements." A report made by a person is admissible if it is intended to prove
the tenor, not the truth, of the statements.54 Independent of the truth or the
falsity of the statement given in the report, the fact that it has been made is
relevant. Here, the hearsay rule does not apply. 55

In the instant case, the challenged Survey Report prepared by Cortez was
admitted only as part of the testimonies of respondent’s witnesses. The referral
to Cortez’s Report was in relation to Manlapig’s final Adjustment Report.
Evidently, it was the existence of the Survey Report that was testified to. The
G.R. No. 131166 September 30, 1999
CALTEX (PHILIPPINES), INC., petitioner,
vs.
SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO,
CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S.
GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO,
FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION, TERESITA
G. CAÑEZAL, AND SOTERA E. CAÑEZAL, respondents.
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision
between the chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987
carrying petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex)
no one could have guessed that it would collide with MV Doña Paz, killing
almost all the passengers and crew members of both ships, and thus resulting
in one of the country's worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision 1 holding
petitioner jointly liable with the operator of MT Vector for damages when the
latter collided with Sulpicio Lines, Inc.'s passenger ship MV Doña Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about
8:00 p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum
products shipped by petitioner Caltex. 2 MT Vector is a tramping motor tanker
owned and operated by Vector Shipping Corporation, engaged in the business
of transporting fuel products such as gasoline, kerosene, diesel and crude oil.
During that particular voyage, the MT Vector carried on board gasoline and
other oil products owned by Caltex by virtue of a charter contract between
them. 3
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz
left the port of Tacloban headed for Manila with a complement of 59 crew
members including the master and his officers, and passengers totaling 1,493
as indicated in the Coast Guard Clearance. 4 The MV Doña Paz is a passenger
and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route
of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila,
making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the
open sea within the vicinity of Dumali Point between Marinduque and Oriental
Mindoro. All the crewmembers of MV Doña Paz died, while the two survivors
from MT Vector claimed that they were sleeping at the time of the
incident.1âwphi1.nêt
The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were
not in the passenger manifest. Only 24 survived the tragedy after having been
rescued from the burning waters by vessels that responded to distress
calls. 5 Among those who perished were public school teacher Sebastian
Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both
unmanifested passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after
investigation found that the MT Vector, its registered operator Francisco
Soriano, and its owner and actual operator Vector Shipping Corporation, were
at fault and responsible for its collision with MV Doña Paz. 6
On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian
Cañezal's wife and mother respectively, filed with the Regional Trial Court,
Branch 8, Manila, a complaint for "Damages Arising from Breach of Contract
of Carriage" against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn,
filed a third party complaint against Francisco Soriano, Vector Shipping
Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex
chartered MT Vector with gross and evident bad faith knowing fully well that
MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard
to safe navigation; as a result, it rammed against MV Doña Paz in the open
sea setting MT Vector's highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing, the third
party complaint against petitioner. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintiffs and against defendant-3rd party plaintiff Sulpicio
Lines, Inc., to wit:
1. For the death of Sebastian E. Cañezal and his 11-year old
daughter Corazon G. Cañezal, including loss of future
earnings of said Sebastian, moral and exemplary damages,
attorney's fees, in the total amount of P 1,241,287.44 and
finally;
2. The statutory costs of the proceedings.
 Likewise, the 3rd party complaint is hereby DISMISSED for
want of substantiation and with costs against the 3rd party
plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ENIO M. GONONG
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April
15, 1997, the Court of Appeal modified the trial court's ruling and included
petitioner Caltex as one of the those liable for damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment
rendered by the Regional Trial Court is hereby MODIFIED as
follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to
pay the heirs of Sebastian E. Cañezal and Corazon Cañezal:
1. Compensatory damages for the death of Sebastian E.
Cañezal and Corazon Cañezal the total amount of ONE
HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned
income of Sebastian E. Cañezal, in the total amount of
THREE HUNDRED SIX THOUSAND FOUR HUNDRED
EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED
THOUSAND PESOS (P300,000.00);
4. Attorney's fees in the concept of actual damages in the
amount of FIFTY THOUSAND PESOS (P50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex
(Phils.), Inc. are held equally liable under the third party
complaint to reimburse/indemnify defendant Sulpicio Lines,
Inc. of the above-mentioned damages, attorney's fees and
costs which the latter is adjudged to pay plaintiffs, the same
to be shared half by Vector Shipping Co. (being the vessel at
fault for the collision) and the other half by Caltex (Phils.), Inc.
(being the charterer that negligently caused the shipping of
combustible cargo aboard an unseaworthy vessel).
SO ORDERED.
WE CONCUR:
RAMON U. MABUTAS, JR. PORTIA ALIÑO
HERMACHUELOS
Associate Justice Associate Justice. 8
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for
damages under Philippine Maritime
laws.
The respective rights and duties of a shipper and the carrier depends not on
whether the carrier is public or private, but on whether the contract of carriage
is a bill of lading or equivalent shipping documents on the one hand, or a
charter party or similar contract on the other. 9
Petitioner and Vector entered into a contract of affreightment, also known as
a voyage charter. 10
A charter party is a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use; a
contract of affreightment is one by which the owner of a ship or other vessel
lets the whole or 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. 11
A contract of affreightment may be either time charter, wherein the leased
vessel is leased to the charterer for a fixed period of time, or voyage charter,
wherein the ship is leased for a single voyage. In both cases, the charter-party
provides for the hire of the vessel only, either for a determinate period of time
or for a single or consecutive voyage, the ship owner to supply the ship's store,
pay for the wages of the master of the crew, and defray the expenses for the
maintenance of the ship. 12
Under a demise or bareboat charter on the other hand, the charterer mans the
vessel with his own people and becomes, in effect, the owner for the voyage
or service stipulated, subject to liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is free from
liability to third persons in respect of the ship. 13
Second: MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time
charter, (3) voyage charter. Does a charter party agreement turn the common
carrier into a private one? We need to answer this question in order to shed
light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier
into a private carrier. The parties entered into a voyage charter, which retains
the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals, 14 we said:
It is therefore imperative that a public carrier shall remain as
such, notwithstanding the charter of the whole portion of a
vessel of one or more persons, provided the charter is limited
to the ship only, as in the case of a time-charter or the 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 ship-
owner 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.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15
Although a charter party may transform a common carrier into
a private one, the same however is not true in a contract of
affreightment . . .
A common carrier is a person or corporation whose regular business is to carry
passengers or property for all persons who may choose to employ and to
remunerate him. 16 MT Vector fits the definition of a common carrier under
Article 1732 of the Civil Code. In Guzman vs. Court of Appeals, 17 we ruled:
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 for 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 services
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.
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, occasional rather than regular or scheduled manner,
and even though 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 the fee frequently fell below commercial
freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the
beginning of the voyage to exercise due diligence to —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the
ship. For a vessel to be seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of competent officers and crew.
The failure of a common carrier to maintain in seaworthy condition the vessel
involved in its contract of carriage is a clear breach of its duty prescribed in
Article 1755 of the Civil Code. 18
The provisions owed their conception to the nature of the business of common
carriers. This business is impressed with a special public duty. The public must
of necessity rely on the care and skill of common carriers in the vigilance over
the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid,
more complicated and somehow more hazardous. 19 For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an
inspection of the ship and its crew, the carrier being obliged by law to impliedly
warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil
Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel
cargo aboard an unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vector's certificate of inspection and
coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of
Bataan Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the
Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector transport its cargo despite
these deficiencies.
1. The master of M/T Vector did not posses the required Chief Mate license to
command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron,
authorized to navigate only in bays and rivers when the subject collision
occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of
the vessel;
4. The vessel did not have a Third Mate, a radio operator and lookout; and
5. The vessel had a defective main engine. 20
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20
and 2176 of the Civil Code, which provide:
Art. 20. — Every person who contrary to law, willfully or
negligently causes damage to another, shall indemnify the
latter for the same.
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.
And what is negligence?
The Civil Code provides:
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 Article 1171 and 2201 paragraph
2, 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.
In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence,
as commonly understood, is conduct which naturally or reasonably creates
undue risk or harm to others. It may be the failure to observe that degree of
care, precaution, and vigilance, which the circumstances justly demand, or the
omission to do something which ordinarily regulate the conduct of human has a valid C.I. which will expire on
affairs, would do. December 7, 1987 but on the last week of
November, I called the attention of Mr.
The charterer of a vessel has no obligation before transporting its cargo to Abalos to ensure that the C.I. be renewed
ensure that the vessel it chartered complied with all legal requirements. The and Mr. Abalos, in turn, assured me they will
duty rests upon the common carrier simply for being engaged in "public renew the same.
service." 22 The Civil Code demands diligence which is required by the nature
of the obligation and that which corresponds with the circumstances of the Q: What happened after that?
persons, the time and the place. Hence, considering the nature of the
obligation between Caltex and MT Vector, liability as found by the Court of A: On the first week of December, I again
Appeals is without basis.1âwphi1.nêt made a follow-up from Mr. Abalos, and said
they were going to send me a copy as soon
The relationship between the parties in this case is governed by special laws. as possible, sir. 24
Because of the implied warranty of seaworthiness, 23 shippers of goods, when
transacting with common carriers, are not expected to inquire into the vessel's xxx xxx xxx
seaworthiness, genuineness of its licenses and compliance with all maritime
laws. To demand more from shippers and hold them liable in case of failure
Q: What did you do with the C.I.?
exhibits nothing but the futility of our maritime laws insofar as the protection of
the public in general is concerned. By the same token, we cannot expect
passengers to inquire every time they board a common carrier, whether the A: We did not insist on getting a copy of the
carrier possesses the necessary papers or that all the carrier's employees are C.I. from Mr. Abalos on the first place,
qualified. Such a practice would be an absurdity in a business where time is because of our long business relation, we
always of the essence. Considering the nature of transportation business, trust Mr. Abalos and the fact that the vessel
passengers and shippers alike customarily presume that common carriers was able to sail indicates that the documents
possess all the legal requisites in its operation. are in order. . . . 25

Thus, the nature of the obligation of Caltex demands ordinary diligence like
any other shipper in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to
believe that MT Vector could legally transport cargo that time of the year.
Atty. Poblador: Mr. Witness, I direct your attention to this
portion here containing the entries here under "VESSEL'S
DOCUMENTS
1. Certificate of Inspection No. 1290-85,
issued December 21, 1986, and Expires
December 7, 1987", Mr. Witness, what steps
did you take regarding the impending expiry
of the C.I. or the Certificate of Inspection No.
1290-85 during the hiring of MT Vector?
Apolinario Ng: At the time when I extended
the Contract, I did nothing because the tanker
On cross examination —
Atty. Sarenas: This being the case, and this
being an admission by you, this Certificate of
Inspection has expired on December 7. Did it
occur to you not to let the vessel sail on that
day because of the very approaching date of
expiration?
Apolinar Ng: No sir, because as I said before,
the operation Manager assured us that they
were able to secure a renewal of the
Certificate of Inspection and that they will in
time submit us a
copy. 26
Finally, on Mr. Ng's redirect examination:
 Atty. Poblador: Mr. Witness, were you aware
of the pending expiry of the Certificate of
Inspection in the coastwise license on
December 7, 1987. What was your
assurance for the record that this document
was renewed by the MT Vector?
of its seaworthiness. All things considered, we find no legal basis to hold
petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals'
decision, we limit our ruling to the liability of Caltex alone. However, we
maintain the Court of Appeals' ruling insofar as Vector is concerned.

Atty. Sarenas: . . .
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as
he is a long time business partner; secondly,
those three years; they were allowed to sail
by the Coast Guard. That are some that make
me believe that they in fact were able to
secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail,
what would that mean?
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the
decision of the Court of Appeals in CA-G.R. CV No. 39626, promulgated on
April 15, 1997, insofar as it held Caltex liable under the third party complaint
to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter
is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the
Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of
Sebastian E. Cañezal and Corazon Cañezal damages as set forth therein.
Third-party defendant-appellee Vector Shipping Corporation and Francisco
Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc.
whatever damages, attorneys' fees and costs the latter is adjudged to pay
plaintiffs-appellees in the case.1âwphi1.nêt
No costs in this instance.

Atty. Sarenas: Objection. SO ORDERED.

Court: He already answered that in the cross

examination to the effect that if it was
allowed, referring to MV Vector, to sail, where
it is loaded and that it was scheduled for a
destination by the Coast Guard, it means that
it has Certificate of Inspection extended as
assured to this witness by Restituto Abalos.
That in no case MV Vector will be allowed to
sail if the Certificate of inspection is, indeed,
not to be extended. That was his repeated
explanation to the cross-examination. So,
there is no need to clarify the same in the re-
direct examination. 27

Caltex and Vector Shipping Corporation had been doing business since 1985,
or for about two years before the tragic incident occurred in 1987. Past
services rendered showed no reason for Caltex to observe a higher degree of
diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the
ship was seaworthy as even the Philippine Coast Guard itself was convinced
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used
bottles and scrap metal in Pangasinan. Upon gathering sufficient quantities of
such scrap material, respondent would bring such material to Manila for resale.
He utilized two (2) six-wheeler trucks which he owned for hauling the material
to Manila. On the return trip to Pangasinan, respondent would load his vehicles
with cargo which various merchants wanted delivered to differing
establishments in Pangasinan. For that service, respondent charged freight
rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and
authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta,
Pangasinan, contracted with respondent for the hauling of 750 cartons of
Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970.
Accordingly, on 1 December 1970, respondent loaded in Makati the
merchandise on to his trucks: 150 cartons were loaded on a truck driven by
respondent himself, while 600 cartons were placed on board the other truck
which was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600
boxes never reached petitioner, since the truck which carried these boxes was
hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by
armed men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent
in the Court of First Instance of Pangasinan, demanding payment of P
22,150.00, the claimed value of the lost merchandise, plus damages and
attorney's fees. Petitioner argued that private respondent, being a common
carrier, and having failed to exercise the extraordinary diligence required of
him by the law, should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and
argued that he could not be held responsible for the value of the lost goods,
such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private
respondent to be a common carrier and holding him liable for the value of the
undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P
2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court
had erred in considering him a common carrier; in finding that he had habitually
offered trucking services to the public; in not exempting him from liability on
the ground of force majeure; and in ordering him to pay damages and
attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that
respondent had been engaged in transporting return loads of freight "as a
casual
occupation — a sideline to his scrap iron business" and not as a common
carrier. Petitioner came to this Court by way of a Petition for Review assigning
as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure;
and
3. that respondent was not liable for the value of the
undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto
Cendana may, under the facts earlier set forth, be properly characterized as a
common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be
seen to coincide neatly with the notion of "public service," under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code.
Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
... every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public
services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such back-hauling was done
on a periodic or occasional rather than regular or scheduled manner, and even
though private respondent's principal occupation was not the carriage of
goods for others. There is no dispute that private respondent charged his
customers a fee for hauling their goods; that fee frequently fell below
commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common carrier.
This is palpable error. A certificate of public convenience is not a requisite for
the incurring of liability under the Civil Code provisions governing common
carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with
the requirements of the applicable regulatory statute and implementing
regulations and has been granted a certificate of public convenience or other
franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public
convenience, would be offensive to sound public policy; that would be to
reward private respondent precisely for failing to comply with applicable
statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members
of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a
common carrier to render such duties and liabilities merely facultative by
simply failing to obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public
policy" 2 are held to a very high degree of care and diligence ("extraordinary
diligence") in the carriage of goods as well as of passengers. The specific
import of extraordinary diligence in the care of goods transported by a common
carrier is, according to Article 1733, "further expressed in Articles 1734,1735
and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible
for the loss, destruction or deterioration of the goods which they carry,
"unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or
other natural disaster or calamity;
(2) Act of the public enemy in war, whether
international or civil;
(3) Act or omission of the shipper or owner of
the goods;
(4) The character-of the goods or defects in
the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or
deterioration which exempt the common carrier for responsibility therefor, is a
closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure fall within the scope of Article 1735, which
provides as follows:
 In all cases other than those mentioned in numbers 1, 2, 3, 4
and 5 of the preceding article, if the goods are lost, destroyed
or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article
1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the
specific cause alleged in the instant case — the hijacking of the carrier's truck
— does not fall within any of the five (5) categories of exempting causes listed
in Article 1734. It would follow, therefore, that the hijacking of the carrier's
vehicle must be dealt with under the provisions of Article 1735, in other words,
that the private respondent as common carrier is presumed to have been at
fault or to have acted negligently. This presumption, however, may be
overthrown by proof of extraordinary diligence on the part of private
respondent.
Petitioner insists that private respondent had not observed extraordinary
diligence in the care of petitioner's goods. Petitioner argues that in the
circumstances of this case, private respondent should have hired a security
guard presumably to ride with the truck carrying the 600 cartons of Liberty filled
milk. We do not believe, however, that in the instant case, the standard of
extraordinary diligence required private respondent to retain a security guard
to ride with the truck and to engage brigands in a firelight at the risk of his own
life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of
the duty of extraordinary diligence in the vigilance over the goods carried in
the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods
is, under Article 1733, given additional specification not only by Articles 1734
and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides
in relevant part:
Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be
responsible for the acts or omissions of his or
its employees;
(6) that the common carrier's liability for acts
committed by thieves, or of robbers who
donot act with grave or irresistible threat,
violence or force, is dispensed with or
diminished; and
(7) that the common carrier shall not
responsible for the loss, destruction or
deterioration of goods on account of the
defective condition of the car vehicle, ship,
airplane or other equipment used in the
contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible — and will
not be allowed to divest or to diminish such responsibility — even for acts of
strangers like thieves or robbers, except where such thieves or robbers in fact
acted "with grave or irresistible threat, violence or force." We believe and so
hold that the limits of the duty of extraordinary diligence in the vigilance over
the goods carried are reached where the goods are lost as a result of a robbery
which is attended by "grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private
respondent which carried petitioner's cargo. The record shows that an
information for robbery in band was filed in the Court of First Instance of Tarlac,
Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe
Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John
Doe." There, the accused were charged with willfully and unlawfully taking and
carrying away with them the second truck, driven by Manuel Estrada and
loaded with the 600 cartons of Liberty filled milk destined for delivery at
petitioner's store in Urdaneta, Pangasinan. The decision of the trial court
shows that the accused acted with grave, if not irresistible, threat, violence or
force.3 Three (3) of the five (5) hold-uppers were armed with firearms. The
robbers not only took away the truck and its cargo but also kidnapped the
driver and his helper, detaining them for several days and later releasing them
in another province (in Zambales). The hijacked truck was subsequently found
by the police in Quezon City. The Court of First Instance convicted all the
accused of robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must
reasonably be regarded as quite beyond the control of the common carrier and
properly regarded as a fortuitous event. It is necessary to recall that even
common carriers are not made absolute insurers against all risks of travel and
of transport of goods, and are not held liable for acts or events which cannot
be foreseen or are inevitable, provided that they shall have complied with the
rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that
private respondent Cendana is not liable for the value of the undelivered
merchandise which was lost because of an event entirely beyond private
respondent's control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and

the Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
G.R. No. 125948 December 29, 1998
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS
CITY and ADORACION C. ARELLANO, in her official capacity as City
Treasurer of Batangas, respondents.
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of
Appeals dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the
decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case
No. 4293, which dismissed petitioners' complaint for a business tax refund
imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387,
as amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 19671 and renewed by the Energy Regulatory
Board in 1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the
Office of the Mayor of Batangas City. However, before the mayor's permit
could be issued, the respondent City Treasurer required petitioner to pay a
local tax based on its gross receipts for the fiscal year 1993 pursuant to the
Local Government Code3. The respondent City Treasurer assessed a
business tax on the petitioner amounting to P956,076.04 payable in four
installments based on the gross receipts for products pumped at GPS-1 for
the fiscal year 1993 which amounted to P181,681,151.00. In order not to
hamper its operations, petitioner paid the tax under protest in the amount of
P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the
respondent City Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator
with a government concession granted under the Petroleum
Act. It is engaged in the business of transporting petroleum
products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is
exempt from paying tax on gross receipts under Section 133
of the Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the
enumeration of contractors under Section 131, Paragraph (h)
of the Local Government Code. Therefore, the authority to
impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on
transportation contractors.
The imposition and assessment cannot be categorized as a
mere fee authorized under Section 147 of the Local
Government Code. The said section limits the imposition of
fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for
the license fee, the imposition thereof based on gross receipts
is violative of the aforecited provision. The amount of
P956,076.04 (P239,019.01 per quarter) is not commensurate
to the cost of regulation, inspection and licensing. The fee is
already a revenue raising measure, and not a mere regulatory
imposition.4
On March 8, 1994, the respondent City Treasurer denied the protest
contending that petitioner cannot be considered engaged in transportation
business, thus it cannot claim exemption under Section 133 (j) of the Local
Government Code.5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas
City a complaint6 for tax refund with prayer for writ of preliminary injunction
against respondents City of Batangas and Adoracion Arellano in her capacity
as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the
imposition and collection of the business tax on its gross receipts violates
Section 133 of the Local Government Code; (2) the authority of cities to impose
and collect a tax on the gross receipts of "contractors and independent
contractors" under Sec. 141 (e) and 151 does not include the authority to
collect such taxes on transportation contractors for, as defined under Sec. 131
(h), the term "contractors" excludes transportation contractors; and, (3) the City
Treasurer illegally and erroneously imposed and collected the said tax, thus
meriting the immediate refund of the tax paid.7
Traversing the complaint, the respondents argued that petitioner cannot be
exempt from taxes under Section 133 (j) of the Local Government Code as
said exemption applies only to "transportation contractors and persons
engaged in the transportation by hire and common carriers by air, land and
water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks, trains,
ships and the like. Respondents further posit that the term "common carrier"
under the said code pertains to the mode or manner by which a product is
delivered to its destination.8
On October 3, 1994, the trial court rendered a decision dismissing the
complaint, ruling in this wise:
. . . Plaintiff is either a contractor or other independent
contractor.
. . . the exemption to tax claimed by the plaintiff has become
unclear. It is a rule that tax exemptions are to be strictly
construed against the taxpayer, taxes being the lifeblood of
the government. Exemption may therefore be granted only by
clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession
under Republic Act 387. (Exhibit A) whose concession was
lately renewed by the Energy Regulatory Board (Exhibit B).
Yet neither said law nor the deed of concession grant any tax
exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise
holders under Sec. 137 of the Local Tax Code. Such being
the situation obtained in this case (exemption being unclear
and equivocal) resort to distinctions or other considerations
may be of help:
1. That the exemption
granted under Sec. 133 (j)
encompasses only common
carriers so as not to
overburden the riding public
or commuters with
taxes. Plaintiff is not a
common carrier, but a
special carrier extending its
services and facilities to a
single specific or "special
customer" under a "special
contract."
2. The Local Tax Code of
1992 was basically enacted
to give more and effective
local autonomy to local
governments than the
previous enactments, to
make them economically
and financially viable to
serve the people and
discharge their functions
with a concomitant
obligation to accept certain
devolution of powers, . . . So,
consistent with this policy
even franchise grantees are
taxed (Sec. 137) and
contractors are also taxed
under Sec. 143 (e) and 151
of the Code.9
Petitioner assailed the aforesaid decision before this Court via a petition for
review. On February 27, 1995, we referred the case to the respondent Court
of Appeals for consideration and adjudication. 10 On November 29, 1995, the
respondent court rendered a decision 11 affirming the trial court's dismissal of
petitioner's complaint. Petitioner's motion for reconsideration was denied on
July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution
dated November 11, 1996. 13Petitioner moved for a reconsideration which was
granted by this Court in a Resolution 14 of January 22, 1997. Thus, the petition
was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1)
the petitioner is not a common carrier or a transportation contractor, and (2)
the exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to
the public as engaged in the business of transporting persons or property from
place to place, for compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in
the business of carrying
goods for others as a public
 employment, and must hold
himself out as ready to
engage in the transportation
of goods for person
generally as a business and
not as a casual occupation;
2. He must undertake to
carry goods of the kind to
which his business is
confined;
3. He must undertake to
carry by the method by
which his business is
conducted and over his
established roads; and
4. The transportation must
be for hire. 15
Based on the above definitions and requirements, there is no doubt that
petitioner is a common carrier. It is engaged in the business of transporting or
carrying goods, i.e. petroleum products, for hire as a public employment. It
undertakes to carry for all persons indifferently, that is, to all persons who
choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not exclude
it from the definition of a common carrier. In De Guzman vs. Court of
Appeals 16we ruled that:
The above article (Art. 1732, Civil Code)
makes no distinction between one whose
principal business activity is the carrying of
persons or goods or both, and one who does
such carrying only as an ancillary activity (in
local idiom, as a "sideline"). Article 1732 . . .
avoids making any distinction between a
person or enterprise offering transportation
service on a regular or scheduled basis and
one offering such service on an occasional,
episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier
offering its services to the "general
public," i.e., the general community or
population, and one who offers services or
solicits business only from a narrow segment
of the general population. We think that
Article 1877 deliberately refrained from
making such distinctions.
So understood, the concept of "common
carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public
service," under the Public Service Act
(Commonwealth Act No. 1416, as amended)
which at least partially supplements the law
on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the
Public Service Act, "public service" includes:
every person that now or
hereafter may own, operate.
manage, or control in the
Philippines, for hire or
compensation, with general
or limited clientele, whether
permanent, occasional or
accidental, and done for
general business purposes,
any common carrier,
railroad, street railway,
traction railway, subway
motor vehicle, either for
freight or passenger, or both,
with or without fixed route
and whatever may be its
classification, freight or
carrier service of any class,
express service, steamboat,
or steamship line, pontines,
ferries and water
craft, engaged in the
transportation
of passengers or freight or
both, shipyard, marine repair
shop, wharf or dock, ice
plant, ice-refrigeration plant,
canal, irrigation system gas,
electric light heat and power,
water supply andpower
petroleum, sewerage
 system, wire or wireless . . . since [petitioner] is a pipeline
communications systems, concessionaire that is engaged only in
wire or wireless transporting petroleum products, it is
broadcasting stations and considered a common carrier under Republic
other similar public services. Act No. 387 . . . . Such being the case, it is
(Emphasis Supplied) not subject to withholding tax prescribed by
Revenue Regulations No. 13-78, as
Also, respondent's argument that the term "common carrier" as used in amended.
Section 133 (j) of the Local Government Code refers only to common carriers
transporting goods and passengers through moving vehicles or vessels either From the foregoing disquisition, there is no doubt that petitioner is a "common
by land, sea or water, is erroneous. carrier" and, therefore, exempt from the business tax as provided for in Section
133 (j), of the Local Government Code, to wit:
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 Sec. 133. Common Limitations on the Taxing
is by land, water or air. It does not provide that the transportation of the Powers of Local Government Units. —
passengers or goods should be by motor vehicle. In fact, in the United States, Unless otherwise provided herein, the
oil pipe line operators are considered common carriers. 17 exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is extend to the levy of the following:
considered a "common carrier." Thus, Article 86 thereof provides that:
xxx xxx xxx
Art. 86. Pipe line concessionaire as common
carrier. — A pipe line shall have the (j) Taxes on
preferential right to utilize installations for the the gross
transportation of petroleum owned by him, receipts of
but is obligated to utilize the remaining transportati
transportation capacity pro rata for the on
transportation of such other petroleum as contractors
may be offered by others for transport, and to and
charge without discrimination such rates as persons
may have been approved by the Secretary of engaged in
Agriculture and Natural Resources. the
transportati
Republic Act 387 also regards petroleum operation as a public utility. Pertinent on of
portion of Article 7 thereof provides: passengers
or freight by
hire and
that everything relating to the exploration for
common
and exploitation of petroleum . . . and
everything relating to the manufacture, carriers by
refining, storage, or transportation by special air, land or
methods of petroleum, is hereby declared to water,
be a public utility. (Emphasis Supplied) except as
provided in
this Code.
The Bureau of Internal Revenue likewise considers the petitioner a "common
carrier." In BIR Ruling No. 069-83, it declared:
The deliberations conducted in the House of Representatives on the Local
Government Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to
page 95, line
1. It states: "SEC. 121 [now Sec. 131].
Common Limitations on the Taxing Powers of
Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
National Internal Revenue Code which is the
so-called "common carriers tax." We do not
want a duplication of this tax, so we just
provided for an exception under Section 125
[now Sec. 137] that a province may impose
this tax at a specific rate.
MR. AQUINO (A.). Thank you for that
clarification, Mr. Speaker. . . . 18
It is clear that the legislative intent in excluding from the taxing power of the
local government unit the imposition of business tax against common carriers
is to prevent a duplication of the so-called "common carrier's tax."

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?
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.

MR. JAVIER (E.). Mr. Speaker, there is an SO ORDERED.

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
G.R. No. 131621 September 28, 1999 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
LOADSTAR SHIPPING CO., INC., petitioner, deducted from MIC's claim from LOADSTAR.
vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., In its answer, LOADSTAR denied any liability for the loss of the shipper's
INC., respondents. 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,
DAVIDE, JR., C.J.: LOADSTAR being the party insured. In any event, PGAI was later dropped as
a party defendant after it paid the insurance proceeds to LOADSTAR.
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition
for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, As stated at the outset, the court a quo rendered judgment in favor of MIC,
seeks to reverse and set aside the following: (a) the 30 January 1997 prompting LOADSTAR to elevate the matter to the court of Appeals, which,
decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which affirmed however, agreed with the trial court and affirmed its decision in toto.
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 In dismissing LOADSTAR's appeal, the appellate court made the following
respondent Manila Insurance Co. (hereafter MIC) the amount of P6,067,178, observations:
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 1) LOADSTAR cannot be considered a
1997, 3 denying LOADSTAR's motion for reconsideration of said decision. private carrier on the sole ground that there
was a single shipper on that fateful voyage.
The facts are undisputed.1âwphi1.nêt The court noted that the charter of the vessel
was limited to the ship, but LOADSTAR
On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" retained control over its crew. 4
(hereafter, the vessel) the following goods for shipment:
2) As a common carrier, it is the Code of
a) 705 bales of lawanit hardwood; Commerce, not the Civil Code, which should
be applied in determining the rights and
liabilities of the parties.
b) 27 boxes and crates of tilewood assemblies and the others
;and
3) The vessel was not seaworthy because it
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized. was undermanned on the day of the voyage.
If it had been seaworthy, it could have
withstood the "natural and inevitable action of
The goods, amounting to P6,067,178, were insured for the same amount with the sea" on 20 November 1984, when the
MIC against various risks including "TOTAL LOSS BY TOTAL OF THE LOSS condition of the sea was moderate. The
THE VESSEL." The vessel, in turn, was insured by Prudential Guarantee & vessel sank, not because of force majeure,
Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its but because it was not seaworthy.
way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with LOADSTAR'S allegation that the sinking was
its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, probably due to the "convergence of the
the consignee made a claim with LOADSTAR which, however, ignored the winds," as stated by a PAGASA expert, was
same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of not duly proven at the trial. The "limited
its claim, and the latter executed a subrogation receipt therefor. liability" rule, therefore, is not applicable
considering that, in this case, there was an
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, actual finding of negligence on the part of the
alleging that the sinking of the vessel was due to the fault and negligence of 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 directly and intimately upon the
safety and well being and property of those members of the
general community who happen to deal with such carrier. The
law imposes duties and liabilities upon common carriers for
the safety and protection of those who utilize their services
and the law cannot allow a common carrier to render such
duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.
Moving on to the second assigned error, we find that the M/V "Cherokee" was
not seaworthy when it embarked on its voyage on 19 November 1984. The
vessel was not even sufficiently manned at the time. "For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of a common
carrier to maintain in seaworthy condition its vessel involved in a contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the Civil
Code." 16
Neither do we agree with 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. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy
vessel and in having allowed its vessel to sail despite knowledge of an
approaching typhoon. In any event, it did not sink because of any storm that
may be deemed as force majeure, inasmuch as the wind condition in the
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 Code nor the Code of Commerce
states a specific prescriptive period on the matter, the Carriage of Goods by
Sea Act (COGSA) — which provides for a one-year period of limitation on
claims for loss of, or damage to, cargoes sustained during transit — may be
applied suppletorily to the case at bar. This one-year prescriptive period also
applies to the insurer of the goods. 22In this case, the period for filing the action
for recovery has not yet elapsed. Moreover, a stipulation reducing the one-
year period is null and void; 23 it must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of

30 January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is
AFFIRMED. Costs against petitioner.1âwphi1.nêt

SO ORDERED.
STONER V. UNDERSETH, 277 P. 437 (MONT. 1929)
Montana Supreme Court
Filed: May 8th, 1929
Precedential Status: Precedential
Citations: 277 P. 437, 85 Mont. 11
Docket Number: No. 6,462.
Judges: MR. JUSTICE MATTHEWS delivered the opinion of the court.
Defendants have appealed from a judgment in favor of plaintiff, holder of a
permit or certificate from the Montana Railroad Commission authorizing him to
furnish freight and passenger service, by motor transportation, between
Helena and Lincoln, in Lewis and Clark county, this state, which judgment
purports perpetually to enjoin the defendants from operating motor vehicles in
intrastate commerce over the route served by plaintiff.
The route described in the record is along the public highway from Helena
through the agricultural centers of Silver, Canyon Creek, Wilborn and Stemple
to Lincoln, a distance of fifty-two miles, with a side trip from Wilborn to the
mining camp of Gould, five miles off of the route described in the plaintiff's
permit. While Gould is not mentioned in the permit, the pleadings allege and
admit that plaintiff's privilege includes a connection to Gould and the record
discloses that the Railroad Commission has recognized this connection by the
approval of time schedules and freight and passenger rates to and from Gould
as well as all other points on the route.
Plaintiff listed with the commission but one vehicle constructed for the carriage
of freight and passengers, which he *Page 15 operates between Helena and
Lincoln, and operates a second truck from Gould to connect with the main
route, but the permit for the first truck mentioned recites that "in case other or
additional equipment is used, you will be governed by Rule 6, page 7, of the
Rules and Regulations." We are not advised by record as to the nature of this
"rule"; however, it is alleged and admitted, and the testimony is, that plaintiff
had made all necessary payments to, and complied with all of the rules and
regulation of, the commission.
Approaching both Lincoln and Gould the highway crosses the main divide at
an altitude of approximately 6,600 feet and, during the winter months, for at
least a part of the time, this part of the route becomes impassable to motor
vehicles and plaintiff is compelled to substitute horse-drawn vehicles. Plaintiff's
time schedule over the route, approved by the commission, includes Gould
and gives the time of leaving each point on the route; it recites: "June 1 to
October 31st, Daily Round Trip; October 31 — June 1st, Daily one way. Winter
schedule cannot be shown exactly on account of road conditions." The record,
however, shows that plaintiff ran as near on schedule time in the winter months
as conditions permitted. The territory served by plaintiff is sparsely settled and
it is clear from the record that it will not support more than one carrier operating
for profit.
Plaintiff has been the permittee since August, 1926, prior to which time
defendant Theodore Underseth operated the Helena-Lincoln stage line, but
refused to comply with the law regulating such business (Chap. 154, Laws of
1923, as amended by Chap. 103, Laws of 1925), on the ground that his
business would not justify the payment of the fees and insurance charges
required, amounting to over $300 a year. The permit under which plaintiff
operated during the period covered by this action was issued in April, 1928,
effective for one year from date.
Plaintiff's grounds for injunctive relief, as alleged in his complaint, are that the
defendants, from April 15, 1928, up to the time of the commencement of the
action in August, *Page 16 1928, operated four motor-trucks, without license
or permit, over his route, as common carriers for hire and in the same manner
as he operated and served the same portion of the public and the same points,
soliciting business and exacting compensation for service; and that this was
done first "by subterfuge and artifice" and later "openly and notoriously."
Defendants filed a joint answer in which they deny that they have "by
subterfuge or otherwise" operated "as common carriers for hire" over the route,
or have "infringed plaintiff's business as a common carrier * * * or have solicited
the carriage of freight or passengers in competition with plaintiff." Reuben
Underseth alleges that he has no interest in the motor-trucks operated by his
two brothers. Theodore Underseth alleges that, prior to 1926 he secured an
"oral permit" from the Railroad Commission to operate between Helena and
Gould, which permit has never been revoked. Theodore and Carl Underseth
then "admit the operation of motor-trucks in the fulfillment of private contractual
obligations of your defendant, Theodore Underseth," and deny that they have
transported any person or article other than in fulfillment of such obligations.
In closing, the defendants "deny that plaintiff is entitled to the relief, or any part
thereof, in said complaint demanded, and pray the same advantage of this
answer as if they had pleaded or demurred to said complaint."
After a full hearing the court made elaborate findings of fact and conclusions
of law in favor of plaintiff; the findings with reference to the acts of defendants
follow the wording of the complaint summarized above. Defendants'
specifications of error argued cover but the questions herein discussed.
On perfecting their appeal, without tendering a transcript of the evidence for
consideration, defendants filed in this court an application for a stay of the
injunction, in which they represented that the New Gould Mining Company, at
Gould, in its operation required the hauling of heavy machinery, timber,
lumber, high explosives and supplies, for which hauling plaintiff was not
equipped; that there was no doctor at Gould *Page 17 and an emergency
might arise at any time requiring the immediate transportation of men injured
or ill to Helena, and that defendant Theodore Underseth had a contract with
the mining company to do this hauling. We called the attention of counsel for
the plaintiff to this application and he frankly admitted that the commission has
no authority over private carriers and that the decree here affects defendants
only as common carriers; conceded that the injunction should not extend to
the hauling of freight or passengers under contract with the New Gould Mining
Company and agreed that the court might provide for such transportation, and
none other, pending the appeal. This court thereupon issued its order staying
the injunction pending appeal, in so far as it purports to interfere with the
defendants' operations as private carriers pursuant to contract with the mining
company and permitting the carriage of freight and passengers under such
contract, but provided therein that the order should not be construed to permit
the defendants to transport property or passengers for others than the mining
company. A bond of $1,000 was required from the defendants, conditioned
that defendants would pay all damages which plaintiff should suffer by reason
of the stay. The questions raised by defendants will be treated in their logical
order.
1. It is asserted that Chapter 154, Laws of 1923, provides for[1] the
administration of the Act by the Railroad Commission and that courts should
not be resorted to for this purpose, at least until the matter in controversy has
been "thrashed out" before the board; in other words, that an injunction will not
lie in such a case as this.
While "it is within the province of the board of railroad commissioners to whom
the legislature has delegated authority to administer the Act" (Interstate Transit
Co. v. Derr, 71 Mont. 222,228 P. 624), no adequate provision is made in the
Act for meeting such a situation as faced plaintiff by an appeal to the board for
relief. The board may refuse a permit to a person desiring to compete with a
regularly licensed *Page 18 transportation company, but it cannot prevent
illegal competition and the Act (sec. 8) but provides that a violation of the Act
or of the regulations of the board constitutes a misdemeanor. Prosecution
under this section is not such plain, speedy and adequate remedy as to deprive
a court of equity of jurisdiction to grant injunctive relief; injunction will,
therefore, lie at the instance of one entitled to operate a transportation line for
hire between fixed termini, to prevent a competitor operating without a license
from conducting the same business over the same route. (Willis v. Buck, 81
Mont. 472, 263 P. 982; NorthernPacific Ry. Co. v. Bennett, 83 Mont. 483, 272
P. 987.)
2. Counsel for defendants assert that the Act under consideration does not
apply to private carriers and that the defendants are private and not "common"
carriers. Conceding the correctness of the first statement, it has no application
here, if, in fact, regardless of their statement to the effect that they never
intended to dedicate their equipment to the public, the defendants are common
carriers.
The allegation that defendants were operating under an "oral permit" which
had never been revoked is not sustained by the evidence. It appears that
Theodore Underseth had a mail contract in the fall of 1924 and was then
operating as a common carrier as well; he wrote the commission stating that
he could not comply with the law and pay for the insurance required, and
closed his letter with the inquiry: "Can you grant me an exemption from the law
until June 30, 1926, at which time my contract expires?" He[2]asserts that
thereafter the "chairman of the board" in private conversation granted him the
oral permit. The record discloses that no action was ever taken by the board.
The chairman of the board, as such, has no authority apart from the board and
his utterances, made without notice to or ratification by the board as a whole,
would be wholly ineffective. (State exrel. Boyle v. Hall, 53 Mont. 595, 165 P.
757.) Moreover, if the commission has power to grant an oral exemption and
one was granted, its limit was fixed by the defendant and while *Page 19 on
the stand Theodore Underseth did not contend that he was operating under
oral permit, but testified that he ceased operating as a common carrier in 1926
and has done nothing but "contract work" since.
It may be true that all of defendants' hauling was done under[3, 4] special
contract, but, even if so, the fact would not necessarily place them in the
category of private carriers; every time you secure a bill of lading or purchase
a ticket entitling you to ride on a stage-coach or railroad train, you enter into a
contract for transportation; the obligation to carry you or your goods is a
contractual obligation.
No one will contend that a mine operator or a farmer is required to comply with
the Act in question in order to carry his ore or produce to market over the public
highway, and if he hires another to do this for him, his agent or employee
likewise cannot be compelled, by reason of such contract, to comply with the
provisions of the Act and thus dedicate his equipment to the public. A special
undertaking for one man or a definite number does not render a person a
common carrier (State v. Nelson,65 Utah, 457, 42 A.L.R. 849, 238 P.
237; Fish v. Chapman,2 Ga. 349, 46 Am. Dec. 393), nor does a general hiring
for a single purpose (Big Bend Auto Freight v. Ogers, 148 Wash. 521,269 P.
802; Purple Truck Co. v. Campbell, 119 Or. 484, 51 A.L.R. 816, 250 P.
213; Michigan Public Utilities Commission v. Duke, 266 U.S. 570, 69 L. Ed.
445, 45 Sup. Ct. Rep. 191, 36 A.L.R. 1105), and such private carrier might, on
occasion, accommodate outsiders in an emergency and accept compensation
therefor without acquiring the character of a common carrier; the question of
the good faith of the carrier in such a case is controlling. (Big Bend Auto
Freight v. Ogers, above.)
The class to which a carrier is to be assigned depends upon the nature of his
business, the character in which he holds himself out to the public, the terms
of his contract, and his relations generally to the parties with whom he deals
and the public. "A private carrier is one who agrees, by special agreement or
contract, to transport persons or property from *Page 20 one place to another,
either gratuitously or for hire; one who undertakes for the transportation in a
particular instance only, not making it a vocation, not holding himself out to the
public ready to act for all who desire his services." "Common carriers, however,
hold themselves out to carry for all persons indiscriminately." (1 Moore on
Carriers, secs. 1-4.)
Holding oneself out to the public does not necessarily consist in public
declarations or advertisement; the undertaking may be evidenced by the
carrier's own notice or, practically, by a series of acts, by his known habitual
continuance in the line of business; one who follows carrying for a livelihood
or who gives out to the world in any intelligible way that he will take goods,
chattels or persons for transportation for hire, is a common carrier
(Fish v. Chapman, above; Varble v. Bigley, 14 Bush (Ky.), 698, 29 Am. Rep.
435); and this is so although the carrier has no fixed schedule of charges, does
not operate over a definite route, does not always load his vehicle to capacity
and refuses, on occasion, to accept freight or passengers whether his vehicle
is engaged or not. (Cushing v. White, 101 Wash. 172, L.R.A. 1918F, 463, 172
P. 229.)
In determining whether a business is that of common carrier, "the important
thing is what it does, not what its charter says" (Terminal Taxicab
Co. v. Kutz, 241 U.S. 252, 60 L. Ed. 984,36 Sup. Ct. Rep. 583, Ann. Cas.
1916D, 765), and owners of vehicles "should not too readily be permitted to
enter into contracts, or adopt measures, which will enable them to readily
evade the letter or the spirit of the statutes intended to govern them."
(Goldsworthy v. Public Service Commission, 141 Md. 674,119 A. 693.)
A common carrier cannot, by making contracts for future transportation,
prevent or postpone the exertion by the state of the power to regulate it.
(Producers' Transportation Co. v.Railroad Commission, 251 U.S. 228, 64 L.
Ed. 239, 40 Sup. Ct. Rep. 131.)
The regulation of motor transportation for the protection of the public is a
legitimate and wise exercise of the police *Page 21 power of the state, and
courts generally have not been inclined to excuse the increasing number who
earn their livelihood by the use of the public highways for the transportation of
persons and property for hire, from the responsibilities of common carriers on
merely technical grounds, and they are particularly slow to excuse them when
the plan of operation bears evidence of a studied attempt to reap the rewards
of common carriers without incurring the corresponding liabilities.
(Restivo v. PublicService Commission, 149 Md. 30, 129 A.
884; Craig v. PublicUtilities Commission, 115 Ohio St. 512, 154 N.E.
795; Davis v.People ex rel. Public Utilities Commission, 79 Colo. 642,247 P.
801; Sanger v. Lukins, 24 F.2d 226.)
In the case at bar the evidence fully warrants the court's[5] findings to the
effect that defendants have regularly covered the route described in plaintiff's
permit for the purpose of obtaining freight and passengers for transportation
for hire as a business and have so timed their trips as to secure the business
in advance of plaintiff's scheduled trips; this being established as a fact, it is
immaterial that their major activities and the reasons for their maintaining
motor-trucks at Gould and over the route mentioned, were a mail contract and
employment by the New Gould Mining Company to stand in readiness to meet
any emergency that might arise at the mines and to haul heavy machinery and
high explosives, for which work plaintiff was not equipped. If these major
activities constitute operations as a private carrier, not subject to regulation by
the commission, still, when, on trips made for the mining company, or
otherwise, defendants transported passengers at the expense of those
carried, whether they were employees of the company or not, or transported
property of individuals for hire, not as an isolated transaction for the
accommodation of the individual, but generally as a means of livelihood, their
activities constituted operations as a common carrier and this is likewise the
effect of calling for and transporting all shipments received at Silver Station for
the mining company under written direction to the railway company, *Page
22 given by the manager of the mining company, to deliver freight "to anybody
who calls for it."
Defendants attempted to justify their activities on the ground[6] that the plaintiff
was not furnishing adequate service, although admitting by answer that he
was; but if he was not, such fact would not justify defendants in entering into
competition with him without a license to do so, but was merely the subject for
a complaint to the commission as a basis for an order compelling plaintiff to
furnish adequate service, or for the revocation of his license, or the granting of
a license to another to compete with him.
On the evidence adduced, the finding that the defendants were common
carriers is fully justified.
3. With respect to the regulation of common carriers, the[7] constitutionality of
the Act in question, attacked under the "due process" provision of the
Constitution, is no longer debatable. (Northern Pacific Ry. Co. v. Bennett,
above;Willis v. Buck, above; State v. Johnson, 75 Mont. 240,243 P. 1073.)
4. Counsel for defendants urge that the statute and the[8] regulations of the
commission made thereunder do not apply to persons in rural communities
who, only in isolated instances, carry passengers or freight for hire. The
correctness of this statement of the law is granted. (State v. Flagg, 75 Mont.
424,242 P. 1023.)
Subdivision (e) of section 1 of the Act under consideration provides that "the
Railroad Commissioners may exempt from the operation of this Act the
transportation of freight or passengers by motor vehicle in rural communities
when not done on a commercial basis," which is, perhaps, a broader
exemption than that urged by counsel, and we have held that this exemption
is a matter of right, construing the provision as though it read "must exempt"
(State v. Johnson, above), but this exemption applies only when the
transporting is "not done on a commercial basis," and, therefore, neither the
exemption nor the rule as to "isolated instances" aids the defendants *Page
23 who were shown to be transporting freight and passengers for hire "on a
commercial basis" for the purpose of making a livelihood and, in fact, were
conducting a profitable business.
5. It is contended that the Railroad Commission has no[9] jurisdiction over
stage lines operated by horse-power or where schedules and regular service
are observed but a part of the year.
As to the first, the record discloses that it is necessary to use horses and
sleighs over the continental divide for an indefinite period during each winter,
but the remainder of the route is, during that period, served by plaintiff's auto-
trucks, and that defendants operate in the same manner. While the
commission could not regulate service by horse-drawn vehicles under this Act,
it cannot affect the operation of either plaintiff or defendants over the whole
route during a part of the year, or over the part of the route served by motor-
trucks during the whole of the year and the mere fact that a part of the route
cannot be covered by motor transportation for a part of the year cannot under
any reasonable construction of the Act, oust the commission from jurisdiction
to regulate transportation by motor vehicles over the route in so far as such
transportation can be maintained. Nor does such a break in motor
transportation change the character of the carrier from that of a common or
public carrier to that of a private carrier. "One who follows carrying for a
livelihood or who gives out to the world in an intelligible way that he will take
goods or other things for transportation from place to place, whether for a year,
a season, or less time, is a common carrier." (Fish v. Chapman, above.)
As to the schedules filed with the commission, the only difference between
plaintiff's service during the summer and winter is that he agrees to make daily
round trips from June 1 to November 1, and but one-way trips the remainder
of the year, and that "the winter schedule cannot be shown exactly on account
of road conditions." In other words, the *Page 24 plaintiff adheres to the
schedule as nearly as possible at all times. The law never requires
impossibilities (sec. 8760, Rev. Codes 1921), and plaintiff has agreed to do,
and has done, all that could be required of him by the commission and by the
public.
6. Defendants contend that the court's conclusion of law numbered one is
erroneous in stating that the "defendants have no[10] right to * * * operate
motor vehicles in intrastate commerce over" plaintiff's route "as common
carriers for hire, or otherwise," as, if defendants operate "otherwise" than as
common carriers, they do not come within the requirements of the statute. If
counsel correctly construe this conclusion, it is erroneous; but if the meaning
is that defendants may not operate as common carriers in the manner stated
"for hire or otherwise," the conclusion correctly states the law. The proper
construction of the sentence is, however, of no importance since the phrase to
which exception is taken is not carried forward into the judgment and
injunction.
7. Counsel for defendants assert that "an injunction `perpetually and forever'
enjoining and restraining defendants cannot issue, for the reason that plaintiff's
right granted by plaintiff's certificate was temporary and expires within a year
of the date of issuance, to wit, on April 1, 1929."
Counsel do not argue the question raised to any extent, but under this head
say that the injunction is violative of the Fourteenth Amendment to the
Constitution of the United States, in that it takes defendants' property without
due process of law. We have already disposed of the question raised.
However, the injunction is too broad, as worded. It is perpetual in so far as the
issues determined are concerned, i.e., it was proper to "forever" enjoin
defendants from operating as common carriers, without a license, in
competition with plaintiff operating under a valid license, but, it was not proper
to make the injunction perpetual under any and all circumstances; changed
conditions might render the defendants not subject to injunction. For example,
while plaintiff's permit *Page 25 is exclusive as to these defendants under the
conditions shown in the record, section 4 of the Act declares that a permit
issued "shall not be an exclusive right or license to operate over any route * *
*"; on a proper showing made under the provisions of section 4 of the Act the
Railroad Commission might, at any time, after the issuance of the injunction,
grant to the defendants a permit to operate over the route described; the
injunction should not prohibit defendants from operating under such
conditions; yet it does.
Again, while a court of equity may enjoin the commission of[11, 12] criminal
acts when such acts would result in irreparable injury to property rights, public
or private, or the creation or continuance of a public nuisance (32 C.J. 277),
such a court has no jurisdiction to enjoin the commission of a crime, merely as
a crime, and thus substitute contempt proceedings for a constitutional trial by
jury as a means of punishing future violations of a prohibitory statute (State ex
rel. Stewart v.District Court, 77 Mont. 361, 49 A.L.R. 627, 251 P. 137). In the
absence of the infringement of the rights of another, the legal remedy for the
vindication of Chapter 154, Laws of 1923, is found in the Act itself, wherein
any violation of its provisions, or the rules and regulations of the board lawfully
established thereunder, is made a misdemeanor punishable by a fine of not
less than fifty nor more than one thousand dollars (sec. 9), and this remedy is
deemed fully adequate and peculiarly appropriate. (21 C.J. 155.)
The injunction prohibits defendants from violating the provisions of the Act or
the rules and regulations of the commission at any time in the future and on
any route, whether in competition with plaintiff or otherwise, and this exceeds
the jurisdiction of the court.
8. Defendants complain that the injunction is too broad in[13] that it prohibits
them from discharging their contractual obligations as a private carrier. In this
they are mistaken; the order merely restrains defendants from "operating
motor vehicles" over the route described "in intrastate commerce" *Page 26in
"receiving, carrying or discharging" freight, express, passengers or baggage
to or from the points mentioned, over the highways extending between the
termini, and "from violating or attempting to violate the provisions of Chapter
154, Laws of 1923." "Commerce," as the term is used in this connection,
means "business intercourse" (Webster); commercial intercourse on a
business basis (United States v. Patterson, 55 Fed. 605), including the
transportation of passengers and property bycommon carrier (In re Second
Employers' Liability Case,223 U.S. 1, 56 L. Ed. 327, 32 Sup. Ct. Rep. 169, 38
L.R.A. (n.s.) 44;Welton v. Missouri, 91 U.S. 275, 23 L. Ed
347; CorporationCommission v. Cannon Mfg. Co., 185 N.C. 17, 116 S.E.
178). "Transportation is essential to commerce, or, rather, it is commerce
itself." (Justice Strong in Hannibal St. Jo. R.R.Co. v. Husen, 95 U.S. 470, 24
L. Ed. 527.)
In the order made, defendants are but enjoined from carrying on the business
of transporting passengers and property over a definite route within the state
"in intrastate commerce," ergo: as a common carrier.
For the reasons stated, the cause is remanded to the district court of Lewis
and Clark county with direction to modify the judgment by striking from the
injunctive portion thereof the final clause reading "and from in any manner
violating or attempting to violate the provisions of Chapter 154, Laws of 1923,
of the State of Montana, as amended, and the rules and regulations of the
Board of Railroad Commissioners of the State of Montana lawfully established
pursuant thereto," and by substituting therefor: "while the plaintiff is the holder
of a valid permit to operate over such route and the defendants are not," and
as modified the judgment will be affirmed.
G.R. No. L-28865 December 19, 1928
BATANGAS TRANSPORTATION CO., petitioner-appellant,
vs.
CAYETANO ORLANES, respondent-appellee.
L. D. Lockwood and C. de G. Alvear for appellant.
Paredes, Buencamino and Yulo and Menandro Quiogue for appellee.
STATEMENT
In his application for a permit, the appellee Orlanes alleges that he is the holder
of a certificate of public convenience issued by the Public Service Commission
in case No. 7306, to operate an autobus line from Taal to Lucena, passing
through Batangas, Bolbok and Bantilan, in the Province of Batangas, and
Candelaria and Sariaya, in the Province of Tayabas, without any fixed
schedule; that by reason of the requirements of public convenience, he has
applied for a fixed schedule from Bantilan to Lucena and return; that in case
No. 7306, he cannot accept passengers or cargo from Taal to any point before
Balbok, and vice versa; that the public convenience requires that he be
converted into what is known as a regular operator on a fixed schedule
between Taal and Bantilan and intermediate points, and for that purpose, he
has submitted to the Commission proposed schedule for a license to make
trips between those and intermediate points. He then alleges that by reason of
increase of traffic, the public convenience also requires that he be permitted
to accept passengers and cargo at points between Taal and Bantilan, and he
asked for authority to establish that schedule, and to accept passengers at all
points between Taal and Bantilan.
To this petition the Batangas Transportation Company appeared and filed an
application for a permit, in which it alleged that it is operating a regular service
of auto trucks between the principal municipalities of the Province of Batangas
and some of those of the Province of Tayabas; that since 1918, it has been
operating a regular service between Taal and Rosario, and that in 1920, its
service was extended to the municipality of San Juan de Bolbok, with a
certificate of public convenience issued by the Public Servise Commission;
that in the year 1925 Orlanes obtained from the Commission a certificate of
public convenience to operate an irregular service of auto trucks between Taal,
Province of Batangas, and Lucena, Province of Tayabas, passing through the
municipalities of Bauan, Batangas, Ibaan, Rosario, and San Juan de Bolbok,
with the express limitation that he could not accept passengers from
intermediate points between Taal and Bolbok, except those which were going
to points beyond San Juan de Bolbok or to the Province of Tayabas; that he
inaugurated this irregular in March, 1926, but maintained it on that part of the
line between Taal and Bantilan only for about three months, when he
abandoned that portion of it in the month of June and did not renew it until five
days before the hearing of case No. 10301, which was set for November 24,
1926, in which hearing the Batangas Transportation Company asked for
additional hours for its line between Batangas and Bantilan; that in June, 1926,
Orlanes sought to obtain a license as a regular operator on that portion of the
line between Bantilan and Lucena without having asked for a permit for tat
portion of the line between Bantilan and Taal; that from June, 1926, Orlanes
and the Batangas Transportation Company were jointly operating a regular
service between Bantilan and Lucena, with trips every half an hour, and
Orlanes not having asked for a regular service between Bantilan and Taal, the
Batangas Transportation Company remedied this lack of service under the
authority of the Commission, and increased its trips between Bantilan and
Tayabas to make due and timely connections in Bantilan on a half-hour service
between Bantilan and Batangas with connections there for Taal and all other
points in the Province of Batangas. It is then alleged that the service
maintained by the company is sufficient to satisafy the convenience of the
public, and that the public convenience does not require the granting of the
permit for the service which Orlanes petitions, and that to do so would result
in ruinous competition and to the grave prejudice of the company and without
any benefit to the public, and it prayed that the petition of Orlanes to operate
a regular service be denied.
After the evidence was taken upon such issues, the Public Service
Commission granted the petition of Orlanes, as prayed for, and the company
then filed a motion for a rehearing, which was denied, and the case is now
before this court, in which the appellant assigns the following errors:
The Commission erred in ordering that a certificate of public
convenience be issued in favor of Cayetano Orlanes to operate the
proposed service without finding and declaring that the public interest
will be prompted in a proper and suitable by the operation of such
service, or when the evidence does not show that the public interests
will be so prompted.
That the Commission erred in denying the motion for a rehearing.
JOHNS, J.:
The questions presented involve a legal construction of the powers and duties
of the Public Service Commission, and the purpose and intent for which it was
created, and the legal rights and privileges of a public utility operating under a
prior license.
It must be conceded that an autobus line is a public utility, and that in all things
and respects, it is what is legally known as a common carrier, and that it is an
important factor in the business conditions of the Islands, which is daily
branching out and growing very fast.
Before such a business can be operated, it must apply for, and obtain, a
license or permit from the Public Service Commission, and comply with certain
defined terms and conditions, and when license is once, granted, the operator
must conform to, and comply with all, reasonable rules and regulations of the
Public Service Commission. The object and purpose of such a commission,
among other things, is to look out for, and protect, the interests of the public,
and, in the instant case, to provide it with safe and suitable means of travel
over the highways in question, in like manner that a railroad would be operated
under like terms and conditions. To all intents and purposes, the operation of
an autobus line is very similar to that of a railroad, and a license for its
operation should be granted or refused on like terms and conditions. For many
and different reasons, it has never been the policy of a public service
commission to grant a license for the operation of a new line of railroad which
parallels and covers the same field and territory of another old established line,
for the simple reason that it would result in ruinous competition between the
two lines, and would not be of any benefit or convenience to the public.
The Public Service Commission has ample power and authority to make any
and all reasonable rules and regulations for the operation of any public utility
and to enforce complience with them, and for failure of such utility to comply
with, or conform to, such reasonable rules and regulations, the Commission
has power to revoke the license for its operation. It also has ample power to
specify and define what is a reasonable compensation for the services
rendered to the traveling public.
That is to say, the Public Service Commission, as such has the power to
specify and define the terms and conditions upon which the public utility shall
be operated, and to make reasonable rules and regulations for its operation
and the compensation which the utility shall receive for its services to the
public, and for any failure to comply with such rules and regulations or the
violation of any of the terms and conditions for which the license was granted
the Commission has ample power to enforce the provisions of the license or
even to revoke it, for any failure or neglect to comply with any of its terms and
provisions.
Hence, and for such reasons, the fact that the Commission has previously
granted a license to any person to operate a bus line over a given highway
and refuses to grant a similar license to another person over the same
highway, does not in the least create a monopoly in the person of the licensee,
for the reason that at all times the Public Service Commission has the power
to say what is a reasonable compensation to the utility, and to make
reasonable rules and regulations for the convenience of the traveling public
and to enforce them.
In the instant case, Orlanes seek to have a certificate of public convenience to
operate a line of auto trucks with fixed times of departure between Taal and
Bantilan, in the municipality of Bolbok, Province of Batangas, with the right to
receive passengers and freight from intermediate points. The evidence is
conclusive that at the time of his application, Orlanes was what is known as an
irregular operator between Bantilan and Taal, and that the Batangas operator
between Batangas and Rosario. Orlanes now seeks to have his irregular
changed into a regular one, fixed hours of departure and arrival between
Bantilan and Taal, and to set aside and nullify the prohibition against him in his
certificate of public convenience, in substance and to the effect that he shall
not have or receive any passengers or freight at any of the points served by
the Batangas Transportation Company for which that company holds a prior
license from the Commission. His petition to become such a regular operator
over such conflicting routes is largely based upon the fact that, to comply with
the growing demands of the public, the Batangas Transportation Company, in
case No. 10301, applied to the Commission for a permit to increase the
number of trip hours at and between the same places from Batangas to
Rosario, and or for an order that all irregular operators be prohibited from
operating their respective licenses, unless they should observe the interval of
two hours before, or one hour after, the regular hours of the Batangas
Transportation Company.
In his petition Orlanes sought to be releived from his prohibition to become a
regular operator, and for a license to become a regular operator with a
permission to make three trips daily between Bantilan and Taal, the granting
of which make him a regular operator between those points and bring him in
direct conflict and competition over the same points with the Batangas
Transportation Company under its prior license, and in legal effect that was
the order which the Commission made, of which the Batangas Transportation
Company now complains.
The appellant squarely plants its case on the proposition:
Is a certificate of public convenience going to be issued to a second
operator to operate a public utility in a field where, and in competition
with, a first operator who is already operating, adequate and
satisfactory service?
There is no claim or pretense that the Batangas Transportation Company has
violated any of the terms and conditions of its license. Neiher does the Public
Service Commission find as a fact that the grantring of a license to Orlanes as
a regular operator between the points in question is required or necessary for
the convenience of the traveling public, or that there is any complaint or
criticism by the public of the services rendered by the Batangas Transportation
Company over the route in question.
The law creating the Public service Commission of the Philippine Islands is
known as Act No. 3108, as amended by Act No. 3316, and under it the
supervision and control of public utilities is very broad and comprehensive.
Section 15 of Act No. 3108 provides that the Commission shall have power,
after hearing, upon notice, by order in writing to require every public utility:
(a) To comply with the laws of the Philippine Islands;
(b) To furnish safe, adequate, and proper service as regards the manner of
furnishing the same as well as the maintenance of the necessary material
equipment, etc;
(c) To establish, construct, maintain, and operate any reasonable extention of
its existing facilities, where such extension is reasonable and practicable and
will furnish sufficient business to justify the construction and maintenance of
the same;
(d) To keep a uniform system of books, records and accounts;
(e) To make specific answer with regard to any point on which the Commission
requires information, and to furnish annual reports of finance and operations;
(f) To carry, whenever the Commission may require, a proper and adequate
depreciation account;
(g) To notify the Commission of all accidents;
(h) That when any public utility purposes to increase or reduce any existing
individual rates, it shall give the Commission written notice thirty days prior to
the proposed change; and
(i) "No public utility as herein defind shall operate in the Philippine Islands
without having first secured from the Commission a certificate, which shall be
known as Certificate of Public Convenience, to the effect that the operation of
said public utility and the authorization to do busibness wikll promote the public
interest in a proper and suitable maner."
Section 16 specially prohibits any discrimination in the handling of freight
charges.
In construing a similar law of the State of Kansas, the United States Supreme
Court, in an opinion written by Chief Justice Taft, in Wichita Railroad and Light
Co. vs. Public Utilities Commission of Kansas (260 U. S. 48; 67 Law. ed., 124),
said:
The proceeding we are considering is governed by section 13. That is
the general section of the act comprehensively describing the duty of
the Commission, vesting it with power to fix and order substituted new
rates for existing rates. The power is expressly made to depend on the
condition that, after full hearing and investigation, the Commission
shall find existing rates to be unjust, unreasonable, unjustly
discriminatory, or unduly preferential. We conclude that a valid order
of the Commission under the act must contain a finding of fact after
hearing and investigation, upon which the order is founded, and that,
for lack of such a finding, the order in this case was void.
This conclusion accords with the construction put upon similar statutes
in other states. (State Public Utilities Commission ex rel. Springfield
vs. Springfield Gas and E. Co., 291 Ill., 209; P. U. R., 1920C, 640; 125
N. E. 891; State Public Utilities Co. vs. Baltimore and O. S. W. R. Co.,
281 Ill; 405; P. U. R., 1918B, 655; 118 N. E., 81.) Moreover, it accords
with general principles of constitutional government. The maxim that
a legislature may not delegate legislative power has some
qualifications, as in the creation of municipalities, and also in the
creation of administrative boards to apply to the myriad details of rate
schedule the regulatory police power of the state. The latter
qualification is made necessary in order that the legislative power may
be effectively exercised. In creating such an administrative agency,
the legislature, to prevent its being a pure delegation of legislative
power, must enjoin upon a certain course of procedure and certain
rules of decision in the perfomance of its function. It is a wholesome
and necessary principle that such an agency must pursue the
procedure and rules enjoined, and show a substantial compliance
therewith, to give validity to its action. When, therefore, such an
administrative agency is required, as a condition precedent to an
order, to make a finding of facts, the validity of the order rest upon the
needed finding. It is lacking, the order is ineffective.
It is pressed on us that the lack of an express finding may be supplied
by implication and by reference to the averments of the petition
invoking the action of the Commission. We cannot agree to this point.
It is doubtful whether the facts averred in the petition were sufficient to
justify a finding that the contract rates were unreasonably low; but we
do not find it necessay to answer this question. We rest our decision
on the principle that an express finding of unreasonableness by the
Commission was indispensable under the statutes of the state.
That is to say, in legal effect, that the power of the Commission to issue a
certificate of public convenience depends on the condition precedent that, after
a full hearing and investigation, the Commission shall have found as a fact that
the operation of the proposed public service and its authority to do business
must be based upon the finding that it is for the convenience of the public.
In the Philippine Islands the cetificate of public convenience is as folows:
CERTIFICATE OF PUBLIC CONVENIENCE
To whom it may concern:
THIS IS TO CERTIFY, That in pursuance of the power and authority
conferred upon it by subsection (i) of section 15 of Act No. 3108 of the
Philippine Legislature,
THE PUBLIC SERVICE COMMISSION OF THE PHILIPPINE
ISLANDS, after having duly considered the application of .................
for a certificate of public convenience the operation of ........................
in connection with the evidence submitted in support thereof, has
rendered its decision on................, 192...., in case No. ............,
declaring that the operation by the applicant ...................... of the
business above described will promote the public interests in a proper
and suitable manner, and granting................. to this effect the
corresponding authority, subject to the conditions prescribed in said
decision.
Given at Manila Philippine Islands, this ......... day of ....................., 192
.....
PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS
By..................................
Commissioner
Attested:
.....................................
Secretary
That is to say, that the certificate of public convenince granted to Orlanes in
the instant case expressly recites that it "will promote the public interests in a
proper and suitable manner." Yet no such finding of fact was made by the
Commission.
In the instant case, the evidence is conclusive that the Batangas
Transportation Company operated its line five years before Orlanes ever
turned a wheel, yet the legal effect of the decision of the Public Service
Commission is to give an irregular operator, who was the last in the field, a
preferential right over a regular operator, who was the first in the field. That is
not the law, and there is no legal principle upon which it can be sustained.
So long as the first licensee keeps and performs the terms and conditions of
its license and complies with the reasonable rules and regulations of the
Commission and meets the reasonable demands of the public, it should have
more or less of a vested and preferential right over a person who seeks to
acquire another and a later license over the same route. Otherwise, the first
license would not have protection on his investment, and would be subject to
ruinous competition and thus defeat the very purpose and intent for which the
Public Service Commission was created.
It does not appear that the public has ever made any complaint the Batangas
Transportation Company, yet on its own volition and to meet the increase of
its business, it has applied to the Public Service Commission for authority to
increase the number of daily trips to nineteen, thus showing a spirit that ought
to be commended.
Such is the rule laid down in the case of Re B. F. Davis Motor Lines, cited by
the Public Service Commission of Indiana (P. U. R., 1927-B, page 729), in
which it was held:
A motor vehicle operator having received a certificate with a voluntary
stipulation not to make stops (that is not to carry passengers) on a part
of a route served by other carriers, and having contracted with such
carries not to make the stops, will not subsequently are able to carry
all passengers who present theselves for transportation within the
restricted district.
And in Re Mount Baker Development Co., the Public Service Commission of
Washington (P. U. R., 1925D, 705), held:
A cerificate authorizing through motor carrier service should not
authorize local service between points served by the holders of a
certificate, without first giving the certificate holders an opportunity to
render additional service desired.
In the National Coal Company case (47 Phil., 356), this court said:
When there is no monopoly. — There is no such thing as a monopoly
where a property is operated as a public utility under the rules and
regulations of the Public Utility Commission and the terms and
provision of the Public Utility Act.
Section 775 of Pond on Public Utilities, which is recognized as a standard
authority, states the rule thus:
The policy of regulation, upon which our present public utility
commission plan is based and which tends to do away with
competition among public utilities as they are natural monopolies, is
at once reason and the justification for the holding of our courts that
the regulation of an existing system of transportation, which is properly
serving a given field, or may be required to do so, is to be preferred to
competition among several independent systems. While requiring a
proper service from, a single system for a city or territory in
consideration for protecting it as a monopoly for all service required
and in conserving its resources, no economic waste results and
service may be furnished at the minimum cost. The prime object and
real purpose of commission control is to secure adequate sustained
service for the public at the least possible cost, and to protect and
conserve investments already made for this purpose. Experience has
demonstrated beyond any question that competition among natural
monopolies is wasteful economically and results finally in insufficient
and unsatisfactory service and extravagant rates.
The rule has been laid down, without dissent in numerous decisions, that
where an operator is rendering good, sufficient and adequate service to the
public, that the convenince does not require and the public interests will not be
promoted in a proper and suitable manner by giving another operator a
certificate of public convenience to operate a competing line over the same
ruote.
In Re Haydis (Cal.), P. U. R., 1920A, 923:
A certificate of convenience and necessity for the operation of an auto
truck line in occupied territory will not be granted, where there is no
complaint as to existing rates and the present company is rendering
adequate service.
In Re Chester Auto Bus Line (Pa.), P. U. R., 1923E, 384:
A Commission should not approve an additional charter and grant an
additional certificate to a second bus company to operate in territory
covered by a certificate granted to another bus company as a
subsidiary of a railway company for operation in conjunction with the
trolley system where one bus service would be ample for all
requirements.
In Re Branham (Ariz.), P. U. R., 1924C, 500:
A showing must be clear and affirmative that an existing is unable or
has refused to maintain adequate and satisfactory service, before a
certificate of convenience and necessity will be granted for the
operation of an additional service.
In Re Lambert (N. H.), P. U. R., 1923D, 572:
Authority to operate a jitney bus should be refused when permision
has been given to other parties to operate and, from the evidence,
they are equipped adequately to accommodate the public in this
respect, no complaints having been received in regard to service
rendered.
In Re White (Md.), P. U. R., 1924E, 316:
A motor vehicle operator who has built up a business between
specified points after years of effort should not be deprived of the fruits
of his labor and of the capital he has invested in his operation by a
larger concern desiring to operate between the same points.
In Re Kocin (Mont.), P. U. R., 1924C, 214:
A certificate authorizing the operation of passenger motor service
should be denied where the record shows that the admission of
another operator into the territory served by present licensees is not
necessary and would render their licensee oppressive and
confiscatory because of further division and depletion of revenues and
would defeat the purpose of the statue and disorganize the public
service.
In Re Nevada California Stage Co., P. U. R., 1924A, 460:
The Nevada Commission denied an application for a certificate of
convenience and necessity for the operation of an automobile
passenger service in view of the fact that the service within the territory
 proposed to be served appeared to be adequate and it was the policy
of the Commission to protect the established line in the enjoyment of
business which it had built, and in view of the further fact that it was
very uncertain whether the applicant could secure sufficient business
to enable him to operate profitably.
In Re Idaho Light & P. Co. (Idaho), P. U. R., 1915A, 2:
Unless it is shown that the utility desiring to enter a competitive field
can give such service as will be a positive advantage to the public, a
certificate of convenience will be denied by the Idaho Commission,
provided that the existing utility furnishing adequate service at
reasonable rates at the time of the threatened competition.
In Scott, vs. Latham (N. Y. 2d Dist), P. U. R., 1921C, 714:
Competition between bus lines should be prohibited the same as
competition between common carriers.
In Re Portland Taxicab Co. (Me.), P. U. R., 1923E, 772:
Certificates permitting the operation of motor vehicles for carrying
passengers for hire over regular routes between points served by
steam and electric railways should not be granted when the existing
service is reasonable, safe, and adequate as required by statue.
In Re Murphy (Minnesota), P.U.R., 1927C, 807:
Authority to operate an auto transportation service over a route which
is served by another auto transportation company should be denied if
no necessity is shown for additional service.
In Re Hall, editorial notes, P. U. R., 1927E:
A certificate of convenience and necessity for the operation of a motor
carrier service has been denied by the Colorado Commission where
the only ground adduced for the certificate was that competition
thereby afforded to an existing utility would benefit the public by
lowering rates. The Commission said: "Up to the present time the
Commission has never issued a certificate authorizing a duplication of
motor vehicle operation over a given route unless it appeared that the
service already rendered was not adequate, that there was no ruinous
competition or that the second applicant could, while operating on a
sound businesslike basis, afford transportation at cheaper rates than
those already in effect. There has been no complaint to date as to the
rates now being charged on the routes over which the applicant
desires to serve. Moreover, the Commission stand ready, at any time
the unreasonable of the rates of any carrier are questioned, to
determine their reasonableness and to order them reduced if they are
shown to be unreasonable." In this case the Commission also
expressed its disappoval of the practice of an applicant securing a
certificate for the sole purpose of transferring it to another.
In Re Sumner (Utah), P. U. R., 1927D, 734:
The operation of an automobile stage line will not be authorized over
a route adequately served by a railroad and other bus line, although
the proposed service would be an added convenience to the territory.
In Bartonville Bus Line vs. Eagle Motor Coach Line (Ill. Sup. Court), 157 N. E.,
175; P. U. R., 1927E, 333:
The policy of the state is to compel an established public utility
occupying a given filed to provide adequate service and at the same
time protect it from ruinous competition, and to allow it an apportunity
to provide additional service when required instead of permitting such
service by a newly established competitor.
Upon the question of "Reason and Rule for Regulation," in section 775, Pond
says:
The policy of regulation, upon which our present public utility
commission plan is based and which tends to do away with
competition among public utilities as they are natural monopolies, is
at once the reason and the justification for the holding of our courts
that the regulation of an existing system of transportation, which is
properly serving a given field or may be required to do so, is to be
preferred to competition among several independent systems. While
requiring a proper service from a single system for a city or territory in
consideration for protecting it as a monopoly for all the service
required and in conserving its resources, no economic waste results
and service may be furnished at the minimum cost. The prime object
and real purpose of commission control is to secure adequate
sustained service for the public at the least possible cost, and to
protect and conserve investments already made for this purpose.
Experience has demostrated beyond any question that competition
among natural monopolies is wasteful economically and results finally
in insufficient and unsatisfactory service and extravagant rates.
Neither the number of the individuals demanding other service nor the
 question of the fares constitutes the entire question, but rather what
the proper agency should be to furnish the best service to the public
generally and continuously at the least cost. Anything which tends to
cripple seriously or destroy an established system of transportation
that is necessary to a community is not a convenience and necessity
for the public and its introduction would be a handicap rather than a
help ultimately in such a field.

That is the legal construction which should be placed on paragraph (e) of

section 14, and paragraph (b) and (c) of section 15 of the Public Service Law.

We are clearly of the opinion that the order of the Commission granting the
petition of Orlanes in question, for the reason therein stated, is null and void,
and that it is in direct conflict with the underlying and fundamental priciples for
which the Commission was created.1awphi1.net

The question presented is very important and far-reaching and one of first
impression in this court, and for such reasons we have given this case the
careful consideration which its importance deserves. The Government having
taken over the control and supervision of all public utilities, so long as an
operator under a prior license complies with the terms and conditions of his
license and reasonable rules and regulation for its operation and meets the
reasonable demands of the public, it is the duty of the Commission to protect
rather than to destroy his investment by the granting of a subsequent license
to another for the same thing over the same route of travel. The granting of
such a license does not serve its convenience or promote the interests of the
public.

The decision of the Public Service Commission, granting to Orlanes the license
in question, is revoked and set aside, and the case is remanded to the
Commission for such other and further proceedings as are not inconsistent
with this opinion. Neither party to recover costs on this appeal. So ordered.
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 WHEREFORE, the judgment appealed from is hereby reversed and appellant
for loss or damage to the goods caused by personal want of due diligence on is absolved from liability to plaintiff. No costs. So ordered.
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.
G.R. No. L-28999 May 24, 1977
COMPAÑIA MARITIMA, plaintiff-appellee,
vs.
ALLIED FREE WORKERS UNION, SALVADOR T. LLUCH, MARIANO LL.
BADELLES, individually and in their capacities as President and Vice-
President, respectively of the Allied Free Workers Union, NICANOR
HALEBAS and LAURENTINO LL. BADELLES, individually and officers
of Allied Free Workers Union, defendants-appellants.
Halibas, Badelles, Padilla & Sepulveda and Vicente A. Rafael & Associates
for defendants-appellants.
Rufino J. Abadies, Francisco Obach & Jesus Quijano for appellee.
AQUINO, J.:
Antecedents. - Since the onset in 1954 of litigation between the parties herein,
this is the fifth case between them that has been elevated to this Court. The
incidents preceding the instant appeal are as follows:
On August 11, 1952 the Compañia Maritima and the Allied Free Workers
Union entered into a written contract whereby the union agreed to perform
arrastre and stevedoring work for the consignees. vessels at Iligan City. The
contract was to be effective for one month counted from August 12, 1952.
It was stipulated that the company could revoke the contract before the
expiration of the term if the union failed to render proper service. The contract
could be renewed by agreement of the parties (Exh. J).
At the time the contract was entered into, the union had just been organized.
Its primordial desire was to find work for its members. The union agreed to the
stipulation that the company would not be liable for the payment of the
services of the union "for the loading, unloading and deliveries of cargoes" and
that the compensation for such services would be paid "by the owners and
consigness of the cargoes" as "has been the practice in the port of Iligan City"
(Par. 2 of Exh. J).
The union found out later that that stipulation was oppressive and that the
company was unduly favored by that arrangement.
Under the contract, the work of the union consisted of arrastre and stevedoring
service. Arrastre, a Spanish word which refers to hauling of cargo,
comprehends the handling of cargo on the wharf or between the establishment
of the consignee or shipper and the ship's tackle. The service is usually
performed by longshoremen.
On the other hand, stevedoring refers to the handling of the cargo in the holds
of the vessel or between the ship's tackle and the holds of the vessel.
The shippers and consignees paid the union oth for the arrastre work. They
refused to pay for the stevedoring service. They claimed that the shipowner
was the one obligated to pay for the stevedoring service because the bill of
lading provided that the unloading of the cargo was at the shipowner's expense
(Exh. 1).
On the other hand, the company refused to pay for the stevedoring service
because the contract (Exh. J) explicitly provided that the compensation for both
arrastre and stevedoring work should be paid by the shippers and consignees,
as was the alleged practice in Iligan City, and that the shipowner would not be
liable for the payment of such services.
Thus, the issue of whether the company should pay for the stevedoring service
became a sore point of contention between the parties. The union members
labored under the impression that they were not being compensated for their
stevedoring service as distinguished from arrastre service.
Although the arrastre and stevedoring contract (Exh. J) was disadvantageous
to the union, it did not terminate the contract because its members were in dire
need of work and work, which was not adequately compensated, was
preferable to having no work at all (204, 214-5, 226-7 tsn May 20, 1960).
Upon the expiration of the one-month period, the said contract was verbally
renewed. The company allowed the union to continue performing arrastre and
stevedoring work.
On July 23, 1954 the union sent a letter to the company requesting that it be
recognized as the exclusive bargaining unit to load and unload the cargo of its
vessels at Iligan City. The company ignored that demand. So, the union filed
on August 6, 1954 in the Court of Industrial Relations (CIR) a petition praying
that it be certified as the sole collective bargaining unit.
Despite that certification case, the company on August 24, 1954 served a
written notice on the union that, in accordance with payment of the 1952
contract, the same would be terminated on August 31, 1954. Because of that
notice, the union on August 26, 1954 filed in the CIR charges of unfair labor
practice against the company.
On August 31, 1954 the company entered into a new stevedoring and arrastre
contract with the Iligan Stevedoring Association. On the following day,
September 1, the union members picketed the wharf and prevented the Iligan
Stevedoring Association from performing arrastre and stevedoring work. The
picket lasted for nine days.
On September 8, 1954 the company sued the union and its officers in the Court
of First Instance of Lanao for the rescission of the aforementioned 1952
contract, to enjoin the union from interfering with the loading and unloading of
the cargo, and for the recovery of damages.
On the following day, September 9, the lower court issued ex parte a writ of
preliminary injunction after the company had posted a bond in the sum of
P20,000. A few hours lateron that same day the union was allowed to file a
counterbond. The injunction was lifted. The union members resumed their
arrastre and stevedoring work.
Later, the union assailed in a prohibition action in this Court the jurisdiction of
the trial court to entertain the action for damages, and injunction.
A majority of this Court held that the lower court had jurisdiction to issue the
injunction and to take cognizance of the damage suit filed by the company but
that the injunction was void because it was issued ex parte and the procedure
laid down in section 9(d) of Republic Act No. 875 was not followed by the trial
court (Allied Free Workers Union vs. Judge Apostol, 102 Phil. 292, 298).
After trial, the lower court rendered a decision dated December 5, 1960,
amended on January 11, 1961, (1) declaring the arrastre and stevedoring
contract terminated on August $1, 1954; (2) dismissing the union's
counterclaim; (3) ordering the union and its officers to pay solidarily to the
company P520,000 as damages, with six percent interest per annum from
September 9, 1954, when the complaint. was filed; (4) permanently enjoining
the union from performing any arrastre and stevedoring work for the company
at Iligan City, and (5) requiring the union to post a supersedeas bond in the
sum of P520,000 to stay execution.
The union filed a motion for reconsideration. On the other hand, the company
filed a motion for the execution pending appeal of the money judgment. It filed
another motion for the immediate issuance of a writ of injunction. That second
motion was filed in the municipal court of Iligan City in view of the absence of
the District Judge.
The municipal court issued the writ of injunction. However, this Court set it
aside because it was not an interlocutory order and no special reasons were
adduced to justify its issuance (Allied Free Workers Union vs. Judge Estipona,
113 Phil. 748).
The union on January 6, 1961 had perfected an appeal from the lower
court's original decision. It did not appeal from the amended decision. On
March 24, 1962 the lower court issued an order declaring its amended decision
final and executory in view of the union's failure to appeal therefrom. The court
directed the clerk of court to issue a writ of execution. That order was assailed
by the union in a certiorari action filed in this Court. A preliminary injunction
was issued by this Court to restrain the execution of the judgment.
On May 16, 1962 this Court dissolved the injunction at the instance of the
company which had filed a counterbond. Thereupon, the 225 members of the
union yielded their ten-year old jobs to the new set of workers contracted by
the company.
The certiorari incident was decided on June 30, 1966. This Court noted that
the lower court amended its decision for the purpose of correcting certain
errors and omissions which were not substantial in character and that its
amended decision was served upon the parties after the union had perfected
its appeal from the original decision.
Under those circumstances, this Court held that the union's appeal should be
given due coarse, subject to the amendment of its record on appeal. This Court
reserved to the members of the union the right to secure restitution under
sections 2 and 5, Rule 39 of the Rules of Court (Allied Free Workers Union vs.
Estipona, L-19651, June 30, 1966,17 SCRA 513, 64 O.G. 2701).
Pursuant to that reservation, the union on December 16, 1966 filed a motion
for restitution, praying that its 225 members be restored to their jobs and that
the company be ordered to pay P 1,620,000 as damages, consisting of the
lost earnings during the four-years period from May 8, 1962 to May 8, 1966.
On the other hand, the company in its motion of January 18, 1967 reiterated
its 1960 motion for the execution of the lower court's judgment as to the
damages, of P520,000 and the permanent injunction.
Later, the company called the lower court's attention to this Court's decision
dated January 31, 1967. In that decision, this Court affirmed the CIR's decision
holding that the company did not commit any unfair labor practice and reversed
the CIR's directive that a certification election be held to determine whether
the union should be the exonemtod bargaining unit. This Court held that the
union could not act as a collective bargaining unit because the union was an
independent contractor and its members were not employees of the company
(Allied Free Workers Union vs. Compañia Maritima, L-22951-2 and L-22971,
19 SCRA 258).
The lower court in its order of April 25, 1967 (1) denied the union's motion for
restitution and to stay execution of its amended decision on January 11, 1961
and (2) required the union to file a supersedeas bond in the sum of P100,000
within thirty days from notice. The bond was reduced to P50,000 in the lower
court's order of August 16, 1967. The union posted the bond on August
24,1967.
The lower court approved the union's amended record on appeal in its order
of October 6, 1967.
The union appealed directly to this Court because the amount involved
exceeds P200,000. The appeal was perfected before Republic Act No. 5440
took effect on September 9,1968.
Other proceedings. - The company in its original complaint prayed that the
union and its officials be ordered to pay actual damages, amounting to
P15,000 for the union's failure to load and unload cargo in and from the
consignees. vessels from September 1 to 8, 1954; P50,000 as damages, due
to the union's inefficiency in performing arrastre and stevedoring work "during
the latter part of the existence" of the contract; P50,000 as moral and
exemplary damages, (not supported by any allegation in the body of the
complaint) and P5,000 as attorney's Considering (10-12, Record on Appeal).
On September 15, 1954 the company added a fourth cause ofaction to its
complaint. It alleged that by reason of the acts of harassment and obstruction
perpetrated by the union in the loading and unloading ofcargo the company
suffered additional damage in the form of lost and unrealized freight and
passenger charges in the amount of P10,000 for September 9 and 10, 1954
(66, Record on Appeal).
On November 2, 1954 the company attached to its motion for the revival of the
injunction against the union an auditor's report dated September 15, 1954
wherein it was indicated that the company lost freight revenues amounting to
P178,579.20 during the period from January 1 to September 7, 1954 (121-
143, Record on Appeal).
On November 27, 1954 the company filed another motion for the restoration
of the injunction. In support of that motion the company attached a trip
operation report showing the unloaded cargoes on the consignees. vessels,
when they docked at Iligan City on September 14, 19, 22 and 26 and October
3 and 5, 1954, as well as the delays in their departure (157-162, Record on
Appeal).
On March 5, 1955 the company added a fifth cause ofaction too its complaint.
It alleged that during the period from September 12 to December 28, 1954 it
lost freight charges on unloaded cargoes in the sum of P62,680.12, as shown
in a detailed statement, and that it incurred an estimated amount of P20,000
for overhead expenses. for the delay in the dismissal of its vessels attributable
to the union's unsatisfactory stevedoring and arrastre work (225-229, 237-8,
Record on Appeal).
Also on March 5, 1955 the union answered the original and supplemental
complaints. It denied that its members had rendered inefficient service. It
averred that the termination of the contract was prompted by the consignees.
desire to give the work to the Iligan Stevedoring Association which the
company had allegedly organized and subsidized. The union filed a
counterclaim for P200,000 as compensation for its services to the company
and P500,000 as other damages, (239-252, Record on Appeal).
On March 9, 1960 the company filed a third supplemental complaint, It alleged
that the continuation of the stevedoring and arrastre work by the union for the
company from 1955 to date had caused losses to the company at the rate of
P25,000 annually in the form of lost freight on shutout cargoes and the
expenses. for the equipment used to assist the union members in performing
their work (320-3, Record on Appeal).
Plaintiff company's evidence. - Jose C. Teves, the consignees. branch
manager at Iligan City, testified that on August 24, 1954 he terminated the
arrastre and stevedoring contract with the union (Exh. J) upon instruction of
the head office. The contract was terminated in order to avoid further losses to
the company caused by the union's inefficient service (85-86 tsn March 11,
1960).
After the termination of the contract, the members of the union allegedly
harassed the company with the help of goons. The cargoes could not be
unloaded in spite of the fact that the company had sought the protection of the
law-enforcing authorities (88). The consignees. last recourse was to go to
court. (89).
The company supposedly suffered losses as a result of the union's inefficient
service since September 1, 1954 (91). Teves hired auditors to ascertain the
losses suffered by the company during the period from January 1 to
September 11, 1954.
The trial court awarded actual damages, amounting to P450,000 on the basis
Statement B, Exh. A............................... 3,764.50
of the auditor's reports, Exhibits A to I. It did not carefully examine the said
exhibits. Contrary to the trial court's impression, Exhibits B, C and D are not (5) Other estimated losses for the said
auditors' reports.
voyages of M.V. Panay and Mindoro for the
The trial court did not bother to make a breakdown of the alleged damages,
totalling P450,000. The reports of the two hired accountants, Demetrio S. same period, based on interviews of parties at
Jayme and M. J. Siojo, show the following alleged damages, in the aggregate
amount of P349,245.37 (not P412,663.17, as erroneously added by the the wharf, Statement B, Exh. A............... 10,000.00
consignees. counsel, 161,163-4 tsn March 11, 1960):
(6) Additional subsistence expenses. for the
TABULATION OF ALLEGED
M.V. Mindoro and Panay due to the delays in
DAMAGES CLAIMED BY COMPAÑIA MARITIMA their dismissal from January 1 to August 31,

1954 as certified by the pursers of the two

(1) Freight for 74,751 bags of fertilizer
vessels, Statement C, Exh. A..................... 4,407.50
allegedly booked for shipment in the
(7) Estimated loss in freight and passenger
company's vessels but loaded in other vessels
revenue for the period from January 1 to
during the period from Jan. 1 to August 31,
August 31, 1954, based on 1953 freight revenue
1954, Statement A in Exh. A, CPA Jayme's
for the same period Statement D, Exh. A..... 100,000.00
report......................................................... P29,900.40
(8) Estimated loss in passenger fares for
(2) Lost freight on other shutout cargoes
the period from September to December 31,
for January 1 to August 31, 1954, Statement A
1954, Statement D, Exh. A....................... 20,000.00
in Exh. A, of CPA Jayme ......................... 4,339.64
(9) Lost freight charges from September
(3) Lost freight on shutout cargoes for
12 to December 28, 1954, as certified by the
September 2 to 7, 1954 booked for shipment in
chief clerk of the consignees. Iligan office. Exh.
M. V. Mindoro, Panay and Masterhead Knot,
B............................................................. 62,680.12
Statement B in Exh. A, CPA Jayme's report... 6,167.16
(10) Estimated overhead expenses for
(4) Losses sustained in voyages of M.V.
delay of vessels in port, Exh. B................. 20,000.00
Panay and Mindoro in four voyages from
(11) Forklift operating expenses. for 1955,
September 4 to 11, 1954, with estimates,

consisting of salaries and maintenance
expenses, Exh. E- 1....................................
(12) Lost freight revenue for 1955, Exh. E-
2...............................................................
(13) Forklift operating expenses. for 1956,
Exh. F- 1...................................................
(14) Lost freight revenue for 1956, Exh. F-2
(15) Forklift operating expenses. for 1957,
Exh. G- 1...................................................
(16) Lost freight revenue for 1957, Exh. G-
2....................................................................
(17) Forklift operating expenses. for 1958,
Exh. H-1...................................................
(18) Lost freight revenue for 1958, Exh. H-
2.............................................................
(19) Forklift operating expenses. for 1959,
Exh. I-1....................................................
(20) Lost freight revenue for 1959, Exh. I-2
T OT A L -
We tabulated the alleged damages, to show that the trial court's award to the
company of P450,000 as damages, is not supported by the evidence. On the
other hand, the statement of the consignees. counsel that the damages,
totalled P412,663.17 (162- 164 tsn March 11, 1960) is wrong.
Teves, the consignees. branch manager, submitted a statement (Exh. K)
showing the alleged cost of three forklifts, 200 pieces of pallet boards, 530
pieces of wire rope slings and two pieces of tarpaulins in the total sum of
P27,215. In that statement, he claims that the damages, to the company by
reason of the depreciation of the said items of equipment amounted to P38,835
or more than the cost thereof.
5,677.54
The company's counsel, in his summary of the damages, ignored the alleged
damages, of P38,835 indicated by Teves in Exhibit K. The consignees.
counsel relied oth on the auditors' reports, Exhibits A and E to I and on Exhibit
17,838.78 B, the chief clerk's statement. As already noted, those documents show that
the total damages, claimed by the company amounted to P349,245.37.
The best evidence on the cost of the said equipment would have been the
3,520.90 sales invoices instead of the oral testimony of Teves. He did not produce the
sales invoices.
3,849.56
Teves further testified that Salvador T. Lluch was the president of the union;
Nicanor Halibas, the treasurer; Mariano Badelles, the general manager, and
8,259.08 Luarentino Badelles, a vice president.
Appellants' statement of facts. - To sustain their appeal, the appellants made
the following exceedingly short and deficient recital of the facts:
14,538.10
Sometime in the month of August, 1954, defendant, Allied
Free Workers Union filed an unfair labor practice case against
7,503.45 defendant (should be plaintiff) and its branch manager, Mr.
Jose Teves, with the Court of Industrial Relations, Manila, and
docketed as Case No. 426-UPL: defendant union also filed a
petition for certification election docketed as Case No, 175-
10,193.46 MC against plaintiff; defendant union also filed a notice of
strike dated August 27, 1954; the Secretary of Labor wired the
public defender, Iligan City, on August 27, 1954 (see annexes
1-4, motion to dismiss, Record on Appeal, pp. 54-65).
8,745.35
To counteract these legitimate moves of labor, plaintiff filed
7,959.83 the complaint docketed as Civil Case No. 577 in the Court of
First Instance of Lanao (now Lanao del Norte) for damages,
P349,245.37 and/or resolution of contract with writ of preliminary injunction,
On a decision adverse to their interests, defendants take this
appeal.
On the question of jurisdiction taken before this Honorable
Tribunal in G.R. No. L-8876, it was held:
... for the instant case merely refers to the recovery of
damages, occasioned by the picketing undertaken by the
members of the union and the rescission of the arrastre and
 stevedoring contract previously entered into between the
parties.
The appellants did not discuss their oral and documentary evidence. *
First assignment of error. - The appellants contend that the trial court erred in
awarding to the company actual damages, amounting to P450,000, moral
damages, of P50,000 and attorney's Considering of P20,000, and in holding
that the four officers of the union are solidarily liable for the said damages.
Appellants' counsel assailed the award of actual damages, on the ground that
the auditors' reports, on which they were based, were hearsay.
After analyzing the nature of the damages, awarded, how the same were
computed, and the trustworthiness of the company's evidence, we find the first
assignment of error meritorious.
We have already stress that, on the basis of the reports of the two accountants,
the damages, claimed by the complaint as a matter of simple addition, does
not reach the sum of P 450,000 fixed by the trial court. The damages, shown
in the accountants' reports and in the statement made by the consignees. chief
clerk (who did not testify) amount to P349,245.37, or much less than P450,000.
The company argues that the accountants' reports are admissible in evidence
because of the rule that "when the original consists of numerous accounts or
other documents which cannot be examined in court without great loss-of time
and the fact sought to be established from them is oth the general result of the
whole", the original writings need not be produced (Sec. 2[e], Rule 130, Rules
of Court).
That rule cannot be applied in this case because the voluminous character of
the records, on which the accountants' reports were based, was not duly
established (U. S. vs. Razon and Tayag, 37 Phil. 856, 861; 29 Am Jur 2nd
529).
It is also a requisite for the application of the rule that the records and accounts
should be made accessible to the adverse party so that the company, of the
summary may be tested on cross-examination (29 Am Jur 2nd 517-8; 32A
C.J.S. 111).
What applies to this case is the general rule "that an audit made by, or the
testimony of, a private auditor, is inadmissible in evidence as proof of the
original records, books of accounts, reports or the like" (Anno 52 ALR 1266).
That general rule cannot be relaxed in this case because the company failed
to make a preliminary showing as to the difficulty or impossibility attending the
production of the records in court and their examination and analysis as
evidence by the court (29 Am Jur 2nd 529).
A close scrutiny of the accountants' reports reveals their lack of probative
value. The propriety of allowing the different items of damages, is discussed
below.
Unrealized freight and passenger revenue for 1954 ascertained by Accountant
Demetrio S. Jayme. - In his report (Exh. A, pp. 134 to 147, Record on Appeal),
Jayme used the pronouns "we" and "our" and made reference to the
examination made by the "auditors" and his accounting office.
He did not disclose the names of other "auditors" who assisted him in making
the examination of the consignees. records.
He gave the impression that he was an independent accountant hired by the
company to make a "special investigation" of the consignees. losses for the
period from January 1 to September 7, 1954.
The truth is that Jayme was a "personal friend" of Teves, the consignees.
branch manager at Iligan City. Teves was the consignees. principal witness in
this case. He verified the complaint. herein. He signed for the company the
stevedoring and arrastre contract which he later rescinded. In fact, Teves
intervened in the drafting of the contract. It was his Idea that the company
should not pay the arrastre and stevedoring Considering and that those
charges should be borne by the shippers and consignees.
Jayme was not only the friend of Teves but was also his co-employee. Jayme
was the consignees. branch manager at Ozamis City and later at Cagayan de
Oro City (217-8 tsn May 20, 1960; Exh. 12). He suppressed that fact in his
report of examination. Apparently, the practice of accounting was his sideline
or he practised accounting and, as the saying goes, he moonlighted as the
consignees. branch manager. Obviously, Jayme would be biased for the
company. He violated a rule of the accountants' code of ethics by not
disclosing in his report of examination that he was an employee of the
company (84 tsn June 2, 1960).
Accountant Jayme allegedly found from the consignees. records at Iligan City
that its freight and passenger revenue for the eight- month period from January
1 to August 31, 1953 amounted to P373,333.14 and that for the same period
in 1954, that revenue amounted to P470,716.29, or an increase of P97,383.12
(Statement D of Exh. A, 145, Record on Appeal).
Jayme interpreted those figures as signifying that the company would have
realized more revenue if the union had rendered better service. He reasoned
out that there was a big volume of business in Iligan City due to the Maria
Cristina Fertilizer Plant, Iligan Steel Mill and NPC Hydroelectric Plant. He
imagined that the consignees. freight revenue during the first eight months of
1954 could have amounted to at least P600,000 and that since it actually
realized oth P 470,716.29, its loss of freight revenue for that period could be
"conservatively" estimated at least P100,000 (item 7 of the tabulation of
damages).
He stated that he attached to his report on the comparative statement of gross
revenue a certificate of the captain of the vessel Panay showing the delays in
its dismissal in Iligan City as indicated in its logbook. No such document was
attached to Jayme's report.
And from the fact that the total fares received by the company during the eight-
month period were reduced in the sum of P3,951.58 (Jayme fixed the reduction
at the round figure of P4,000), he calculated that the company suffered a loss
of at least P20,000 in passenger revenue up to December 31, 1954 (Item 8 of
the tabulation of damages).
Jayme also included in his report (a) damages, amounting to P10,000 as
his estimate of losses supposedly "based on interviews with disinterested
parties at the wharf and city proper customers"; (b) damages, amounting to
P3,764.50 allegedly suffered in the operation of the
vessels Mindoro and Panay from September 4 to 11, 1954, consisting of extra
meals, expenses. for unloading cargo, estimated loss in passage revenue for
four voyages, and estimated loss from 14 re-routed freights to competing
vessels" (consisting of rice, corn and bananas), and (e) the sum of P4,407.50
as alleged additional subsistence incurred for the crew of
the Panay and Mindoro from January 1 to August 31, 1954 (items 4, 5 and 6
of the tabulation of damages). The records of the purser and chief steward
were allegedly examined in ascertaining those damages.
It would not be proper to allow Jayme's estimates as recoverable damages.
They are not supported by reliable evidence. They can hardly be sanctioned
by the "generally accepted auditing standards" alluded to in Jayme's report.
The pertinent records of the company should have been produced in court.
The purser and steward did not testify.
The rule is that the auditor's summary should not include his conclusions or
inferences (29 Am Jur 2d 519). His opinion is not evidence.
The trial court unreservedly gave credence to the conjectures of Jayme.
Obviously, his inflated guesses are inherently speculative and devoid of
probative value. Furthermore, his estimate of the unrealized freight revenue
for January 1 to August 31, 1954 overlapped with his computation of the lost
freight for the unloaded 74,751 bags of fertilizer and other cargoes covering
the same period (Statement A of Exh. A).
The foregoing discussion shows Jayme's unreliable modus operandi in
ascertaining the 1954 losses which the company claimed to have suffered in
consequence of the union's alleged inefficiency or poor service. It is
noteworthy that those losses were not averred with particularity and certitude
in the consignees. complaint.
The same observations apply with equal cogency to the damages, amounting
to P40,407.20 as lost freight revenue also for the year 1954 (items 1 to 3 of
the tabulation of damages) which were computed by Accountant Jayme.
Those items refer to (1) the sum of P29,900.40 as lost freight revenue on
74,751 bags of fertilizer, already mentioned, which were booked for shipment
in the consignees. vessels from January 1 to August 31, 1954 but which were
allegedly loaded in other vessels; (2) P4,339.64 as unrealized freight revenue
for other cargoes booked in the consignees. vessels but not loaded therein
during the same eight-month period, and (3) P6,167,16 as unrealized freight
revenue on shutout cargoes not loaded in the consignees. vessels during the
six-day period from September 2 to 7, 1954.
Jayme allegedly based his computations on the records of the company which
were not produced in court. The union objected to Jayme's report as
inadmissible under the hearsay rule or as not being the best evidence.
Even if the presentation of the records themselves as exhibits should have
been dispensed with, yet the complaint to show good faith and fair dealing,
could have brought the records in court (manifests, bills of lading, receipts for
the freights, if any, etc.) and enabled the court and the union's counsel and its
expert accountant to verify the accuracy of Jayme's summaries.
Photostatic copies of some manifests and bills of lading proving that the
company was not able to collect the stipulated freight on the alleged shutout
cargoes should have been proforma. in evidence as supporting papers for
Jayme's report. No such exhibits were presented.
The flaw or error in relying merely on Jayme's summaries is that, as pointed
out by witness Mariano LL. Badelles, cargoes might be shutout due to causes
other than the supposed inefficiency of the union. He testified that cargoes
were shutout deliberately by the company because they could not be loaded
in one vessel (for example, 50,000 bags of fertilizer), or a shipper had no
allotment, or because the company did not want to load cargoes like bananas
(189-194 tsn May 20, 1960). Jayme's summaries did not take into account the
probability that a part of the cargo booked in the consignees. vessel for a
certain date might not have been loaded on that date but was loaded in another
vessel of the company which docked at the port a few days later, In that case,
there would be no loss of freight revenue. The mere shutting out of cargo in a
particular voyage did not ipso facto produce loss of freight revenue.
Our conclusion is that an injustice would be perpetrated if the damages,
aggregating P178,579 computed and estimated in the report of Jayme, a
biased witness, should be accepted at their face value.
Damages computed by Salvador M. Magante. - The company also claims as
damages, for the period from September 12 to December 28, 1954 lost freight
charges on shutout cargoes in the sum of P62,680.12, and the sum of P20,000
as "overhead expenses. for delay of vessels in port", as set forth by Salvador
M. Magante, the consignees. chief clerk at Iligan City, in his statement, Exhibit
B (items 9 and 10 of the tabulation of damages).
Magante did not testify on his statement. Instead, accountant Jayme,
substituting for Magante, testified on that statement. Jayme said that he
verified the consignees. records on which Magante based his statement.
Jayme assured the court that the figures in Magante's statement were
supported by the consignees. records.
But as to the damages, of P20,000, Jayme said that he could not certify as to
their company, because he had not finished his investigation (33 tsn March 9,
1955). In spite of that admission, the trial court allowed that item of damages.
The trial court erred in allowing the damages, totalling P82,680.12 because
Magante's statement, Exhibit B, is hearsay. Magante should have been
proforma. as a witness. Jayme was not competent to take his place since the
statement was prepared by Magante, not by Jayme. More appropriate still, the
documents and records on which the statement was based should have been
proforma. as evidence or at least brought to the court for examination by the
union's counsel and its accountant. The trial court required the production of
the manifests supporting Magante's statement (85-86 tsn march 9, 1955). Only
one such manifest, Exhibit C, was produced. The nonproduction of the other
records was not explained.
Lost freight revenue and operating expenses for the forklifts. - The company
claimed as damages, the sum of P87,986.05 (P151,403.85 as erroneously
computed by the consignees. counsel, 163 tsn March 11, 1950) consisting of
supposed unrealized freight charges for shutout or unloaded cargoes for the
year 1955 to 1959 (Exh. E to I, Items 11 to 20 of the tabulation of damages).
The claim is covered by the company's third supplemental complaint dated
March 9, 1960 wherein it was alleged that due to the acts of the union and its
officers the company had suffered damages, of not less than P25,000 annually
since 1955 (320-3, Record on Appeal). That supplemental complaint was
hurriedly filed during the trial as directed by the trial court.
The said damages, were computed in the reports of Miguel J. Siojo, an
accountant who, for two days and nights, March 8 to 10, 1960, or shortly before
and during the trial, allegedly examined the consignees. record at Iligan City,
such as its cash book, cash vouchers, reports to the head office, shipping
manifests, and liquidation reports. Those records were not produced in court.
Their nonproduction was not explained. If the accountant was able to
summarize the contents of those records in two days, they could not have been
very voluminous. They should have been offered in evidence.
The alleged expenses. in the operation of the forklifts consisted of (a) the
wates of the operators hired by the company and (b) the cost of gasoline and
oil and expenses. for repair.
The company's theory is that under the 1952 contract (Exh. J) the union was
obligated to provide for forklifts in the loading and unloading of cargo.
Inasmuch as the union allegedly did not have forklifts, the complaint to
expedite the arrastre and stevedoring work, purchase forklifts, hired laborers
to operate the same, and paid for the maintenance expenses. The company
treated those expenses as losses or damages.
Those alleged damages, amounting to P87,986.05 are in the same category
as the depreciation allowances amounting to P38,835 which the company
claimed for the forklifts, pallet boards, tarpaulins and wire rope slings that it
purchased for oth P27,215, We have stated that the consignees. counsel
ignored that depreciation in his recapitulation of the damages, claimed by the
plaintiff.
The union contends that Siojo's reports (Exh. E to I) were inadmissible
evidence because they were hearsay, meaning that the original documents,
on which the reports were based, were not presented in evidence and,
therefore, appellants' counsel and the court itself were not able to gauge the
correctness of the figures or data contained in the said reports. The person
who had personal knowledge of the operating expenses. was not examined in
court.
We are of the opinion that, to avoid fraud or fabrication, the documents
evidencing the alleged expenses. should have been proforma. in evidence.
Siojo's reports were not the best evidence on the said operating expenses.
The explanation of Badelles with respect to shutout cargoes and our
observations on Jayme's summaries are applicable to accountant Siojo's
reports.
A more substantial ground for rejecting Siojo's reports is that the said
expenses, if really incurred, cannot be properly treated as darn ages to the
company.
The union's witness, Mariano LI. Badelles, testified that the consignees.
forklifts were not used exclusively on the wharf. They were used in the fertilizer
and carbide plants. Sometimes, the union supplied the driver and the gasoline
for the operation of the forklifts (174-177 tsn May 20, 1960).
Moreover, as stated earlier, the company was not paying the union a single
centavo for arrastre and stevedoring work. The shippers and consignees paid
for the arrastre service rendered by the union. The union did not receive any
compensation for stevedoring work.
The company complained that the union had been rendering unsatisfactory
arrastre and stevedoring services. That grievance was controverted by the
union.
The use of the forklifts, tarpaulins pallet boards and wire rope slings
immeasurably benefitted the company. It is not proper nor just that the
consignees. investment in those pieces of equipment should be considered
damages, just because it was able to bind the union to a one-sided contract
which exempted it from the payment of arrastre and stevedoring Considering
and which impliedly obligated the union to purchase the said equipment.
If the service rendered by the union members was unsatisfactory, it must be
because the poor stevedores were underfed and underpaid. They were
underfed and underpaid because the company was astute enough to insure
that it would obtain stevedoring service without paying for it.
If to improve the arrastre and stevedoring service, the company had to incur
expenses. for the purchase of forklifts, pallet boards, tarpaulins and wire rope
slings and for the operation of the forklifts, the union should not be required to
reimburse the company for those expenses. The company should bear those
expenses. because the same redounded to its benefit.
The trial court erred in ordering the union and its officials to pay the amount of
the said expenses. as damages, to the company.
Moral damages and attorney's fees. - Considering that the consignees. claim
for moral damages, was based on the same facts on which it predicated its
claim for actual deduction which we have found to be groundless, it follows
that the company, a juridical person, is not entitled to moral damages.
Anyway, the company did not plead and prove moral damages. It merely
claimed moral damages, in the prayer of its complaint. That is not sufficient
(Darang vs. Ty Belizar, L-19487, January 31, 1967, 19 SCRA 214, 222).
Under the facts of this case, we do not find any justification for awarding
attorney's Considering to the company. Hence, the trial court's award of
P20,000 as attorney's Considering is set aside.
Appellants' first assignment of error, although not properly argued by their
counsel, should be sustained.
Other assignments of error. - The union and its officers contend that the lower
court erred in dismissing their counterclaims. Their counsel did not even bother
to state in their brief the amount of the counterclaims.
The union filed counterclaims for P200,000 as compensation for stevedoring
services from August, 1952 to March 4, 1955; P500,000 as deduction P10,000
as attorney's Considering and P5,000 as premium on the counterbond (251-
2, Record on Appeal). In their supplemental counterclaim, they demanded
P500,000 as stevedoring charges for the period from March 4, 1955 to March
4, 1960 and additional damages, of P10,000 (308-10, Record on Appeal). The
trial court dismissed the said counterclaims.
The appellants in their three-sentence argument in support of their
counterclaims alleged that the company's bill of lading provided that the
unloading of the cargoes was at the consignees. expense (Exh. 1); that the
company had not paid the sum of P500,000 as compensation for the
stevedoring services rendered by the laborers up to 1960, and that the
stipulation in the arrastre contract, "that the Compañia Maritima shall not be
liable for the payment of the services rendered by the Allied Free Workers
Union for the loading and deliveries of cargoes as same is payable by the
owners and consignees of cargoes, as it has been the practice in the port of
Iligan City" (Exh. J, pp. 14, 334, 359, 500 Record on Appeal), was 'non-
operative" and void, "being contrary to morals and public policy".
That superficial argument is not well-taken. The printed stipulation in the bill of
lading was superseded by the contractual stipulation. The contract was
prepared by the union officials. As already noted, it was stipulated in the
contract that the stevedoring and arrastre charges should be paid by the
shippers and consignees in consonance with the practice in Iligan City. That
stipulation was binding and enforceable.
The supposed illegality of that stipulation was not squarely raised by the union
and its officials in their answer. They merely averred that the contract did not
express the true agreement of the parties. They did not sue for reformation of
the instrument evidencing the contract. The lower court did not err in
dismissing defendants' counterclaims.

The other two errors assigned by the appellants, namely, that the lower court
erred in issuing a permanent injunction against them and in executing its
decision pending appeal, are devoid of merit.

The appellants invoke section 9(d) of the Magna Carta of Labor regarding the
issuance of injunctions. That section has no application to this case because
it was definitively ruled by this Court in the certification and unfair labor practice
cases that there is no employer-employee relationship between the company
and the stevedores. (They work under the cabo system).

The lower court did not execute the money aspect of its judgment. It merely
required the defendants to file a supersedeas bond of P50,000.

As to the injunction, it should be recalled that it was this Court which, in its
resolution of May 16, 1962 in the execution and appeal incident (L-19651, 17
SCRA 513), allowed the company to terminate the stevedoring and arrastre
work of the union and to use another union to perform that work.

The company had the contractual right to terminate the 1952 contract (Taylor
vs. Uy Teng Piao, 43 Phil. 873). The lower court did not err in sustaining the
consignees. rescission of the contract and in enjoining the union from
performing arrastre and stevedoring work.

WHEREFORE, that portion of the trial court's judgment declaring the arrastre
and stevedoring contract terminated, permanently enjoining the union and its
officials from performing arrastre and stevedoring work for the vessels of the
Compañia Maritima, and dismissing defendants' counterclaim is affirmed.

The lower court's award of damages, is reversed and set aside. No costs.

SO ORDERED.
G.R. No. L-23033 January 5, 1967
LUA KIAN, plaintiff and appellee,
vs.
MANILA RAILROAD COMPANY and MANILA PORT
SERVICE, defendants and appellants.
D. F. Macaranas and S. V. Pampolina Jr. for defendants and appellants.
San Juan, Laig and Associates for plaintiff and appellee.
BENGZON, J. P., J.:
The present suit was filed by Lua Kian against the Manila Railroad Co. and
Manila Port Service for the recovery of the invoice value of imported
evaporated "Carnation" milk alleged to have been undelivered. The following
stipulation of facts was made:
1. They admit each other's legal personality, and that during the time
material to this action, defendant Manila Port Service as a subsidiary
of defendant Manila Railroad Company operated the arrastre service
at the Port of Manila under and pursuant to the Management Contract
entered into by and between the Bureau of Customs and defendant
Manila Port Service on February 29, 1956;
2. On December 31, 1959, plaintiff Lua Kian imported 2,000 cases of
Carnation Milk from the Carnation Company of San Francisco,
California, and shipped on Board SS "GOLDEN BEAR" per Bill of
Lading No. 17;
3. Out of the aforesaid shipment of 2,000 cases of Carnation Milk per
Bill of Lading No. 17, only 1,829 cases marked `LUA KIAN 1458' were
discharged from the vessel SS `GOLDEN BEAR' and received by
defendant Manila Port Service per pertinent tally sheets issued by the
said carrying vessel, on January 24, 1960;
4. Discharged from the same vessel on the same date unto the
custody of defendant Manila Port Service were 3,171 cases of
Carnation Milk marked "CEBU UNITED 4860-PH-MANILA" consigned
to Cebu United Enterprises, per Bill of Lading No. 18, and on this
shipment, Cebu United Enterprises has a pending claim for short-
delivery against defendant Manila Port Service;
5. Defendant Manila Port Service delivered to the plaintiff thru its
broker, Ildefonso Tionloc, Inc. 1,913 cases of Carnation Milk marked
"LUA KIAN 1458" per pertinent gate passes and broker's delivery
receipts;
6. A provisional claim was filed by the consignee's broker for and in
behalf of the plaintiff on January 19, 1960, with defendant Manila Port
Service;
7. The invoice value of the 87 cases of Carnation Milk claimed by the
plaintiff to have been short-delivered by defendant Manila Port Service
is P1,183.11 while the invoice value of the 87 cases of Carnation Milk
claimed by the defendant Manila Port Service to have been over-
delivered by it to plaintiff is P1,130.65;
8. The 1,913 cases of Carnation mentioned in paragraph 5 hereof
were taken by the broker at Pier 13, Shed 3, sometime in February,
1960, where at the time, there were stored therein, aside from the
shipment involved herein, 1000 cases of Carnation Milk bearing the
same marks and also consigned to plaintiff Lua Kian but had been
discharged from SS `STEEL ADVOCATE' and covered by Bill of
Lading No. 11;
9. Of the shipment of 1000 cases of Carnation Milk which also came
from the Carnation Company, San Francisco, California, U.S.A. and
bearing the same marks as the shipment herein but had been
discharged from S/S "STEEL ADVOCATE" and covered by Bill of
Lading No. 11, Lua Kian as consignee thereof filed a claim for short-
delivery against defendant Manila Port Service, and said defendant
Manila Port Service paid Lua Kian plaintiff herein, P750.00 in
settlement of its claim;
10. They reserve the right to submit documentary evidence;
11. They submit the matter of attorney's fees and costs to the sound
discretion of the Court.
On these facts and documentary evidence subsequently presented, the Court
of First Instance of Manila ruled that 1,829 cases marked Lua Kian (171
cases less than the 2,000 cases indicated in the bill of lading and 3,171 cases
marked "Cebu United" (171 cases over the 3,000 cases in the bill of lading
were discharged to the Manila Port Service. Considering that Lua Kian and
Cebu United Enterprises were the only consignees of the shipment of 5,000
cases of "Carnation" milk, it found that of the 3,171 cases marked "Cebu
United", 171 should have been delivered to Lua Kian. Inasmuch as the
defendant Manila Port Service actually delivered 1,913 cases to
plaintiff,1 which is only 87 cases short of 2,000 cases as per bill of lading the
former was ordered to pay Lua Kian the sum of P1,183.11 representing such With respect to the attorney's fees awarded below, this Court notices that the
shortage of 87 cases, with legal interest from the date of the suit, plus P500 same is about 50 per cent of the litigated amount of P1,183.11. We therefore
as attorney's fees. deem it reasonable to decrease the attorney's fees to P300.00.

Defendants appealed to Us and contend that they should not be made to Wherefore, with the aforesaid reservation, and with the modification that the
answer for the undelivered cases of milk, insisting that Manila Port Service attorney's fee is reduced to P300.00, the judgment appealed from is affirmed,
was bound to deliver only 1,829 cases to Lua Kian and that it had there before with costs against appellants. So ordered.
in fact over-delivered to the latter.

The bill of lading in favor of Cebu United Enterprises indicated that only 3,000
cases were due to said consignee, although 3,171 cases were marked in its
favor. Accordingly, the excess 171 cases marked "Cebu United" placed the
defendant arrastre operator in a dilemma, for should it deliver them to Lua Kian
the goods could be claimed by the consignee Cebu United Enterprises whose
markings they bore, and should it deliver according to markings, to Cebu
United Enterprises, it might be sued by the consignee, Lua Kian whose bill of
lading indicated that it should receive 171 cases more. The dilemma itself,
however, offered the solution. The legal relationship between an arrastre
operator and the consignee is akin to that of a depositor and
warehouseman.2 As custodian of the goods discharged from the vessel, it was
defendant arrastre operator's duty, like that of any ordinary depositary, to take
good care of the goods and to turn them over to the party entitled to their
possession.3 Under this particular set of circumstances, said defendant should
have withheld delivery because of the discrepancy between the bill of lading
and the markings and conducted its own investigation, not unlike that under
Section 18 of the Warehouse Receipts Law, or called upon the parties, to
interplead, such as in a case under Section 17 of the same law, in order to
determine the rightful owner of the goods.

It is true that Section 12 of the Management Contract exempts the arrastre

operator from responsibility for misdelivery or non-delivery due to improper or
insufficient marking. We cannot however excuse the aforestated defendant
from liability in this case before Us now because the bill of lading showed that
only 3,000 cases were consigned to Cebu United Enterprises. The fact that
the excess of 171 cases were marked for Cebu United Enterprises and that
the consignment to Lua Kian was 171 cases less than the 2,000 in the bill of
lading, should have been sufficient reason for the defendant Manila Port
Service to withhold the goods pending determination of their rightful
ownership.

We therefore find the defendants liable, without prejudice to their taking

whatever proper legal steps they may consider worthwhile to recover the
excess delivered to Cebu United Enterprises.