FIRST DIVISION

G.R. No. 92501 March 6, 1992

PHILIPPINE AIR LINES, petitioner,
vs.
HON. COURT OF APPEALS and ISIDRO CO, respondents.

GRIO-AQUINO, J.:
This is a petition for review of the decision dated July 19, 1989 of the Court of Appeals affirming the
decision of the Regional Trial Court of Pasay City which awarded P72,766.02 as damages and
attorney's fees to private respondent Isidro Co for the loss of his checked-in baggage as a
passenger of petitioner airline.
The findings of the trial court, which were adopted by the appellate court, are:
"At about 5:30 a.m. on April 17, 1985, plaintiff [Co], accompanied by his wife and son,
arrived at the Manila International Airport aboard defendant airline's PAL Flight No.
107 from San Francisco, California, U.S.A. Soon after his embarking (sic), plaintiff
proceeded to the baggage retrieval area to claim his checks in his possession.
Plaintiff found eight of his luggage, but despite diligent search, he failed to locate
ninth luggage, with claim check number 729113 which is the one in question in this
case.
"Plaintiff then immediately notified defendant company through its employee, Willy
Guevarra, who was then in charge of the PAL claim counter at the airport. Willy
Guevarra, who testified during the trial court on April 11, 1986, filled up the printed
form known as a Property Irregularity Report (Exh. "A"), acknowledging one of the
plaintiff's luggages to be missing (Exh. "A-1"), and signed after asking plaintiff himself
to sign the same document (Exh. "A-2"). In accordance with this procedure in cases
of this nature, Willy Guevarra asked plaintiff to surrender to him the nine claim
checks corresponding to the nine luggages, i.e., including the one that was missing.
The incontestable evidence further shows that plaintiff lost luggage was a Samsonite
suitcase measuring about 62 inches in length, worth about US$200.00 and
containing various personal effects purchased by plaintiff and his wife during their
stay in the United States and similar other items sent by their friends abroad to be
given as presents to relatives in the Philippines. Plaintiff's invoices evidencing their
purchases show their missing personal effects to be worth US$1,243.01, in addition
to the presents entrusted to them by their friends which plaintiffs testified to be worth

about US$500.00 to US$600.00 (Exhs. "D", "D-1", to "D-17"; tsn, p. 4, July 11, 1985;
pp. 5-14, March 7, 1986).
Plaintiff on several occasions unrelentingly called at defendant's office in order to
pursue his complaint about his missing luggage but no avail. Thus, on April 15, 1985,
plaintiff through his lawyer wrote a demand letter to defendant company though
Rebecca V. Santos, its manager, Central Baggage Services (Exhs. "B" & "B-1"). On
April 17, 1985, Rebecca Santos replied to the demand letter (Exh. "B")
acknowledging "that to date we have been unable to locate your client's (plaintiff's)
baggage despite our careful search" and requesting plaintiff's counsel to "please
extend to him our sincere apologies for the inconvenience he was caused by this
unfortunate incident" (Exh. "C"). Despite the letter (Exh. "C"), however, defendants
never found plaintiff's missing luggage or paid its corresponding value. Consequently,
on May 3, 1985, plaintiff filed his present complaint against said defendants. (pp. 3840, Rollo.)
Co sued the airline for damages. The Regional Trial Court of Pasay City found the defendant airline
(now petitioner) liable, and rendered judgment on June 3, 1986, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered sentencing defendant Philippine
Airlines, Inc. to pay plaintiff Isidro Co:
1) P42,766.02 by way of actual damages;
2) P20,000.00 by way of exemplary damages;
3) P10,000.00 as attorney's fees;
all in addition to the costs of the suit.
"Defendants' counterclaim is hereby dismissed for lack of merit."
(p. 40, Rollo.)
On appeal, the Court of Appeals affirmed in toto the trial court's award.
In his petition for review of the Court of Appeal's decision, petitioner alleges that the appellate court
erred:
1. in affirming the conclusion of the trial court that the petitioner's retrieval baggage
report was a fabrication;
2. in not applying the limit of liability under the Warsaw Convention which limits the
liability of an air carrier of loss, delay or damage to checked-in baggage to US$20.00
based on weight; and

3. in awarding private respondent Isidro Co actual and exemplary damages,

attorney's fees, and costs.
The first and third assignments of error raise purely factual issues which are not reviewable by this
Court (Sec. 2, Rule 45, Rules of Court). The Court reviews only questions of law which must be
distinctly set forth in the petition. (Hodges vs. People, 68 Phil. 178.) The probative value of
petitioner's retrieval report was passed upon by the Regional Trial Court of Pasay City, whose finding
was affirmed by the Court of Appeals as follows:
In this respect, it is further argued that appellee should produce his claim tag if he
had not surrendered it because there was no baggage received. It appeared,
however, that appellee surrendered all the nine claim checks corresponding to the
nine luggages, including the one that was missing, to the PAL officer after
accomplishing the Property, Irregularity Report. Therefore, it could not be possible for
appellee to produce the same in court. It is now for appellant airlines to produce the
veracity of their Baggage Retrieval Report by corroborating evidence other than
testimonies of their employees. Such document is within the control of appellant and
necessarily requires other corroborative evidence. Since there is no compelling
reason to reverse the factual findings of the lower court, this Court resolves not to
disturb the same. (p. 41, Rollo.)
Whether or not the lost luggage was ever retrieved by the passenger, and whether or not the actual
and exemplary damages awarded by the court to him are reasonable, are factual issues which we
may not pass upon in the absence of special circumstances requiring a review of the evidence.
In Alitalia vs. IAC (192 SCRA 9, 18, citing Pan American World Airways, Inc. vs. IAC 164 SCRA 268),
the Warsaw Convention limiting the carrier's liability was applied because of a simple loss of
baggage without any improper conduct on the part of the officials or employees of the airline, or
other special injury sustained by the passengers. The petitioner therein did not declare a higher
value for his luggage, much less did he pay an additional transportation charge.
Petitioner contends that under the Warsaw Convention, its liability, if any, cannot exceed US $20.00
based on weight as private respondent Co did not declare the contents of his baggage nor pay
traditional charges before the flight (p. 3, tsn, July 18, 1985).
We find no merit in that contention. In Samar Mining Company, Inc. vs. Nordeutscher Lloyd (132
SCRA 529), this Court ruled:
The liability of the common carrier for the loss, destruction or deterioration of goods
transported from a foreign country to the Philippines is governed primarily by the
New Civil Code. In all matters not regulated by said Code, the rights and obligations
of common carriers shall be governed by the Code of Commerce and by Special
Laws.
The provisions of the New Civil Code on common carriers are Articles 1733, 1735 and 1753 which
provide:

Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the
preceding article if the goods are lost, destroyed or deteriorated, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required in article 1733.
Art. 1753. The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or deterioration.
Since the passenger's destination in this case was the Philippines, Philippine law governs the liability
of the carrier for the loss of the passenger's luggage.
In this case, the petitioner failed to overcome, not only the presumption, but more importantly, the
private respondent's evidence, proving that the carrier's negligence was the proximate cause of the
loss of his baggage. Furthermore, petitioner acted in bad faith in faking a retrieval receipt to bail itself
out of having to pay Co's claim.
The Court of Appeals therefore did not err in disregarding the limits of liability under the Warsaw
Convention.
The award of exemplary damages and attorney's fees to the private respondent was justified. In the
cases ofImperial Insurance, Inc. vs. Simon, 122 Phil. 189 and Bert Osmea and Associates vs.
CA, 120 SCRA 396, the appellant was awarded attorney's fees because of appellee's failure to
satisfy the former's just and valid demandable claim which forced the appellant to litigate. Likewise,
in the case of Phil. Surety Ins. Co., Inc. vs. Royal Oil Products, 102 Phil. 326, this Court justified the
grant of exemplary damages and attorney's fees to the petitioner's failure, even refusal, to pay the
private respondent's valid claim.
WHEREFORE, the petition for review is DENIED for lack of merit. Costs against the petitioner.
SO ORDERED.

SECOND DIVISION

G.R. No. 94149 May 5, 1992

AMERICAN HOME ASSURANCE, COMPANY, petitioner,
vs.
THE COURT OF APPEALS and NATIONAL MARINE CORPORATION and/or NATIONAL
MARINE CORPORATION (Manila), respondents.

PARAS, J.:
This is a petition for review on certiorari which seeks to annul and set aside the (a) decision 1 dated
May 30, 1990 of the Court of Appeals in C.A. G.R. SP. No. 20043 entitled "American Home Assurance
Company v. Hon. Domingo D. Panis, Judge of the Regional Trial Court of Manila, Branch 41 and National
Marine Corporation and/or National Marine Corporation (Manila)", dismissing petitioner's petition
for certiorari, and (b) resolution 2 dated June 29, 1990 of the Court of Appeals denying petitioner's motion
for reconsideration.
The undisputed facts of the case are follows:
Both petitioner American Home Assurance Co. and the respondent National Marine Corporation are
foreign corporations licensed to do business in the Philippines, the former through its branch. The
American Home Assurance Company (Philippines), Inc. and the latter through its branch. The
National Marine Corporation (Manila) (Rollo, p. 20, Annex L, p.1).
That on or about June 19, 1988, Cheng Hwa Pulp Corporation shipped 5,000 bales (1,000 ADMT) of
bleached kraft pulp from Haulien, Taiwan on board "SS Kaunlaran", which is owned and operated by
herein respondent National Marine Corporation with Registration No. PID-224. The said shipment
was consigned to Mayleen Paper, Inc. of Manila, which insured the shipment with herein petitioner
American Home Assurance Co. as evidenced by Bill of Lading No. HLMN-01.
On June 22, 1988, the shipment arrived in Manila and was discharged into the custody of the Marina
Port Services, Inc., for eventual delivery to the consignee-assured. However, upon delivery of the
shipment to Mayleen Paper, Inc., it was found that 122 bales had either been damaged or lost. The
loss was calculated to be 4,360 kilograms with an estimated value of P61,263.41.
Mayleen Paper, Inc. then duly demanded indemnification from respondent National Marine
Corporation for the aforesaid damages/losses in the shipment but, for apparently no justifiable
reason, said demand was not heeded (Petition, p. 4).
As the shipment was insured with petitioner in the amount of US$837,500.00, Mayleen Paper, Inc.
sought recovery from the former. Upon demand and submission of proper documentation, American
Home Assurance paid Mayleen Paper, Inc. the adjusted amount of P31,506.75 for the
damages/losses suffered by the shipment, hence, the former was subrogated to the rights and
interests on Mayleen Paper, Inc.
On June 6, 1989, the petitioner, as subrogee, then brought suit against respondent for the recovery
of the amount of P31.506.75 and 25% of the total amount due as attorney's fees, by filing a
complaint for recovery of sum of money (Petition, p. 4).
Respondent, National Marine Corporation, filed a motion to dismiss dated August 7, 1989 stating
that American Home Assurance Company had no cause of action based on Article 848 of the Code
of Commerce which provides "that claims for averages shall not be admitted if they do not exceed

5% of the interest which the claimant may have in the vessel or in the cargo if it be gross average
and 1% of the goods damaged if particular average, deducting in both cases the expenses of
appraisal, unless there is an agreement to the contrary." It contended that based on the allegations
of the complaint, the loss sustained in the case was P35,506.75 which is only .18% of
P17,420,000.00, the total value of the cargo.
On the other hand, petitioner countered that Article 848 does not apply as it refers to averages and
that a particular average presupposes that the loss or damages is due to an inherent defect of the
goods, an accident of the sea, or a force majeure or the negligence of the crew of the carrier, while
claims for damages due to the negligence of the common carrier are governed by the Civil Code
provisions on Common Carriers.
In its order dated November 23, 1989, the Regional Trial Court sustained private respondent's
contention. In part it stated:
Before the Court for resolution is a motion for reconsideration filed by defendant
through counsel dated October 6, 1989.
The record shows that last August 8, 1989, defendant through counsel filed a motion
to dismiss plaintiff's complaint.
Resolving the said motion last September 18, 1989, the court ruled to defer
resolution thereof until after trial on the merits. In the motion now under
consideration, defendant prays for the reconsideration of the order of September 18,
1989 and in lieu thereof, another order be entered dismissing plaintiff's complaint.
There appears to be good reasons for the court to take a second look at the issues
raised by the defendant.
xxx xxx xxx
It is not disputed defendants that the loss suffered by the shipment is only .18% or
less that 1% of the interest of the consignee on the cargo Invoking the provision of
the Article 848 of the Code of Commerce which reads:
Claims for average shall not be admitted if they do not exceed five
percent of the interest which the claimant may have in the vessels or
cargo if it is gross average, andone percent of the goods damaged if
particular average, deducting in both cases the expenses of
appraisal, unless there is an agreement to the contrary. (Emphasis
supplied)
defendant claims that plaintiff is barred from suing for recovery.
Decisive in this case in whether the loss suffered by the cargo in question is a
"particular average."

Particular average, is a loss happening to the ship, freight, or cargo

which is not be (sic) shared by contributing among all those
interested, but must be borne by the owner of the subject to which it
occurs. (Black's Law Dictionary, Revised Fourth Edition, p. 172, citing
Bargett v. Insurance Co. 3 Bosw. [N.Y.] 395).
as distinguished from general average which
is a contribution by the several interests engaged in the maritime
venture to make good the loss of one of them for the voluntary
sacrifice of a part of the ship or cargo to save the residue of the
property and the lives of those on board, or for extraordinary
expenses necessarily incurred for the common benefit and safety of
all (Ibid., citing California Canneries Co. v. Canton Ins. Office 25 Cal.
App. 303, 143 p. 549-553).
From the foregoing definition, it is clear that the damage on the cargo in question, is
in the nature of the "particular average." Since the loss is less than 1% to the value of
the cargo and there appears to be no allegations as to any agreement defendants
and the consignee of the goods to the contrary, by express provision of the law,
plaintiff is barred from suing for recovery.
WHEREOF, plaintiff's complaint is hereby dismissed for lack of cause of action.
(Rollo, p. 27; Annex A, pp. 3-4).
The petitioner then filed a motion for reconsideration of the order of dismissal but same was denied
by the court in its order dated January 26, 1990 (supra).
Instead of filing an appeal from the order of the court a quo dismissing the complaint for recovery of
a sum of money, American Home Assurance Company filed a petition for certiorari with the Court of
Appeals to set aside the two orders or respondent judge in said court (Rollo, p. 25).
But the Court of Appeals in its decision dated May 30, 1990, dismissed the petition as constituting
plain errors of law and not grave abuse of discretion correctible by certiorari (a Special Civil Action).
If at all, respondent court ruled that there are errors of judgment subject to correction by certiorari as
a mode of appeal but the appeal is to the Supreme Court under Section 17 of the Judiciary Act of
1948 as amended by Republic Act No. 5440. Otherwise stated, respondent Court opined that the
proper remedy is a petition for review on certiorari with the Supreme Court on pure questions of law
(Rollo, p. 30).
Hence, this petition.
In a resolution dated December 10, 1990, this Court gave due course to the petition and required
both parties to file their respective memoranda (Rollo, p. 58).

The procedural issue in this case is whether or not certiorari was the proper remedy in the case
before the Court of Appeals.
The Court of Appeals ruled that appeal is the proper remedy, for aside from the fact that the two
orders dismissing the complaint for lack of cause of action are final orders within the meaning of
Rule 41, Section 2 of the Rules of Court, subject petition raised questions which if at all, constituting
grave abuse of discretion correctible bycertiorari.
Evidently, the Court of Appeals did not err in dismissing the petition for certiorari for as ruled by this
Court, an order of dismissal whether right or wrong is a final order, hence, a proper subject of
appeal, not certiorari (Marahay v. Melicor, 181 SCRA 811 (1990]). However, where the fact remains
that respondent Court of Appeals obviously in the broader interests of justice, nevertheless
proceeded to decide the petition for certiorari and ruled on specific points raised therein in a manner
akin to what would have been done on assignments of error in a regular appeal, the petition therein
was therefore disposed of on the merits and not on a dismissal due to erroneous choice of remedies
or technicalities (Cruz v. I.A.C., 169 SCRA 14 (1989]). Hence, a review of the decision of the Court of
Appeals on the merits against the petitioner in this case is in order.
On the main controversy, the pivotal issue to be resolved is the application of the law on averages
(Articles 806, 809 and 848 of the Code of Commerce).
Petitioner avers that respondent court failed to consider that respondent National Marine Corporation
being a common carrier, in conducting its business is regulated by the Civil Code primarily and
suppletorily by the Code of Commerce; and that respondent court refused to consider the Bill of
Lading as the law governing the parties.
Private respondent countered that in all matters not covered by the Civil Code, the rights and
obligations of the parties shall be governed by the Code of Commerce and by special laws
as provided for in Article 1766 of the Civil Code; that Article 806, 809 and 848 of the Code of
Commerce should be applied suppletorily as they provide for the extent of the common carriers'
liability.
This issue has been resolved by this Court in National Development Co. v. C.A. (164 SCRA 593
[1988]; citingEastern Shipping Lines, Inc. v. I.A.C., 150 SCRA 469, 470 [1987] where it was held that
"the law of the country to which the goods are to be transported persons the liability of the common
carrier in case of their loss, destruction or deterioration." (Article 1753, Civil Code). Thus, for cargoes
transported to the Philippines as in the case at bar, the liability of the carrier is governed primarily by
the Civil Code and in all matters not regulated by said Code, the rights and obligations of common
carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil Code).
Corollary thereto, the Court held further that under Article 1733 of the Civil Code, common carriers
from the nature of their business and for reasons of public policy are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of passengers transported by them
according to all circumstances of each case. Thus, under Article 1735 of the same Code, in all cases
other than those mentioned in Article 1734 thereof, the common carrier shall be presumed to have

been at fault or to have acted negligently, unless it proves that it has observed the extraordinary
diligence required by law (Ibid., p. 595).
But more importantly, the Court ruled that common carriers cannot limit their liability for injury or loss
of goods where such injury or loss was caused by its own negligence. Otherwise stated, the law on
averages under the Code of Commerce cannot be applied in determining liability where there is
negligence (Ibid., p. 606).
Under the foregoing principle and in line with the Civil Code's mandatory requirement of
extraordinary diligence on common carriers in the car care of goods placed in their stead, it is but
reasonable to conclude that the issue of negligence must first be addressed before the proper
provisions of the Code of Commerce on the extent of liability may be applied.
The records show that upon delivery of the shipment in question of Mayleen's warehouse in Manila,
122 bales were found to be damaged/lost with straps cut or loose, calculated by the so-called
"percentage method" at 4,360 kilograms and amounting to P61,263.41 (Rollo, p. 68). Instead of
presenting proof of the exercise of extraordinary diligence as required by law, National Marine
Corporation (NMC) filed its Motion to Dismiss dated August 7, 1989, hypothetically admitting the
truth of the facts alleged in the complaint to the effect that the loss or damage to the 122 bales was
due to the negligence or fault of NMC (Rollo, p. 179). As ruled by this Court, the filing of a motion to
dismiss on the ground of lack of cause of action carries with it the admission of the material facts
pleaded in the complaint (Sunbeam Convenience Foods, Inc. v. C.A., 181 SCRA 443 [1990]). Such
being the case, it is evident that the Code of Commerce provisions on averages cannot apply.
On the other hand, Article 1734 of the Civil Code provides that common carriers are responsible for
loss, destruction or deterioration of the goods, unless due to any of the causes enumerated therein.
It is obvious that the case at bar does not fall under any of the exceptions. Thus, American Home
Assurance Company is entitled to reimbursement of what it paid to Mayleen Paper, Inc. as insurer.
Accordingly, it is evident that the findings of respondent Court of Appeals, affirming the findings and
conclusions of the court a quo are not supported by law and jurisprudence.
PREMISES CONSIDERED, (1) the decisions of both the Court of Appeals and the Regional Trial
Court of Manila, Branch 41, appealed from are REVERSED; and (2) private respondent National
Marine Corporation is hereby ordered to reimburse the subrogee, petitioner American Home
Assurance Company, the amount of P31,506.75.
SO ORDERED.
SECOND DIVISION
[G.R. No. 92288. February 9, 1993.]
BRITISH AIRWAYS, INC., Petitioner, v. THE HON. COURT OF APPEALS, Twelfth Division, and
FIRST INTERNATIONAL TRADING AND GENERAL SERVICES, Respondents.
Quasha, Asperilla, Ancheta, Pea & Nolasco for Petitioner.
Monina P. Lee for Private Respondent.

SYLLABUS

1. CIVIL LAW; DAMAGES; THERE IS VALID CAUSE OF ACTION FOR DAMAGES AGAINST PETITIONER FOR
ITS BREACH OF CONTRACT AND BAD FAITH. Private respondent had a valid cause of action for damages
against petitioner. A cause of action is an act or omission of one party in violation of the legal right or rights
of the other. petitioners repeated failures to transport private respondents workers in its flight despite
confirmed booking of said workers clearly constitutes breach of contract and bad faith on its part.
2. ACTUAL OR COMPENSATORY DAMAGES CANNOT BE PRESUMED BUT MUST BE PROVED WITH
REASONABLE DEGREE OF CERTAINTY; PRIVATE RESPONDENT NOT ENTITLED TO ACTUAL DAMAGES
BECAUSE IT FAILED TO SUPPORT ITS CLAIM THAT IT SUFFERED THEM. In the Complaint filed by
private Respondent. it was alleged that private respondent suffered actual damages in the amount of
P308,016.00 representing the money it borrowed from friends and financiers which is P304,416.00 for the
93 airline tickets and P3,600.00 for the travel tax of the 12 workers. It is clear therefore that the actual
damages private respondent seeks to recover are the airline tickets and travel taxes it spent for its workers
which were already reimbursed by its principal and not for any other expenses it had incurred in the process
of recruiting said contract workers. Inasmuch as all expenses including the processing fees incurred by
private respondent had already been paid for by the latters principal on a staggered basis as admitted in
open court by its managing director, Mrs. Bienvenida Brusellas, We do not find anymore justification in the
appellate courts decision in granting actual damages to private Respondent. Thus, while it may be true that
private respondent was compelled to borrow money for the airfare tickets of its contract workers when
petitioner failed to transport said workers, the reimbursements made by its principal to private respondent
failed to support the latters claim that it suffered actual damages as a result of petitioners failure to
transport said workers. It is undisputed that private respondent had consistently admitted that its principal
and reimbursed all its expenses. Article 2199 of the Civil Code provides that: "Except as provided by law or
by stipulations, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as
he has duly proved. Such compensation is referred to as actual or compensatory damages." Furthermore,
actual or compensatory damages cannot be presumed, but must be duly proved, and proved with
reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact
and amount of damages, but must depend upon competent proof that they have suffered and on evidence
of the actual amount thereof.
3. PRIVATE RESPONDENT, HOWEVER, IS ENTITLED TO AN AWARD OF MORAL AND EXEMPLARY DAMAGES;
REASON; PETITIONERS ALLEGED DAMAGES WERE MERE AFTERTHOUGHTS. However, private respondent
is entitled to an award of moral and exemplary damages for the injury it suffered as a result of petitioners
failure to transport the formers workers because of the latters patent bad faith in the performance of its
obligation. As to the alleged damages suffered by the petitioner as stated in its counterclaims, the record
shows that no claim for said damages was ever made by the petitioner immediately after their alleged
occurrence therefore said counterclaims were mere afterthoughts when private respondent filed the present
case.

DECISION

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision dated November 15, 1989 of the
Court of Appeals 1 affirming the decision of the trial court 2 in ordering petitioner British Airways, Inc. to pay
private respondent First International Trading and General Services actual damages, moral damages,
corrective or exemplary damages, attorneys fees and the costs as well as the Resolution dated February 15,
1990 3 denying petitioners Motion for Reconsideration in the appealed decision.
It appears on record that on February 15, 1981, private respondent First International Trading and General
Services Co., a duly licensed domestic recruitment and placement agency, received a telex message from its
principal ROLACO Engineering and Contracting Services in Jeddah, Saudi Arabia to recruit Filipino contract
workers in behalf of said principal. 4

During the early part of March 1981, said principal paid to the Jeddah branch of petitioner British Airways.
Inc. airfare tickets for 93 contract workers with specific instruction to transport said workers to Jeddah on or
before March 30, 1981.
As soon as petitioner received a prepaid ticket advice from its Jeddah branch to transport the 93 workers,
private respondent was immediately informed by petitioner that its principal had forwarded 93 prepaid
tickets. Thereafter, private respondent instructed its travel agent, ADB Travel and Tours, Inc., to book the 93
workers with petitioner but the latter failed to fly said workers, thereby compelling private respondent to
borrow money in the amount of P304.416.00 in order to purchase airline tickets from the other airlines as
evidenced by the cash vouchers (Exhibits "B", "C" and "C-1 to C-7") for the 93 workers it had recruited who
must leave immediately since the visas of said workers are valid only for 45 days and the Bureau of
Employment Services mandates that contract workers must be sent to the jobsite within a period of 30
days.
cralawnad

Sometime in the first week of June, 1981, private respondent was again informed by the petitioner that it
had received a prepaid ticket advice from its Jeddah branch for the transportation of 27 contract workers.
Immediately, private respondent instructed its travel agent to book the 27 contract workers with the
petitioner but the latter was only able to book and confirm 16 seats on its June 9, 1981 flight. However, on
the date of the scheduled flight only 9 workers were able to board said flight while the remaining 7 workers
were rebooked to June 30, 1981 which bookings were again cancelled by the petitioner without any prior
notice to either private respondent or the workers. Thereafter, the 7 workers were rebooked to the July 4,
1981 flight of petitioner with 6 more workers booked for said flight. Unfortunately, the confirmed bookings of
the 13 workers were again cancelled and rebooked to July 7, 1981.
On July 6, 1981, private respondent paid the travel tax of the said workers as required by the petitioner but
when the receipt of the tax payments was submitted, the latter informed private respondent that it can only
confirm the seats of the 12 workers on its July 7, 1981 flight. However, the confirmed seats of said workers
were again cancelled without any prior notice either to the private respondent or said workers. The 12
workers were finally able to leave for Jeddah after private respondent had bought tickets from the other
airlines.
As a result of these incidents, private respondent sent a letter to petitioner demanding compensation for the
damages it had incurred by the latters repeated failure to transport its contract workers despite confirmed
bookings and payment of the corresponding travel taxes.
chanroblesvirtualawlibrary

On July 23, 1981, the counsel of private respondent sent another letter to the petitioner demanding the
latter to pay the amount of P350,000.00 representing damages and unrealized profit or income which was
denied by the petitioner.
On August 8, 1981, private respondent received a telex message from its principal cancelling the hiring of
the remaining recruited workers due to the delay in transporting the workers to Jeddah. 5
On January 27, 1982, private respondent filed a complaint for damages against petitioner with the Regional
Trial Court of Manila, Branch 1 in Civil Case No. 82-4653.
On the other hand, petitioner alleged in its Answer with counterclaims that it received a telex message from
Jeddah on March 20, 1981 advising that the principal of private respondent had prepaid the airfares of 100
persons to transport private respondents contract workers from Manila to Jeddah on or before March 30,
1981. However, due to the unavailability of space and limited time, petitioner had to return to its sponsor in
Jeddah the prepaid ticket advice consequently not even one of the alleged 93 contract workers were booked
in any of its flights.
On June 5, 1981, petitioner received another prepaid ticket advice to transport 16 contract workers of
private respondent to Jeddah but the travel agent of the private respondent booked only 10 contract workers
for petitioners June 9, 1981 flight. However, only 9 contract workers boarded the scheduled flight with 1
passenger not showing up as evidenced by the Philippine Airlines passenger manifest for Flight BA-020
(Exhibit "7", "7-A", "7-B", & "7-C"). 6
Thereafter, private respondents travel agent booked seats for 5 contract workers on petitioners July 4, 1981
flight but said travel agent cancelled the booking of 2 passengers while the other 3 passengers did not show
up on said flight.

Sometime in July 1981, the travel agent of the private respondent booked 7 more-contract workers in
addition to the previous 5 contract workers who were not able to board the July 4, 1981 flight with the
petitioners July 7, 1981 flight which was accepted by petitioner subject to reconfirmation.
However on July 6, 1981, petitioners computer system broke down which resulted to petitioners failure to
get a reconfirmation from Saudi Arabia Airlines causing the automatic cancellation of the bookings of private
respondents 12 contract workers. In the morning of July 7, 1981, the computer system of the petitioner
was reinstalled and immediately petitioner tried to reinstate the bookings of the 12 workers with either Gulf
Air or Saudi Arabia Airlines out both airlines replied that no seat was available on that date and had to place
the 12 workers on the wait list. Said information was duly relayed to the private respondent and the 12
workers before the scheduled flight.
After due trial or on August 27, 1985, the trial court rendered its decision, the dispositive portion of which
reads as follows:
jgc:chanrobles.com .ph

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

chanroble s law library

"1. Ordering the defendant to pay the plaintiff actual damages in the sum of P308,016.00;
"2. Ordering defendant to pay moral damages to the plaintiff in the amount of P20,000.00;
"3. Ordering the defendant to pay to the plaintiff P10,000.00 by way of corrective or exemplary damages;
"4. Ordering the defendant to pay the plaintiff 30% of its total claim for and as attorneys fees; and
"5. To pay the costs." 7
On March 13, 1986, petitioner appealed said decision to respondent appellate court after the trial court
denied its Motion for Reconsideration on February 28, 1986.
On November 15, 1989, respondent appellate court affirmed the decision of the trial court, the dispositive
portion of which reads:
jgc:chanrobles.com .ph

"WHEREFORE, the decision appealed from is hereby AFFIRMED with costs against the appellant." 8
On December 9, 1989, petitioner filed a Motion for Reconsideration which was also denied.
Hence, this petition.
It is the contention of petitioner that private respondent has no cause of action against it there being no
perfected contract of carriage existing between them as no ticket was ever issued to private respondents
contract workers and. therefore, the obligation of the petitioner to transport said contract workers did not
arise. Furthermore, private respondents failure to attach any ticket in the complaint further proved that it
was never a party to the alleged transaction.
Petitioners contention is untenable.
Private respondent had a valid cause of action for damages against petitioner. A cause of action is an act or
omission of one party in violation of the legal right or rights of the other. 9 petitioners repeated failures to
transport private respondents workers in its flight despite confirmed booking of said workers clearly
constitutes breach of contract and bad faith on its part. In resolving petitioners theory that private
respondent has no cause of action in the instant case, the appellate court correctly held that:
chanroble s.com : virtual law library

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

mere consent of the parties.

"There is no dispute as to the appellees consent to the said contract to carry its contract workers from
Manila to Jeddah. The appellants consent thereto, on the other hand, was manifested by its acceptance of
the PTA or prepaid ticket advice that ROLACO Engineering has prepaid the airfares of the appellees contract
workers advising the appellant that it must transport the contract workers on or before the end of March,
1981 and the other batch in June, 1981.
"Even if a PTA is merely an advice from the sponsors that an airline is authorized to issue a ticket and thus
no ticket was yet issued, the fact remains that the passage had already been paid for by the principal of the
appellee, and the appellant had accepted such payment. The existence of this payment was never objected
to nor questioned by the appellant in the lower court. Thus, the cause or consideration which is the fare paid
for the passengers exists in this case.
"The third essential requisite of a contract is an object certain. In this contract `to carry, such an object is
the transport of the passengers from the place of departure to the place of destination as stated in the telex.
"Accordingly, there could be no more pretensions as to the existence of an oral contract of carriage imposing
reciprocal obligations on both parties.
"In the case of appellee, it has fully complied with the obligation, namely, the payment of the fare and its
willingness for its contract workers to leave for their place of destination.
"On the other hand, the facts clearly show that appellant was remiss in its obligation to transport the
contract workers on their flight despite confirmation and bookings made by appellees travelling agent.
"x

chanroble s law library : red

x.

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

x.

"While there is no dispute that ROLACO Engineering advanced the payment for the airfares of the appellees
contract workers who were recruited for ROLACO Engineering and the said contract workers were the
intended passengers in the aircraft of the appellant, the said contract `to carry also involved the appellee
for as recruiter he had to see to it that the contract workers should be transported to ROLACO Engineering in
Jeddah thru the appellants transportation. For that matter, the involvement of the appellee in the said
contract `to carry was well demonstrated when the appellant upon receiving the PTA immediately advised
the appellee thereof." 10
Petitioner also contends that the appellate court erred in awarding actual damages in the amount of
P308,016.00 to private respondent since all expenses had already been subsequently reimbursed by the
latters principal.
In awarding actual damages to private respondent, the appellate court held that the amount of P308,016.00
representing actual damages refers to private respondents second cause of action involving the expenses
incurred by the latter which were not reimbursed by ROLACO Engineering. However, in the Complaint 11
filed by private Respondent. it was alleged that private respondent suffered actual damages in the amount
of P308,016.00 representing the money it borrowed from friends and financiers which is P304,416.00 for the
93 airline tickets and P3,600.00 for the travel tax of the 12 workers. It is clear therefore that the actual
damages private respondent seeks to recover are the airline tickets and travel taxes it spent for its workers
which were already reimbursed by its principal and not for any other expenses it had incurred in the process
of recruiting said contract workers. Inasmuch as all expenses including the processing fees incurred by
private respondent had already been paid for by the latters principal on a staggered basis as admitted in
open court by its managing director, Mrs. Bienvenida Brusellas, 12 We do not find anymore justification in
the appellate courts decision in granting actual damages to private Respondent.
Thus, while it may be true that private respondent was compelled to borrow money for the airfare tickets of
its contract workers when petitioner failed to transport said workers, the reimbursements made by its

principal to private respondent failed to support the latters claim that it suffered actual damages as a result
of petitioners failure to transport said workers. It is undisputed that private respondent had consistently
admitted that its principal and reimbursed all its expenses.
chanroblesvirtualawlibrary

Article 2199 of the Civil Code provides that:

jgc:chanrobles.com .ph

"Except as provided by law or by stipulations, one is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or
compensatory damages."
cralaw virtua1aw library

Furthermore, actual or compensatory damages cannot be presumed, but must be duly proved, and proved
with reasonable degree of certainty. A court cannot rely on speculation, conjecture or guesswork as to the
fact and amount of damages, but must depend upon competent proof that they have suffered and on
evidence of the actual amount thereof. 13
However, private respondent is entitled to an award of moral and exemplary damages for the injury it
suffered as a result of petitioners failure to transport the formers workers because of the latters patent bad
faith in the performance of its obligation. As correctly pointed out by the appellate court:
jgc:chanroble s.com.ph

"As evidence had proved, there was complete failure on the part of the appellant to transport the 93
contract workers of the appellee on or before March 30, 1981 despite receipt of the payment for their
airfares, and acceptance of the same by the appellant, with specific instructions from the appellees principal
to transport the contract workers on or before March 30, 1981. No previous notice was ever registered by
the appellant that it could not comply with the same. And then followed the detestable act of appellant in
unilaterally cancelling, booking and rebooking unreasonably the flight of appellees contract workers in June
to July, 1981 without prior notice. And all of these actuations of the appellant indeed constitute malice and
evident bad faith which had caused damage and besmirched the reputation and business image of the
appellee." 14
As to the alleged damages suffered by the petitioner as stated in its counterclaims, the record shows that no
claim for said damages was ever made by the petitioner immediately after their alleged occurrence therefore
said counterclaims were mere afterthoughts when private respondent filed the present case.
WHEREFORE, the assailed decision is hereby AFFIRMED with the MODIFICATION that the award of actual
damages be deleted from said decision.
SO ORDERED.

THIRD DIVISION
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap
metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would
bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for
hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles
with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For
that service, respondent charged freight rates which were commonly lower than regular commercial
rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for
the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the law,
should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not
be held responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common
carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P
4,000.00 as damages and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court
of Appeals:
1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p.
111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even
though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although
such back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent'sprincipal 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) holduppers 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.

SECOND DIVISION

G.R. No. 101089. April 7, 1993.

ESTRELLITA M. BASCOS, petitioners,
vs.
COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.
Modesto S. Bascos for petitioner.

Pelaez, Adriano & Gregorio for private respondent.

SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER.
Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water or air, for compensation, offering their services to the public." The test to determine a
common carrier is "whether the given undertaking is a part of the business engaged in by the
carrier which he has held out to the general public as his occupation rather than the quantity or
extent of the business transacted." . . . The holding of the Court in De Guzman vs. Court of
Appeals is instructive. In referring to Article 1732 of the Civil Code, it held thus: "The above
article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local
idiom, as a "sideline"). Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguished between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732 deliberately refrained from
making such distinctions."
2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN
PRESUMPTION OF NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN
PRESUMPTION MADE ABSOLUTE. Common carriers are obliged to observe extraordinary
diligence in the vigilance over the goods transported by them. Accordingly, they are presumed to
have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated.
There are very few instances when the presumption of negligence does not attach and these
instances are enumerated in Article 1734. In those cases where the presumption is applied, the
common carrier must prove that it exercised extraordinary diligence in order to overcome the
presumption . . . The presumption of negligence was raised against petitioner. It was petitioner's
burden to overcome it. Thus, contrary to her assertion, private respondent need not introduce
any evidence to prove her negligence. Her own failure to adduce sufficient proof of
extraordinary diligence made the presumption conclusive against her.
3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER
ABSOLVED FROM LIABILITY. In De Guzman vs. Court of Appeals, the Court held that
hijacking, not being included in the provisions of Article 1734, must be dealt with under the
provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or
negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the
robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is in
accordance with Article 1745 of the Civil Code which provides: "Art. 1745. Any of the following or
similar stipulations shall be considered unreasonable, unjust and contrary to public policy . . . (6)
That the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violences or force, is dispensed with or diminished"; In the same
case, the Supreme Court also held that: "Under Article 1745 (6) above, a common carrier is held
responsible and will not be allowed to divest or to diminish such responsibility even for
acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted
"with grave of irresistible threat, violence of force," We believe and so hold that the limits of the
duty of extraordinary diligence in the vigilance over the goods carried are reached where the

goods are lost as a result of a robbery which is attended by "grave or irresistible threat, violence
or force."
4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. In this case,
petitioner herself has made the admission that she was in the trucking business, offering her
trucks to those with cargo to move. Judicial admissions are conclusive and no evidence is
required to prove the same.
5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. Petitioner
presented no other proof of the existence of the contract of lease. He who alleges a fact has the
burden of proving it.
6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS
WITNESSES. While the affidavit of Juanito Morden, the truck helper in the hijacked truck,
was presented as evidence in court, he himself was a witness as could be gleaned from the
contents of the petition. Affidavits are not considered the best evidence if the affiants are
available as witnesses.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO
BE. Granting that the said evidence were not self-serving, the same were not sufficient to
prove that the contract was one of lease. It must be understood that a contract is what the law
defines it to be and not what it is called by the contracting parties.
DECISION
CAMPOS, JR., J p:
This is a petition for review on certiorari of the decision ** of the Court of Appeals in "RODOLFO
A. CIPRIANO, doing business under the name CIPRIANO TRADING ENTERPRISES plaintiffappellee, vs. ESTRELLITA M. BASCOS, doing business under the name of BASCOS
TRUCKING, defendant-appellant," C.A.-G.R. CV No. 25216, the dispositive portion of which is
quoted hereunder:
"PREMISES considered, We find no reversible error in the decision appealed from, which is
hereby affirmed in toto. Costs against appellant." 1
The facts, as gathered by this Court, are as follows:
Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into
a hauling contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to
haul the latter's 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the
warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its obligation,
CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to
transport and to deliver 400 sacks of soya bean meal worth P156,404.00 from the Manila Port
Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner failed to deliver the
said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping Agency the amount
of the lost goods in accordance with the contract which stated that:
"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking
and non-delivery or damages to the cargo during transport at market value, . . ." 3

Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually,
Cipriano filed a complaint for a sum of money and damages with writ of preliminary attachment
4 for breach of a contract of carriage. The prayer for a Writ of Preliminary Attachment was
supported by an affidavit 5 which contained the following allegations:
"4. That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules of Court,
whereby a writ of preliminary attachment may lawfully issue, namely:
"(e) in an action against a party who has removed or disposed of his property, or is about to do
so, with intent to defraud his creditors;"
5. That there is no sufficient security for the claim sought to be enforced by the present action;
6. That the amount due to the plaintiff in the above-entitled case is above all legal
counterclaims;"
The trial court granted the writ of preliminary attachment on February 17, 1987.
In her answer, petitioner interposed the following defenses: that there was no contract of
carriage since CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to
Laguna; that CIPTRADE was liable to petitioner in the amount of P11,000.00 for loading the
cargo; that the truck carrying the cargo was hijacked along Canonigo St., Paco, Manila on the
night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE and that
petitioner and the police exerted all efforts to locate the hijacked properties; that after
preliminary investigation, an information for robbery and carnapping were filed against Jose
Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from any liability
to CIPTRADE.
After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering
the latter to pay the former:
1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS
(P156,404.00) as an (sic) for actual damages with legal interest of 12% per cent per annum to
be counted from December 4, 1986 until fully paid;
2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and
3. The costs of the suit.
The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by
defendant is DENIED for being moot and academic.
SO ORDERED." 6
Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's
judgment.

Consequently, petitioner filed this petition where she makes the following assignment of errors;
to wit:
"I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL
RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF
GOODS AND NOT LEASE OF CARGO TRUCK.
II. GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT
COURT THAT THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE
RESPONDENT WAS CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN
FINDING PETITIONER LIABLE THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS
DUE TO FORCE MAJEURE, NAMELY, HIJACKING.
III. THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL
COURT THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY
ATTACHMENT HAS BEEN RENDERED MOOT AND ACADEMIC BY THE DECISION OF THE
MERITS OF THE CASE." 7
The petition presents the following issues for resolution: (1) was petitioner a common carrier?;
and (2) was the hijacking referred to a force majeure?
The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted
in her answer that she did business under the name A.M. Bascos Trucking and that said
admission dispensed with the presentation by private respondent, Rodolfo Cipriano, of proofs
that petitioner was a common carrier. The respondent Court also adopted in toto the trial court's
decision that petitioner was a common carrier, Moreover, both courts appreciated the following
pieces of evidence as indicators that petitioner was a common carrier: the fact that the truck
driver of petitioner, Maximo Sanglay, received the cargo consisting of 400 bags of soya bean
meal as evidenced by a cargo receipt signed by Maximo Sanglay; the fact that the truck helper,
Juanito Morden, was also an employee of petitioner; and the fact that control of the cargo was
placed in petitioner's care.
In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier,
she alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing
CIPTRADE, was lease of the truck. She cited as evidence certain affidavits which referred to the
contract as "lease". These affidavits were made by Jesus Bascos 8 and by petitioner herself. 9
She further averred that Jesus Bascos confirmed in his testimony his statement that the contract
was a lease contract. 10 She also stated that: she was not catering to the general public. Thus,
in her answer to the amended complaint, she said that she does business under the same style
of A.M. Bascos Trucking, offering her trucks for lease to those who have cargo to move, not to
the general public but to a few customers only in view of the fact that it is only a small business.
11
We agree with the respondent Court in its finding that petitioner is a common carrier.
Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water or air, for compensation, offering their services to the public." The test to determine a
common carrier is "whether the given undertaking is a part of the business engaged in by the
carrier which he has held out to the general public as his occupation rather than the quantity or

extent of the business transacted." 12 In this case, petitioner herself has made the admission
that she was in the trucking business, offering her trucks to those with cargo to move. Judicial
admissions are conclusive and no evidence is required to prove the same. 13
But petitioner argues that there was only a contract of lease because they offer their services
only to a select group of people and because the private respondents, plaintiffs in the lower
court, did not object to the presentation of affidavits by petitioner where the transaction was
referred to as a lease contract.
Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is
instructive. In referring to Article 1732 of the Civil Code, it held thus:
"The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as a "sideline"). Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or scheduled basis
and one offering such service on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732 deliberately refrained from
making such distinctions."
Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts
have dismissed them as self-serving and petitioner contests the conclusion. We are bound by
the appellate court's factual conclusions. Yet, granting that the said evidence were not selfserving, the same were not sufficient to prove that the contract was one of lease. It must be
understood that a contract is what the law defines it to be and not what it is called by the
contracting parties. 15 Furthermore, petitioner presented no other proof of the existence of the
contract of lease. He who alleges a fact has the burden of proving it. 16
Likewise, We affirm the holding of the respondent court that the loss of the goods was not due
to force majeure.
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. 17 Accordingly, they are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. 18 There are very few instances
when the presumption of negligence does not attach and these instances are enumerated in
Article 1734. 19 In those cases where the presumption is applied, the common carrier must
prove that it exercised extraordinary diligence in order to overcome the presumption.
In this case, petitioner alleged that hijacking constituted force majeure which exculpated her
from liability for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that
hijacking, not being included in the provisions of Article 1734, must be dealt with under the
provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or
negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the
robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is in
accordance with Article 1745 of the Civil Code which provides:
"Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust
and contrary to public policy;

xxx xxx xxx

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not
act with grave or irresistible threat, violences or force, is dispensed with or diminished;"
In the same case, 21 the Supreme Court also held that:
"Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed
to divest or to diminish such responsibility even for acts of strangers like thieves or robbers
except where such thieves or robbers in fact acted with grave or irresistible threat, violence or
force. We believe and so hold that the limits of the duty of extraordinary diligence in the
vigilance over the goods carried are reached where the goods are lost as a result of a robbery
which is attended by "grave or irresistible threat, violence or force."
To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus
Bascos' affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court and the
Court of Appeals have concluded that these affidavits were not enough to overcome the
presumption. Petitioner's affidavit about the hijacking was based on what had been told her by
Juanito Morden. It was not a first-hand account. While it had been admitted in court for lack of
objection on the part of private respondent, the respondent Court had discretion in assigning
weight to such evidence. We are bound by the conclusion of the appellate court. In a petition for
review on certiorari, We are not to determine the probative value of evidence but to resolve
questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the hijacking took
place. Thirdly, while the affidavit of Juanito Morden, the truck helper in the hijacked truck, was
presented as evidence in court, he himself was a witness as could be gleaned from the contents
of the petition. Affidavits are not considered the best evidence if the affiants are available as
witnesses. 25 The subsequent filing of the information for carnapping and robbery against the
accused named in said affidavits did not necessarily mean that the contents of the affidavits
were true because they were yet to be determined in the trial of the criminal cases.
The presumption of negligence was raised against petitioner. It was petitioner's burden to
overcome it. Thus, contrary to her assertion, private respondent need not introduce any
evidence to prove her negligence. Her own failure to adduce sufficient proof of extraordinary
diligence made the presumption conclusive against her.
Having affirmed the findings of the respondent Court on the substantial issues involved, We find
no reason to disturb the conclusion that the motion to lift/dissolve the writ of preliminary
attachment has been rendered moot and academic by the decision on the merits.
In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be
sustained. The petition is DISMISSED and the decision of the Court of Appeals is hereby
AFFIRMED.
SO ORDERED.

THIRD DIVISION

[G.R. No. 112287. December 12, 1997]

NATIONAL
STEEL
CORPORATION,petitioner, vs. COURT
APPEALS AND VLASONS SHIPPING, INC.,respondents.

OF

[G.R. No. 112350. December 12, 1997]

VLASONS SHIPPING, INC., petitioner, vs.COURT OF APPEALS AND

NATIONAL STEEL CORPORATION, respondents.
DECISION
PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of

a private carrier, its owners responsibility for damage to the cargo and its
liability for demurrage and attorneys fees. The Court also reiterates the wellknown rule that findings of facts of trial courts, when affirmed by the Court of
Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel
Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the
August 12, 1993 Decision of the Court of Appeals. The Court of Appeals
modified the decision of the Regional Trial Court of Pasig, Metro Manila,
Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
[1]

WHEREFORE, judgment is hereby rendered in favor of defendant and against the

plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff to
pay the defendant on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight andP88,000.00 as demurrage with interest
at the legal rate on both amounts from April 7, 1976 until the same shall have been
fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.

SO ORDERED.

[2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by
reducing the award for demurrage toP44,000.00 and deleting the award for attorneys
fees and expenses of litigation. Except as thus modified, the decision is
AFFIRMED. There is no pronouncement as to costs.
SO ORDERED.

[3]

The Facts
The MV Vlasons I is a vessel which renders tramping service and, as
such, does not transport cargo or shipment for the general public. Its services
are available only to specific persons who enter into a special contract of
charter party with its owner. It is undisputed that the ship is a private
carrier. And it is in this capacity that its owner, Vlasons Shipping, Inc., entered
into a contract of affreightment or contract of voyage charter hire with National
Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and
defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage
Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the MV
VLASONS I to make one (1) voyage to load steel products at Iligan City and
discharge them at North Harbor, Manila, under the following terms and
conditions, viz:
1. x x

xx

x x.

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Masters option.
3. x x

xx

xx

4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of

Bill of Lading within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of

24 consecutive hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. x x

xx

xx

9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes.

Shipowners not responsible for losses/damages except on proven willful negligence of
the officers of the vessel.
10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other
internationally recognized Charter Party Agreement shall form part of this Contract.
xxx

xxx

x x x

The terms F.I.O.S.T. which is used in the shipping business is a standard provision in
the NANYOZAI Charter Party which stands for Freight In and Out including
Stevedoring and Trading, which means that the handling, loading and unloading of
the cargoes are the responsibility of the Charterer. Under Paragraph 5 of the
NANYOZAI Charter Party, it states, Charterers to load, stow and discharge the
cargo free of risk and expenses to owners. x x x (Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the holds and all other parts of
the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of
the owners to make the vessel seaworthy, and to secure that the vessel is properly
manned, equipped and supplied and to make the holds and all other parts of the vessel
in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in
bulk or weight or any other loss or damage arising from inherent defect, quality or
vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due
diligence; any other cause arising without the actual fault or privity of Owners or
without the fault of the agents or servants of owners.
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not
be responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master and crew.

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter
Hire, the MV VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs
shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of
1,769 packages with a total weight of about 2,481.19 metric tons for carriage to
Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate
Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo
on board and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D)
on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12,
1974. The following day, August 13, 1974, when the vessels three (3) hatches
containing the shipment were opened by plaintiffs agents, nearly all the skids of
tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo
was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due to
the heavy rain which interrupted the unloading operations. (Exhibit E)
(4) To determine the nature and extent of the wetting and rusting, NSC called for a
survey of the shipment by the Manila Adjusters and Surveyors Company
(MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit G), MASCO made
a report of its ocular inspection conducted on the cargo, both while it was still on
board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila
where the cargo was taken and stored. MASCO reported that it found wetting and
rusting of the packages of hot rolled sheets and metal covers of the tinplates; that
tarpaulin hatch covers were noted torn at various extents; that container/metal casings
of the skids were rusting all over. MASCO ventured the opinion that rusting of the
tinplates was caused by contact with SEA WATER sustained while still on board the
vessel as a consequence of the heavy weather and rough seas encountered while en
route to destination (Exhibit F). It was also reported that MASCOs surveyors drew
at random samples of bad order packing materials of the tinplates and delivered the
same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T.
Testing Laboratories issued Report No. 1770 (Exhibit I) which in part, states, The
analysis of bad order samples of packing materials xxx shows that wetting was caused
by contact with SEA WATER.
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff
filed with the defendant its claim for damages suffered due to the downgrading of the
damaged tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff
formally demanded payment of said claim but defendant VSI refused and failed to
pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was
docketed as Civil Case No. 23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount
of P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the
defendant to make the vessel seaworthy and to make the holds and all other parts of
the vessel in which the cargo was carried, fit and safe for its reception, carriage and
preservation -- all in violation of defendants undertaking under their Contract of
Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that the
MV VLASONS I was seaworthy in all respects for the carriage of plaintiffs cargo;
that said vessel was not a common carrier inasmuch as she was under voyage
charter contract with the plaintiff as charterer under the charter party; that in the
course of the voyage from Iligan City to Manila, the MV VLASONS I encountered
very rough seas, strong winds and adverse weather condition, causing strong winds
and big waves to continuously pound against the vessel and seawater to overflow on
its deck and hatch covers; that under the Contract of Voyage Charter Hire, defendant
shall not be responsible for losses/damages except on proven willful negligence of the
officers of the vessel, that the officers of said MV VLASONS I exercised due
diligence and proper seamanship and were not willfully negligent; that furthermore
the Voyage Charter Party provides that loading and discharging of the cargo was on
FIOST terms which means that the vessel was free of risk and expense in connection
with the loading and discharging of the cargo; that the damage, if any, was due to the
inherent defect, quality or vice of the cargo or to the insufficient packing thereof or to
latent defect of the cargo not discoverable by due diligence or to any other cause
arising without the actual fault or privity of defendant and without the fault of the
agents or servants of defendant; consequently, defendant is not liable; that the
stevedores of plaintiff who discharged the cargo in Manila were negligent and did not
exercise due care in the discharge of the cargo; and that the cargo was exposed to rain
and seawater spray while on the pier or in transit from the pier to plaintiffs warehouse
after discharge from the vessel; and that plaintiffs claim was highly speculative and
grossly exaggerated and that the small stain marks or sweat marks on the edges of the
tinplates were magnified and considered total loss of the cargo. Finally, defendant
claimed that it had complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it
alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under
the Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter
hire ofP75,000.00 despite demands made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay
defendant the sum of P8,000.00 per day for demurrage. The vessel was on demurrage

for eleven (11) days in Manila waiting for plaintiff to discharge its cargo from the
vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount
of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be
ordered to pay defendant attorneys fees and all expenses of litigation in the amount of
not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the
following findings which were set forth in its decision:
(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping
service and is available for hire only under special contracts of charter party as in this
particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire
(Exh. 1), the MV VLASONS I was covered by the required seaworthiness
certificates including the Certification of Classification issued by an international
classification society, the NIPPON KAIJI KYOKAI (Exh. 4); Coastwise License
from the Board of Transportation (Exh. 5); International Loadline Certificate from
the Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also
from the Philippine Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8);
Certificate of Inspection by the Philippine Coast Guard (Exh. 12); and Certificate of
Approval for Conversion issued by the Bureau of Customs (Exh. 9). That being a
vessel engaged in both overseas and coastwise trade, the MV VLASONS I has a
higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract
of Voyage Charter Hire, the MV VLASONS I underwent drydocking in Cebu and
was thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was
the vessels first voyage after the drydocking. The evidence shows that the MV
VLASONS I was seaworthy and properly manned, equipped and supplied when it
undertook the voyage. It had all the required certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The
hatch openings were covered by hatchboards which were in turn covered by two or
double tarpaulins. The hatch covers were water tight. Furthermore, under the
hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not
supported by evidence. The provisions of the Civil Code on common carriers
pursuant to which there exists a presumption of negligence in case of loss or damage

to the cargo are not applicable. As to the damage to the tinplates which was allegedly
due to the wetting and rusting thereof, there is unrebutted testimony of witness
Vicente Angliongto that tinplates sweat by themselves when packed even without
being in contract (sic) with water from outside especially when the weather is bad or
raining. The rust caused by sweat or moisture on the tinplates may be considered as a
loss or damage but then, defendant cannot be held liable for it pursuant to Article 1734
of the Civil Case which exempts the carrier from responsibility for loss or damage
arising from the character of the goods x x x. All the 1,769 skids of the tinplates
could not have been damaged by water as claimed by plaintiff. It was shown as
claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining
and corrugated cardboards could not be affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were
negligent in not closing the hatch openings of the MV VLASONS I when rains
occurred during the discharging of the cargo thus allowing rainwater to enter the
hatches. It was proven that the stevedores merely set up temporary tents to cover the
hatch openings in case of rain so that it would be easy for them to resume work when
the rains stopped by just removing the tent or canvas. Because of this improper
covering of the hatches by the stevedores during the discharging and unloading
operations which were interrupted by rains, rainwater drifted into the cargo through
the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party
which was expressly made part of the Contract of Voyage Charter Hire, the loading,
stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer
and defendant carrier has no liability for whatever damage may occur or maybe [sic]
caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather
while en route from Iligan City to Manila causing sea water to splash on the ships
deck on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a
Marine Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant
as a force majeure that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the
Voyage Charter Hire contract that it was to insure the cargo because it did not. Had
plaintiff complied with the requirement, then it could have recovered its loss or
damage from the insurer. Plaintiff also violated the charter party contract when it
loaded not only steel products, i.e. steel bars, angular bars and the like but also
tinplates and hot rolled sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate.
(I) As regards defendants counterclaim, the contract of voyage charter hire under
paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant

carrier upon presentation of the bill of lading within fifteen (15) days. Plaintiff has not
paid the total freight due of P75,000.00 despite demands. The evidence also showed
that the plaintiff was required and bound under paragraph 7 of the same Voyage
Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the unloading
of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff
liable to pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six
errors:
I

The trial court erred in finding that the MV VLASONS I was seaworthy,
properly manned, equipped and supplied, and that there is no proof of willful
negligence of the vessels officers.
II

The trial court erred in finding that the rusting of NSCs tinplates was due to
the inherent nature or character of the goods and not due to contact with
seawater.
III

The trial court erred in finding that the stevedores hired by NSC were
negligent in the unloading of NSCs shipment.
IV

The trial court erred in exempting VSI from liability on the ground of force
majeure.
V

The trial court erred in finding that NSC violated the contract of voyage charter
hire.
VI

The trial court erred in ordering NSC to pay freight, demurrage and attorneys
fees, to VSI.
[4]

As earlier stated, the Court of Appeals modified the decision of the trial
court by reducing the demurrage fromP88,000.00 to P44,000.00 and deleting
the award of attorneys fees and expenses of litigation. NSC and VSI filed
separate motions for reconsideration. In a Resolution dated October 20,
1993, the appellate court denied both motions. Undaunted, NSC and VSI filed
their respective petitions for review before this Court. On motion of VSI, the
Court ordered on February 14, 1994 the consolidation of these petitions.
[5]

[6]

The Issues
In its petition and memorandum, NSC raises the following questions of
law and fact:
[7]

[8]

Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo
unloading delays caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7,
8, 9, 11 and 12) were admissible in evidence and constituted evidence of the
vessels seaworthiness at the beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from
liability for cargo damage.

Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessels officers and crew were negligent in handling and caring for
NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence,
rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting
of NSCs tinplates.

In its separate petition, VSI submits for the consideration of this Court the
following alleged errors of the CA:
[9]

A. The respondent Court of Appeals committed an error of law in reducing the

award of demurrage from P88,000.00 toP44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award
of P100,000 for attorneys fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its
memorandum:
[10]

I. Whether or not the provisions of the Civil Code of the Philippines on common
carriers pursuant to which there exist[s] a presumption of negligence against the

common carrier in case of loss or damage to the cargo are applicable to a private
carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire,
including the Nanyozai Charter, are valid and binding on both contracting parties.
The foregoing issues raised by the parties will be discussed under the
following headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in
respect of the demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC
as a common carrier or as a private carrier. The resolution of this preliminary
question determines the law, standard of diligence and burden of proof
applicable to the present case.
Article 1732 of the Civil Code defines a common carrier as persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public. It has been held that the
true test of a common carrier is the carriage of passengers or goods, provided
it has space, for all who opt to avail themselves of its transportation service for
a fee. A carrier which does not qualify under the above test is deemed a
private carrier. Generally, private carriage is undertaken by special
agreement and the carrier does not hold himself out to carry goods for the
general public. The most typical, although not the only form of private
carriage, is the charter party, a maritime contract by which the charterer, a
party other than the shipowner, obtains the use and service of all or some part
of a ship for a period of time or a voyage or voyages.
[11]

[12]

In the instant case, it is undisputed that VSI did not offer its services to the
general public. As found by the Regional Trial Court, it carried passengers or
goods only for those it chose under a special contract of charter party. As
correctly concluded by the Court of Appeals, the MV Vlasons I was not a
common but a private carrier. Consequently, the rights and obligations of
VSI and NSC, including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private carriage or
charter party. Recently, in Valenzuela Hardwood and Industrial Supply,
Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, the
Court ruled:
[13]

[14]

[15]

[16]

x x x in a contract of private carriage, the parties may freely stipulate their duties
and obligations which perforce would be binding on them. Unlike in a contract
involving a common carrier, private carriage does not involve the general
public. Hence, the stringent provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. Consequently, the public policy embodied
therein is not contravened by stipulations in a charter party that lessen or remove the
protection given by law in contracts involving common carriers.
[17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17,
1974, that VSI shall not be responsible for losses except on proven willful
negligence of the officers of the vessel. The NANYOZAI Charter Party, which
was incorporated in the parties contract of transportation, further provided that
the shipowner shall not be liable for loss of or damage to the cargo arising or
resulting from unseaworthiness, unless the same was caused by its lack of
due diligence to make the vessel seaworthy or to ensure that the same was
properly manned, equipped and supplied, and to make the holds and all
other parts of the vessel in which cargo [was] carried, fit and safe for its
reception, carriage and preservation. The NANYOZAI Charter Party also
provided that [o]wners shall not be responsible for split, chafing and/or any
damage unless caused by the negligence or default of the master or crew.
[18]

[19]

Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove
that the damage to its shipment was caused by VSIs willful negligence or

failure to exercise due diligence in making MV Vlasons Iseaworthy and fit for
holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof
was placed on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently
provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if
the contrary has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the
transportation, due to fortuitous event, force majeure, or the nature and inherent defect
of the things, shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause
mentioned in the preceding article if proofs against him show that they occurred on
account of his negligence or his omission to take the precautions usually adopted by
careful persons, unless the shipper committed fraud in the bill of lading, making him
to believe that the goods were of a class or quality different from what they really
were.
Because the MV Vlasons I was a private carrier, the shipowners
obligations are governed by the foregoing provisions of the Code of
Commerce and not by the Civil Code which, as a general rule, places
the prima faciepresumption of negligence on a common carrier. It is a
hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on
the plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that
the goods were lost or damaged while in the carriers custody does not put the burden
of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care
in the protection of the goods committed to its care, the burden of proving negligence
or a breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo
while in the carriers possession does not cast on it the burden of proving proper care
and diligence on its part or that the loss occurred from an excepted cause in the
contract or bill of lading. However, in discharging the burden of proof, plaintiff is
entitled to the benefit of the presumptions and inferences by which the law aids the
bailor in an action against a bailee, and since the carrier is in a better position to know

the cause of the loss and that it was not one involving its liability, the law requires that
it come forward with the information available to it, and its failure to do so warrants
an inference or presumption of its liability. However, such inferences and
presumptions, while they may affect the burden of coming forward with evidence, do
not alter the burden of proof which remains on plaintiff, and, where the carrier comes
forward with evidence explaining the loss or damage, the burden of going forward
with the evidence is again on plaintiff.
Where the action is based on the shipowners warranty of seaworthiness, the burden
of proving a breach thereof and that such breach was the proximate cause of the
damage rests on plaintiff, and proof that the goods were lost or damaged while in the
carriers possession does not cast on it the burden of proving seaworthiness. x x x
Where the contract of carriage exempts the carrier from liability for unseaworthiness
not discoverable by due diligence, the carrier has the preliminary burden of proving
the exercise of due diligence to make the vessel seaworthy.
[20]

In the instant case, the Court of Appeals correctly found that NSC has not
taken the correct position in relation to the question of who has the burden of
proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the
NANYOZAI Charter Party (incidentally plaintiff-appellants [NSCs]
interpretation of Clause 12 is not even correct), it argues that a careful
examination of the evidence will show that VSI miserably failed to comply with
any of these obligations as if defendant-appellee [VSI] had the burden of
proof.
[21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual
questions is manifestly relevant: (1) whether VSI exercised due diligence in
making MV Vlasons I seaworthy for the intended purpose under the charter
party; (2) whether the damage to the cargo should be attributed to the willful
negligence of the officers and crew of the vessel or of the stevedores hired by
NSC; and (3) whether the rusting of the tinplates was caused by its own
sweat or by contact with seawater.
These questions of fact were threshed out and decided by the trial court,
which had the firsthand opportunity to hear the parties conflicting claims and
to carefully weigh their respective evidence. The findings of the trial court
were subsequently affirmed by the Court of Appeals. Where the factual
findings of both the trial court and the Court of Appeals coincide, the same are
binding on this Court. We stress that, subject to some exceptional
[22]

instances, only questions of law -- not questions of fact -- may be raised

before this Court in a petition for review under Rule 45 of the Rules of
Court. After a thorough review of the case at bar, we find no reason to disturb
the lower courts factual findings, as indeed NSC has not successfully proven
the application of any of the aforecited exceptions.
[23]

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make
the ship seaworthy and fit for the carriage of NSCs cargo of steel and
tinplates. This is shown by the fact that it was drydocked and inspected by
the Philippine Coast Guard before it proceeded to Iligan City for its voyage to
Manila under the contract of voyage charter hire. The vessels voyage from
Iligan to Manila was the vessels first voyage after drydocking. The Philippine
Coast Guard Station in Cebu cleared it asseaworthy, fitted and equipped; it
met all requirements for trading as cargo vessel. The Court of Appeals itself
sustained the conclusion of the trial court that MV Vlasons I was
seaworthy. We find no reason to modify or reverse this finding of both the trial
and the appellate courts.
[24]

[25]

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to
the cargo was caused by the negligence of the officers and the crew of MV
Vlasons Iin making their vessel seaworthy and fit for the carriage of
tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an
old and torn tarpaulin or canvas to cover the hatches through which the cargo
was loaded into the cargo hold of the ship. It faults the Court of Appeals for
failing to consider such claim as an uncontroverted fact and denies
that MV Vlasons Iwas equipped with new canvas covers in tandem with the
old ones as indicated in the Marine Protest xxx. We disagree.
[26]

[27]

The records sufficiently support VSIs contention that the ship used the old
tarpaulin, only in addition to the new one used primarily to make the ships
hatches watertight. The foregoing are clear from the marine protest of the
master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the
ships boatswain, Jose Pascua. The salient portions of said marine protest
read:

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of
August 8, 1974, loaded with approximately 2,487.9 tons of steel plates and tin plates
consigned to National Steel Corporation; that before departure, the vessel was rigged,
fully equipped and cleared by the authorities; that on or about August 9, 1974, while
in the vicinity of the western part of Negros and Panay, we encountered very rough
seas and strong winds and Manila office was advised by telegram of the adverse
weather conditions encountered; that in the morning of August 10, 1974, the weather
condition changed to worse and strong winds and big waves continued pounding the
vessel at her port side causing sea water to overflow on deck andhatch (sic) covers
and which caused the first layer of the canvass covering to give way while the new
canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by
Mindoro; that we re-secured the canvass covering back to position; that in the
afternoon of August 10, 1974, while entering Maricaban Passage, we were again
exposed to moderate seas and heavy rains; that while approaching Fortune Island, we
encountered again rough seas, strong winds and big waves which caused the same
canvass to give way and leaving the new canvass holding on;
xxx

xxx
xxx

[28]

And the relevant portions of Jose Pascuas deposition are as follows:

Q: What is the purpose of the canvas cover?
A:

So that the cargo would not be soaked with water.

A:

And will you describe how the canvas cover was secured on the hatch opening?

WITNESS
A:

It was placed flat on top of the hatch cover, with a little canvas flowing over the
sides and we place[d] a flat bar over the canvas on the side of the hatches and
then we place[d] a stopper so that the canvas could not be removed.

ATTY DEL ROSARIO

Q: And will you tell us the size of the hatch opening? The length and the width of the
hatch opening.
A:

Forty-five feet by thirty-five feet, sir.

x
xxx

Q: How was the canvas supported in the middle of the hatch opening?
A:

There is a hatch board.

ATTY DEL ROSARIO

Q: What is the hatch board made of?

A:

It is made of wood, with a handle.

Q: And aside from the hatch board, is there any other material there to cover the
hatch?
A:

There is a beam supporting the hatch board.

Q: What is this beam made of?

A:

It is made of steel, sir.

Q: Is the beam that was placed in the hatch opening covering the whole hatch
opening?
A:

No, sir.

Q: How many hatch beams were there placed across the opening?
A:

There are five beams in one hatch opening.

ATTY DEL ROSARIO

Q: And on top of the beams you said there is a hatch board. How many pieces of
wood are put on top?
A:

Plenty, sir, because there are several pieces on top of the hatch beam.

Q: And is there a space between the hatch boards?

A:

There is none, sir.

Q: They are tight together?

A:

Yes, sir.

Q: How tight?
A:

Very tight, sir.

Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many
canvas covers?
A:

Two, sir. [29]

That due diligence was exercised by the officers and the crew of the MV
Vlasons I was further demonstrated by the fact that, despite encountering
rough weather twice, the new tarpaulin did not give way and the ships
hatches and cargo holds remained waterproof. As aptly stated by the Court of
Appeals, xxx we find no reason not to sustain the conclusion of the lower
court based on overwhelming evidence, that the MV VLASONS I was
seaworthy when it undertook the voyage on August 8, 1974 carrying on board
thereof plaintiff-appellants shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769 packages from NSCs pier in
Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12,
1974; xxx.
[30]

Indeed, NSC failed to discharge its burden to show negligence on the part
of the officers and the crew of MV Vlasons I. On the contrary, the records
reveal that it was the stevedores of NSC who were negligent in unloading the
cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches
when strong rains occasioned by a passing typhoon disrupted the unloading
of the cargo. This tent-like covering, however, was clearly inadequate for
keeping rain and seawater away from the hatches of the ship. Vicente
Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you
went on board the vessel upon notice from the National Steel Corporation in order
to conduct the inspection of the cargo. During the course of the investigation, did
you chance to see the discharging operation?
WITNESS:
A:

Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already
discharged on the pier but majority of the tinplates were inside the hall, all the
hatches were opened.

Q: In connection with these cargoes which were unloaded, where is the place.
A:

At the Pier.

Q: What was used to protect the same from weather?

ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct
examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A:

A base of canvas was used as cover on top of the tin plates, and tents were built
at the opening of the hatches.

Q: You also stated that the hatches were already opened and that there were tents
constructed at the opening of the hatches to protect the cargo from the rain. Now,
will you describe [to] the Court the tents constructed.

A:

The tents are just a base of canvas which look like a tent of an Indian camp
raise[d] high at the middle with the whole side separated down to the hatch, the
size of the hatch and it is soaks [sic] at the middle because of those weather and
this can be used only to temporarily protect the cargo from getting wet by rains.

Q: Now, is this procedure adopted by the stevedores of covering tents proper?

A:

No, sir, at the time they were discharging the cargo, there was a typhoon passing
by and the hatch tent was not good enough to hold all of it to prevent the water
soaking through the canvas and enter the cargo.

Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water
enter and soak into the canvas and tinplates.
A:

Yes, sir, the second time I went there, I saw it.

Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this
tent covering of the hatches?
A:

Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, I called the attention of the representative of the
National Steel but nothing was done, just the same. Finally, I wrote a letter to
them. [31]

NSC attempts to discredit the testimony of Angliongto by questioning his

failure to complain immediately about the stevedores negligence on the first
day of unloading, pointing out that he wrote his letter to petitioner only seven
days later. The Court is not persuaded. Angliongtos candid answer in his
aforequoted testimony satisfactorily explained the delay. Seven days lapsed
because he first called the attention of the stevedores, then the NSCs
representative, about the negligent and defective procedure adopted in
unloading the cargo. This series of actions constitutes a reasonable response
in accord with common sense and ordinary human experience. Vicente
Angliongto could not be blamed for calling the stevedores attention first and
then the NSCs representative on location before formally informing NSC of
the negligence he had observed, because he was not responsible for the
stevedores or the unloading operations. In fact, he was merely expressing
concern for NSC which was ultimately responsible for the stevedores it had
hired and the performance of their task to unload the cargo.
[32]

We see no reason to reverse the trial and the appellate courts findings
and conclusions on this point,viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that
the stevedores hired by NSC were negligent in the unloading of NSCs shipment. We
do not think so. Such negligence according to the trial court is evident in the
stevedores hired by [NSC], not closing the hatch of MV VLASONS I when rains
occurred during the discharging of the cargo thus allowing rain water and seawater

spray to enter the hatches and to drift to and fall on the cargo. It was proven that the
stevedores merely set up temporary tents or canvas to cover the hatch openings when
it rained during the unloading operations so that it would be easier for them to resume
work after the rains stopped by just removing said tents or canvass. It has also been
shown that on August 20, 1974, VSI President Vicente Angliongto wrote [NSC]
calling attention to the manner the stevedores hired by [NSC] were discharging the
cargo on rainy days and the improper closing of the hatches which allowed continuous
heavy rain water to leak through and drip to the tinplates covers and [Vicente
Angliongto] also suggesting that due to four (4) days continuos rains with strong
winds that the hatches be totally closed down and covered with canvas and the hatch
tents lowered. (Exh 13). This letter was received by [NSC] on 22 August 1974
while discharging operations were still going on (Exhibit 13-A).
[33]

The fact that NSC actually accepted and proceeded to remove the cargo
from the ship during unfavorable weather will not make VSI liable for any
damage caused thereby. In passing, it may be noted that the NSC may seek
indemnification, subject to the laws on prescription, from the stevedoring
company at fault in the discharge operations. A stevedore company engaged
in discharging cargo xxx has the duty to load the cargo xxx in a prudent
manner, and it is liable for injury to, or loss of, cargo caused by its negligence
xxx and where the officers and members and crew of the vessel do nothing
and have no responsibility in the discharge of cargo by stevedores xxx the
vessel is not liable for loss of, or damage to, the cargo caused by the
negligence of the stevedores xxx as in the instant case.
[34]

Do Tinplates Sweat?
The trial court relied on the testimony of Vicente Angliongto in finding that
xxx tinplates sweat by themselves when packed even without being in
contact with water from outside especially when the weather is bad or raining
xxx. The Court of Appeals affirmed the trial courts finding.
[35]

A discussion of this issue appears inconsequential and unnecessary. As

previously discussed, the damage to the tinplates was occasioned not by
airborne moisture but by contact with rain and seawater which the stevedores
negligently allowed to seep in during the unloading.
Second Issue: Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of

Voyage Charter Hire is totally separate and distinct from the contractual or
statutory responsibility that may be incurred by VSI for damage to the cargo
caused by the willful negligence of the officers and the crew of MV Vlasons
I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right,
as owner and real party in interest, to file an action against VSI for damages
caused by the latters willful negligence. We do not find anything in the
charter party that would make the liability of VSI for damage to the cargo
contingent on or affected in any manner by NSCs obtaining an insurance over
the cargo.
Third Issue: Admissibility of Certificates Proving Seaworthiness
NSCs contention that MV Vlasons I was not seaworthy is anchored on the
alleged inadmissibility of the certificates of seaworthiness offered in evidence
by VSI. The said certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]

NSC argues that the certificates are hearsay for not having been
presented in accordance with the Rules of Court. It points out that Exhibits 3,
4 and 11 allegedly are not written records or acts of public officers;
while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official
publications or certified true copies as required by Sections 25 and 26, Rule
132, of the Rules of Court.
[37]

After a careful examination of these exhibits, the Court rules that Exhibits
3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have not been properly
offered as evidence. Exhibits 3 and 4 are certificates issued by private
parties, but they have not been proven by one who saw the writing executed,
or by evidence of the genuineness of the handwriting of the maker, or by a
subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are photocopies, but their
admission under the best evidence rule have not been demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled
exception to the hearsay rule per Section 44 of Rule 130 of the Rules of
Court, which provides that (e)ntries in official records made in the

performance of a duty by a public officer of the Philippines, or by a person in

the performance of a duty specially enjoined by law, are prima facie evidence
of the facts therein stated. Exhibit 11 is an original certificate of the
Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C.
Flores to the effect that the vessel VLASONS I was drydocked x x x and
PCG Inspectors were sent on board for inspection x x x. After completion of
drydocking and duly inspected by PCG Inspectors, the vessel VLASONS I, a
cargo vessel, is in seaworthy condition, meets all requirements, fitted and
equipped for trading as a cargo vessel was cleared by the Philippine Coast
Guard and sailed for Cebu Port on July 10, 1974. (sic) NSCs claim,
therefore, is obviously misleading and erroneous.
[38]

At any rate, it should be stressed that that NSC has the burden of proving
that MV Vlasons I was not seaworthy. As observed earlier, the vessel was a
private carrier and, as such, it did not have the obligation of a common carrier
to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its
duty of proving the willful negligence of VSI in making the ship seaworthy
resulting in damage to its cargo. Assailing the genuineness of the certificate
of seaworthiness is not sufficient proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorneys Fees
The contract of voyage charter hire provides inter alia:
xxx

xxx
xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at
Masters option.
xxx

xxx
xxx

6. Loading/Discharging Rate : 750 tons per WWDSHINC.

7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day.

[39]

The Court defined demurrage in its strict sense as the compensation

provided for in the contract of affreightment for the detention of the vessel
beyond the laytime or that period of time agreed on for loading and unloading
of cargo. It is given to compensate the shipowner for the nonuse of the
vessel. On the other hand, the following is well-settled:
[40]

Laytime runs according to the particular clause of the charter party. x x x If laytime
is expressed in running days, this means days when the ship would be run
continuously, and holidays are not excepted. A qualification of weather permitting
excepts only those days when bad weather reasonably prevents the work
contemplated.
[41]

In this case, the contract of voyage charter hire provided for a four-day
laytime; it also qualified laytime as WWDSHINC or weather working days
Sundays and holidays included. The running of laytime was thus made
subject to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo. Consequently, NSC may not
be held liable for demurrage as the four-day laytime allowed it did not lapse,
having been tolled by unfavorable weather condition in view of the
WWDSHINC qualification agreed upon by the parties. Clearly, it was error for
the trial court and the Court of Appeals to have found and affirmed
respectively that NSC incurred eleven days of delay in unloading the
cargo. The trial court arrived at this erroneous finding by subtracting from the
twelve days, specifically August 13, 1974 to August 24, 1974, the only day of
unloading unhampered by unfavorable weather or rain which was August 22,
1974. Based on our previous discussion, such finding is a reversible error. As
mentioned, the respondent appellate court also erred in ruling that NSC was
liable to VSI for demurrage, even if it reduced the amount by half.
[42]

[43]

Attorneys Fees
VSI assigns as error of law the Court of Appeals deletion of the award of
attorneys fees. We disagree. While VSI was compelled to litigate to protect
its rights, such fact by itself will not justify an award of attorneys fees under
Article 2208 of the Civil Code when x x x no sufficient showing of bad faith
would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause x x x. Moreover, attorneys fees
may not be awarded to a party for the reason alone that the judgment
rendered was favorable to the latter, as this is tantamount to imposing a
premium on ones right to litigate or seek judicial redress of legitimate
grievances.
[44]

[45]

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and
who caused the damage to the cargo? Ranged against NSC are two
formidable truths. First, both lower courts found that such damage was
brought about during the unloading process when rain and seawater seeped
through the cargo due to the fault or negligence of the stevedores employed
by it. Basic is the rule that factual findings of the trial court, when affirmed by
the Court of Appeals, are binding on the Supreme Court. Although there are
settled exceptions, NSC has not satisfactorily shown that this case is one of
them. Second, the agreement between the parties -- the Contract of Voyage
Charter Hire -- placed the burden of proof for such loss or damage upon the
shipper, not upon the shipowner. Such stipulation, while disadvantageous to
NSC, is valid because the parties entered into a contract of private charter, not
one of common carriage. Basic too is the doctrine that courts cannot relieve a
party from the effects of a private contract freely entered into, on the ground
that it is allegedly one-sided or unfair to the plaintiff. The charter party is a
normal commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport price
which is determined not only by the actual costs but also by the risks and
burdens assumed by the shipper in regard to possible loss or damage to the
cargo. In recognition of such factors, the parties even stipulated that the
shipper should insure the cargo to protect itself from the risks it undertook
under the charter party. That NSC failed or neglected to protect itself with
such insurance should not adversely affect VSI, which had nothing to do with
such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions
are hereby DENIED. The questioned Decision of the Court of Appeals is
AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is
deleted. No pronouncement as to costs.
SO ORDERED.

SECOND DIVISION
[G.R. No. 111127. July 26, 1996]

MR.

&
MRS.
ENGRACIO
FABRE,
JR. * and
PORFIRIO
CABIL, petitioners, vs.COURT OF APPEALS, THE WORD FOR
THE WORLD CHRISTIAN FELLOWSHIP, INC., AMYLINE
ANTONIO, JOHN RICHARDS, GONZALO GONZALES, VICENTE
V. QUE, JR., ICLI CORDOVA, ARLENE GOJOCCO, ALBERTO

ROXAS CORDERO, RICHARD BAUTISTA, JOCELYN GARCIA,

YOLANDA CORDOVA, NOEL ROQUE, EDWARD TAN, ERNESTO
NARCISO, ENRIQUETA LOCSIN, FRANCIS NORMAN O. LOPEZ,
JULIUS CAESAR GARCIA, ROSARIO MA. V. ORTIZ, MARIETTA
C. CLAVO, ELVIE SENIEL, ROSARIO MARA-MARA, TERESITA
REGALA, MELINDA TORRES, MARELLA MIJARES, JOSEFA
CABATINGAN, MARA NADOC, DIANE MAYO, TESS PLATA,
MAYETTE JOCSON, ARLENE Y. MORTIZ, LIZA MAYO, CARLOS
RANARIO, ROSAMARIA T. RADOC and BERNADETTE
FERRER, respondents.
DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of

Appeals[1] in CA-GR No. 28245, dated September 30, 1992, which affirmed
with modification the decision of the Regional Trial Court of Makati, Branch 58,
ordering petitioners jointly and severally to pay damages to private respondent
Amyline Antonio, and its resolution which denied petitioners motion for
reconsideration for lack of merit.
Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model
Mazda minibus. They used the bus principally in connection with a bus
service for school children which they operated in Manila. The couple had a
driver, Porfirio J. Cabil, whom they hired in 1981, after trying him out for two
weeks. His job was to take school children to and from the St. Scholasticas
College in Malate, Manila.
On November 2, 1984 private respondent Word for the World Christian
Fellowship Inc. (WWCF) arranged with petitioners for the transportation of 33
members of its Young Adults Ministry from Manila to La Union and back in
consideration of which private respondent paid petitioners the amount of
P3,000.00.
The group was scheduled to leave on November 2, 1984, at 5:00 oclock
in the afternoon. However, as several members of the party were late, the

bus did not leave the Tropical Hut at the corner of Ortigas Avenue and EDSA
until 8:00 oclock in the evening. Petitioner Porfirio Cabil drove the minibus.
The usual route to Caba, La Union was through Carmen,
Pangasinan. However, the bridge at Carmen was under repair, so that
petitioner Cabil, who was unfamiliar with the area (it being his first trip to La
Union), was forced to take a detour through the town of Ba-ay in Lingayen,
Pangasinan. At 11:30 that night, petitioner Cabil came upon a sharp curve on
the highway, running on a south to east direction, which he described as
siete. The road was slippery because it was raining, causing the bus, which
was running at the speed of 50 kilometers per hour, to skid to the left road
shoulder. The bus hit the left traffic steel brace and sign along the road and
rammed the fence of one Jesus Escano, then turned over and landed on its
left side, coming to a full stop only after a series of impacts. The bus came to
rest off the road. A coconut tree which it had hit fell on it and smashed its front
portion.
Several passengers were injured. Private respondent Amyline Antonio
was thrown on the floor of the bus and pinned down by a wooden seat which
came off after being unscrewed. It took three persons to safely remove her
from this position. She was in great pain and could not move.
The driver, petitioner Cabil, claimed he did not see the curve until it was
too late. He said he was not familiar with the area and he could not have
seen the curve despite the care he took in driving the bus, because it was
dark and there was no sign on the road. He said that he saw the curve when
he was already within 15 to 30 meters of it. He allegedly slowed down to 30
kilometers per hour, but it was too late.
The Lingayen police investigated the incident the next day, November 3,
1984. On the basis of their finding they filed a criminal complaint against the
driver, Porfirio Cabil. The case was later filed with the Lingayen Regional Trial
Court. Petitioners Fabre paid Jesus Escano P1,500.00 for the damage to the
latters fence. On the basis of Escanos affidavit of desistance the case
against petitioners Fabre was dismissed.

Amyline Antonio, who was seriously injured, brought this case in the RTC
of Makati, Metro Manila. As a result of the accident, she is now suffering from
paraplegia and is permanently paralyzed from the waist down. During the trial
she described the operations she underwent and adduced evidence regarding
the cost of her treatment and therapy. Immediately after the accident, she
was taken to the Nazareth Hospital in Ba-ay, Lingayen. As this hospital was
not adequately equipped, she was transferred to the Sto. Nio Hospital, also
in the town of Ba-ay, where she was given sedatives. An x-ray was taken and
the damage to her spine was determined to be too severe to be treated
there. She was therefore brought to Manila, first to the Philippine General
Hospital and later to the Makati Medical Center where she underwent an
operation to correct the dislocation of her spine.
In its decision dated April 17, 1989, the trial court found that:
No convincing evidence was shown that the minibus was properly checked for travel
to a long distance trip and that the driver was properly screened and tested before
being admitted for employment. Indeed, all the evidence presented have shown the
negligent act of the defendants which ultimately resulted to the accident subject of this
case.
Accordingly, it gave judgment for private respondents holding:
Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms.
Amyline Antonio were the only ones who adduced evidence in support of their claim
for damages, the Court is therefore not in a position to award damages to the other
plaintiffs.
WHEREFORE, premises considered, the Court hereby renders judgment against
defendants Mr. & Mrs. Engracio Fabre, Jr. and Porfirio Cabil y Jamil pursuant to
articles 2176 and 2180 of the Civil Code of the Philippines and said defendants are
ordered to pay jointly and severally to the plaintiffs the following amount:
1) P93,657.11 as compensatory and actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff
Amyline Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages; and
5) 25% of the recoverable amount as attorneys fees;
6) Costs of suit.

SO ORDERED.
The Court of Appeals affirmed the decision of the trial court with respect to
Amyline Antonio but dismissed it with respect to the other plaintiffs on the
ground that they failed to prove their respective claims. The Court of Appeals
modified the award of damages as follows:
1) P93,657.11 as actual damages;
2) P600,000.00 as compensatory damages;
3) P50,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) P10,000.00 as attorneys fees; and
6) Costs of suit.

The Court of Appeals sustained the trial courts finding that petitioner Cabil
failed to exercise due care and precaution in the operation of his vehicle
considering the time and the place of the accident. The Court of Appeals held
that the Fabres were themselves presumptively negligent. Hence, this
petition. Petitioners raise the following issues:
I.

WHETHER OR NOT PETITIONERS WERE NEGLIGENT.

II. WHETHER OR NOT PETITIONERS WERE LIABLE FOR THE INJURIES

SUFFERED BY PRIVATE RESPONDENTS.
III. WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN THE POSITIVE, UP
TO WHAT EXTENT.

Petitioners challenge the propriety of the award of compensatory damages

in the amount of P600,000.00. It is insisted that, on the assumption that
petitioners are liable, an award of P600,000.00 is unconscionable and highly
speculative. Amyline Antonio testified that she was a casual employee of a
company called Suaco, earning P1,650.00 a month, and a dealer of Avon
products, earning an average of P1,000.00 monthly. Petitioners contend that
as casual employees do not have security of tenure, the award of
P600,000.00, considering Amyline Antonios earnings, is without factual basis
as there is no assurance that she would be regularly earning these amounts.
With the exception of the award of damages, the petition is devoid of
merit.
First, it is unnecessary for our purpose to determine whether to decide this
case on the theory that petitioners are liable for breach of contract of carriage
or culpa contractual or on the theory of quasi delict or culpa aquiliana as both
the Regional Trial Court and the Court of Appeals held, for although the
relation of passenger and carrier is contractual both in origin and nature,
nevertheless the act that breaks the contract may be also a tort. [2] In either
case, the question is whether the bus driver, petitioner Porfirio Cabil, was
negligent.
The finding that Cabil drove his bus negligently, while his employer, the
Fabres, who owned the bus, failed to exercise the diligence of a good father of
the family in the selection and supervision of their employee is fully supported
by the evidence on record. These factual findings of the two courts we regard
as final and conclusive, supported as they are by the evidence. Indeed, it was
admitted by Cabil that on the night in question, it was raining, and, as a
consequence, the road was slippery, and it was dark. He averred these facts
to justify his failure to see that there lay a sharp curve ahead. However, it is
undisputed that Cabil drove his bus at the speed of 50 kilometers per hour
and only slowed down when he noticed the curve some 15 to 30 meters
ahead.[3] By then it was too late for him to avoid falling off the road. Given the
conditions of the road and considering that the trip was Cabils first one
outside of Manila, Cabil should have driven his vehicle at a moderate
speed. There is testimony[4] that the vehicles passing on that portion of the

road should only be running 20 kilometers per hour, so that at 50 kilometers

per hour, Cabil was running at a very high speed.
Considering the foregoing the fact that it was raining and the road was
slippery, that it was dark, that he drove his bus at 50 kilometers an hour when
even on a good day the normal speed was only 20 kilometers an hour, and
that he was unfamiliar with the terrain, Cabil was grossly negligent and should
be held liable for the injuries suffered by private respondent Amyline Antonio.
Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise
to the presumption that his employers, the Fabres, were themselves negligent
in the selection and supervision of their employee.
Due diligence in selection of employees is not satisfied by finding that the
applicant possessed a professional drivers license. The employer should
also examine the applicant for his qualifications, experience and record of
service.[5] Due diligence in supervision, on the other hand, requires the
formulation of rules and regulations for the guidance of employees and the
issuance of proper instructions as well as actual implementation and
monitoring of consistent compliance with the rules.[6]
In the case at bar, the Fabres, in allowing Cabil to drive the bus to La
Union, apparently did not consider the fact that Cabil had been driving for
school children only, from their homes to the St. Scholasticas College in
Metro Manila.[7] They had hired him only after a two-week
apprenticeship. They had tested him for certain matters, such as whether he
could remember the names of the children he would be taking to school,
which were irrelevant to his qualification to drive on a long distance travel,
especially considering that the trip to La Union was his first. The existence of
hiring procedures and supervisory policies cannot be casually invoked to
overturn the presumption of negligence on the part of an employer.[8]
Petitioners argue that they are not liable because (1) an earlier departure
(made impossible by the congregations delayed meeting) could have averted
the mishap and (2) under the contract, the WWCF was directly responsible for
the conduct of the trip. Neither of these contentions hold water. The hour of
departure had not been fixed. Even if it had been, the delay did not bear

directly on the cause of the accident. With respect to the second contention, it
was held in an early case that:
[A] person who hires a public automobile and gives the driver directions as to the
place to which he wishes to be conveyed, but exercises no other control over the
conduct of the driver, is not responsible for acts of negligence of the latter or
prevented from recovering for injuries suffered from a collision between the
automobile and a train, caused by the negligence either of the locomotive engineer or
the automobile driver.[9]
As already stated, this case actually involves a contract of
carriage. Petitioners, the Fabres, did not have to be engaged in the business
of public transportation for the provisions of the Civil Code on common
carriers to apply to them. As this Court has held:[10]
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 an ancillary activity (in local idiom, as a
sideline). Article 1732 also carefully avoids making any distinction between a
person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the general public, i.e., the general community or
population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732
deliberately refrained from making such distinctions.
As common carriers, the Fabres were bound to exercise extraordinary
diligence for the safe transportation of the passengers to their
destination. This duty of care is not excused by proof that they exercised the
diligence of a good father of the family in the selection and supervision of their
employee. As Art. 1759 of the Code provides:

Common carriers are liable for the death of or injuries to passengers

through the negligence or wilful acts of the formers employees, although such
employees may have acted beyond the scope of their authority or in violation
of the orders of the common carriers.
This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and
supervision of their employees.
The same circumstances detailed above, supporting the finding of the trial
court and of the appellate court that petitioners are liable under Arts. 2176 and
2180 for quasi delict, fully justify finding them guilty of breach of contract of
carriage under Arts. 1733, 1755 and 1759 of the Civil Code.
Secondly, we sustain the award of damages in favor of Amyline
Antonio. However, we think the Court of Appeals erred in increasing the
amount of compensatory damages because private respondents did not
question this award as inadequate.[11] To the contrary, the award of
P500,000.00 for compensatory damages which the Regional Trial Court made
is reasonable considering the contingent nature of her income as a casual
employee of a company and as distributor of beauty products and the fact that
the possibility that she might be able to work again has not been
foreclosed. In fact she testified that one of her previous employers had
expressed willingness to employ her again.
With respect to the other awards, while the decisions of the trial court and
the Court of Appeals do not sufficiently indicate the factual and legal basis for
them, we find that they are nevertheless supported by evidence in the records
of this case. Viewed as an action for quasi delict, this case falls squarely
within the purview of Art. 2219(2) providing for the payment of moral damages
in cases of quasi delict. On the theory that petitioners are liable for breach of
contract of carriage, the award of moral damages is authorized by Art. 1764,
in relation to Art. 2220, since Cabils gross negligence amounted to bad faith.
[12]
Amyline Antonios testimony, as well as the testimonies of her father and
co-passengers, fully establish the physical suffering and mental anguish she
endured as a result of the injuries caused by petitioners negligence.

The award of exemplary damages and attorneys fees was also properly
made. However, for the same reason that it was error for the appellate court
to increase the award of compensatory damages, we hold that it was also
error for it to increase the award of moral damages and reduce the award of
attorneys fees, inasmuch as private respondents, in whose favor the awards
were made, have not appealed.[13]
As above stated, the decision of the Court of Appeals can be sustained
either on the theory of quasi delict or on that of breach of contract. The
question is whether, as the two courts below held, petitioners, who are the
owners and driver of the bus, may be made to respond jointly and severally to
private respondent. We hold that they may be. In Dangwa Trans. Co. Inc. v.
Court of Appeals,[14] on facts similar to those in this case, this Court held the
bus company and the driver jointly and severally liable for damages for
injuries suffered by a passenger. Again, in Bachelor Express, Inc. v. Court of
Appeals[15] a driver found negligent in failing to stop the bus in order to let off
passengers when a fellow passenger ran amuck, as a result of which the
passengers jumped out of the speeding bus and suffered injuries, was held
also jointly and severally liable with the bus company to the injured
passengers.
The same rule of liability was applied in situations where the negligence of
the driver of the bus on which plaintiff was riding concurred with the
negligence of a third party who was the driver of another vehicle, thus causing
an accident. In Anuran v. Buo,[16] Batangas Laguna Tayabas Bus Co. v.
Intermediate Appellate Court,[17] and Metro Manila Transit Corporation v. Court
of Appeals,[18] the bus company, its driver, the operator of the other vehicle and
the driver of the vehicle were jointly and severally held liable to the injured
passenger or the latters heirs. The basis of this allocation of liability was
explained in Viluan v. Court of Appeals,[19] thus:
Nor should it make any difference that the liability of petitioner [bus owner] springs
from contract while that of respondents [owner and driver of other vehicle] arises
fromquasi-delict. As early as 1913, we already ruled in Gutierrezvs. Gutierrez, 56
Phil. 177, that in case of injury to a passenger due to the negligence of the driver of
the bus on which he was riding and of the driver of another vehicle, the drivers as well
as the owners of the two vehicles are jointly and severally liable for damages. Some

members of the Court, though, are of the view that under the circumstances they are
liable onquasi-delict.[20]
It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals [21] this
Court exonerated the jeepney driver from liability to the injured passengers
and their families while holding the owners of the jeepney jointly and severally
liable, but that is because that case was expressly tried and decided
exclusively on the theory ofculpa contractual. As this Court there explained:
The trial court was therefore right in finding that Manalo [the driver] and spouses
Mangune and Carreon [the jeepney owners] were negligent. However, its ruling that
spouses Mangune and Carreon are jointly and severally liable with Manalo is
erroneous. The driver cannot be held jointly and severally liable with the carrier in
case of breach of the contract of carriage. The rationale behind this is readily
discernible. Firstly, the contract of carriage is between the carrier and the passenger,
and in the event of contractual liability, the carrier is exclusively responsible therefore
to the passenger, even if such breach be due to the negligence of his driver (see
Viluan v. The Court of Appeals, et al., G.R. Nos. L-21477-81, April 29, 1966, 16
SCRA 742) . . .[22]
As in the case of BLTB, private respondents in this case and her coplaintiffs did not stake out their claim against the carrier and the driver
exclusively on one theory, much less on that of breach of contract alone. After
all, it was permitted for them to allege alternative causes of action and join as
many parties as may be liable on such causes of action [23] so long as private
respondent and her co-plaintiffs do not recover twice for the same
injury. What is clear from the cases is the intent of the plaintiff there to recover
from both the carrier and the driver, thus justifying the holding that the carrier
and the driver were jointly and severally liable because their separate and
distinct acts concurred to produce the same injury.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION as to the award of damages. Petitioners are ORDERED to
PAY jointly and severally the private respondent Amyline Antonio the following
amounts:
1) P93,657.11 as actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff

Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) 25% of the recoverable amount as attorneys fees; and
6) costs of suit.

SO ORDERED.

SECOND DIVISION
[G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT

OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS
CITY and ADORACION C. ARELLANO, in her official capacity as
City Treasurer of Batangas, respondents.
DECISION
MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent
City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year
1993 pursuant to the Local Government Code.[3] The respondent City Treasurer assessed a
business tax on the petitioner amounting toP956,076.04 payable in four installments based on the
gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted

to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in
the amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

"Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on
gross receipts under Section 133 of the Local Government Code of 1991 x x x x
"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 ofP956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing. The fee is already a
revenue raising measure, and not a mere regulatory imposition." [4]
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against respondents
City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to
impose and collect a tax on the gross receipts of "contractors and independent contractors" under
Sec. 141 (e) and 151 does not include the authority to collect such taxes on transportation
contractors for, as defined under Sec. 131 (h), the term "contractors" excludes transportation

contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the said
tax, thus meriting the immediate refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the term
"common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the
like. Respondents further posit that the term "common carrier" under the said code pertains to
the mode or manner by which a product is delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in
this wise:

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

xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that
tax exemptions are to be strictly construed against the taxpayer, taxes being the
lifeblood of the government. Exemption may therefore be granted only by clear and
unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387,
(Exhibit A) whose concession was lately renewed by the Energy Regulatory Board
(Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption
upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137
of the Local Tax Code. Such being the situation obtained in this case (exemption
being unclear and equivocal) resort to distinctions or other considerations may be of
help:
1.

That the exemption granted under Sec. 133 (j) encompasses

only common carriers so as not to overburden the riding public or
commuters with taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities to a single
specific or "special customer" under a "special contract."

2.

The Local Tax Code of 1992 was basically enacted to give

more and effective local autonomy to local governments than the

previous enactments, to make them economically and financially

viable to serve the people and discharge their functions with a
concomitant obligation to accept certain devolution of powers, x x
x So, consistent with this policy even franchise grantees are taxed
(Sec. 137) and contractors are also taxed under Sec. 143 (e) and
151 of the Code."[9]
Petitioner assailed the aforesaid decision before this Courtvia a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and
adjudication.[10] On November 29, 1995, the respondent court rendered a decision [11] affirming the
trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was
denied on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in
a Resolution[14] of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm
or association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:

1.

He must be engaged in the business of carrying goods for others as a

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

2.

He must undertake to carry goods of the kind to which his business is

confined;

3.

4.

He must undertake to carry by the method by which his business is

conducted and over his established roads; and
The transportation must be for hire.[15]

Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum
products, for hire as a public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not exclude it from the
definition of a common carrier. In De Guzman vs. Court of Appeals[16] we ruled that:

"The above article (Art. 1732, Civil Code) makes no distinction between one whose
principal business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as a 'sideline'). Article
1732 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the 'general public,' i.e., the
general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to
coincide neatly with the notion of 'public service,' under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation
of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and

power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does
not provide that the transportation of the passengers or goods should be by motor vehicle. In
fact, in the United States, oil pipe line operators are considered common carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
preferential right to utilize installations for the transportation of petroleum owned by
him, but is obligated to utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others for transport, and
to charge without discrimination such rates as may have been approved by the
Secretary of Agriculture and Natural Resources."
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:

"that everything relating to the exploration for and exploitation of petroleum x x and
everything relating to the manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public utility." (Underscoring
Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In
BIR Ruling No. 069-83, it declared:

"x x x since [petitioner] is a pipeline concessionaire that is engaged only in

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

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:

"Section 133. Common Limitations on the Taxing Powers of Local Government

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

(j)

xxx

xxx

Taxes on the gross receipts of transportation contractors and persons

engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code."

The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:

"MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now
Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." x
xx
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This
appears to be one of those being deemed to be exempted from the taxing powers of
the local government units. May we know the reason why the transportation
business is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now
Sec. 131), line 16, paragraph 5. It states that local government units may not impose
taxes on the business of transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can
see there that provinces have the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent of the gross annual

receipts. So, transportation contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by
local government units on the carrier business. Local government units may
impose taxes on top of what is already being imposed by the National Internal
Revenue Code which is the so-called "common carriers tax." We do not want a
duplication of this tax, so we just provided for an exception under Section 125
[now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.[19] To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local
Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court
of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET
ASIDE.
SO ORDERED.

SECOND DIVISION
[G.R. No. 148496. March 19, 2002]

VIRGINES CALVO doing business under the name and style

TRANSORIENT CONTAINER TERMINAL SERVICES, INC.,
petitioner, vs. UCPB GENERAL INSURANCE CO., INC. (formerly
Allied Guarantee Ins. Co., Inc.) respondent.
DECISION
MENDOZA, J.:

This is a petition for review of the decision, [1] dated May 31, 2001, of the Court of
Appeals, affirming the decision[2] of the Regional Trial Court, Makati City, Branch
148, which ordered petitioner to pay respondent, as subrogee, the amount
of P93,112.00 with legal interest, representing the value of damaged cargo handled by
petitioner, 25% thereof as attorneys fees, and the cost of the suit.
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services,
Inc. (TCTSI), a sole proprietorship customs broker. At the time material to this
case, petitioner entered into a contract with San Miguel Corporation (SMC) for the
transfer of 114 reels of semi-chemical fluting paper and 124 reels of kraft liner board
from the Port Area in Manila to SMCs warehouse at the Tabacalera Compound,
Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General
Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in
Manila on board M/V Hayakawa Maru and, after 24 hours, were unloaded from the
vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23
to July 25, 1990, petitioner, pursuant to her contract with SMC, withdrew the cargo
from the arrastre operator and delivered it to SMCs warehouse in Ermita, Manila. On
July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that
15 reels of the semi-chemical fluting paper were wet/stained/torn and 3 reels of
kraft liner board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for
the aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit
against petitioner in the Regional Trial Court, Branch 148, Makati City, which, on
December 20, 1995, rendered judgment finding petitioner liable to respondent for the
damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the custody
of defendants. Evidence such as the Warehouse Entry Slip (Exh. E); the Damage
Report (Exh. F) with entries appearing therein, classified as TED and TSN,
which the claims processor, Ms. Agrifina De Luna, claimed to be tearrage at the end

and tearrage at the middle of the subject damaged cargoes respectively, coupled with
the Marine Cargo Survey Report (Exh. H - H-4-A) confirms the fact of the
damaged condition of the subject cargoes. The surveyor[s] report (Exh. H-4-A) in
particular, which provides among others that:
. . . we opine that damages sustained by shipment is attributable to improper
handling in transit presumably whilst in the custody of the broker . . . .
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that
[she is] are not liable. Defendant by reason of the nature of [her] business should
have devised ways and means in order to prevent the damage to the cargoes which it
is under obligation to take custody of and to forthwith deliver to the consignee.
Defendant did not present any evidence on what precaution [she] performed to
prevent [the] said incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence because of the
nature of the cargo.
. . . .
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to
have been lost, destroyed or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they have observed the
extraordinary diligence required by law. The burden of the plaintiff, therefore, is to
prove merely that the goods he transported have been lost, destroyed or
deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the
mere proof of delivery of goods in good order to a carrier, and of their arrival at the
place of destination in bad order, makes out a prima facie case against the carrier, so
that if no explanation is given as to how the injury occurred, the carrier must be held
responsible. It is incumbent upon the carrier to prove that the loss was due to accident
or some other circumstances inconsistent with its liability. (cited in Commercial
Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common
carrier is supposed [to] exercise [the] extraordinary diligence required by law, hence

the extraordinary responsibility lasts from the time the goods are unconditionally
placed in the possession of and received by the carrier for transportation until the
same are delivered actually or constructively by the carrier to the consignee or to the
person who has the right to receive the same. [3]
Accordingly, the trial court ordered petitioner to pay the following amounts
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyers fee;
3. Costs of suit.[4]
The decision was affirmed by the Court of Appeals on appeal. Hence this petition
for review on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE
OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.[5]

It will be convenient to deal with these contentions in the inverse order, for if
petitioner is not a common carrier, although both the trial court and the Court of
Appeals held otherwise, then she is indeed not liable beyond what ordinary diligence
in the vigilance over the goods transported by her, would require. [6] Consequently, any
damage to the cargo she agrees to transport cannot be presumed to have been due to
her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of
Appeals, she is not a common carrier but a private carrier because, as a customs
broker and warehouseman, she does not indiscriminately hold her services out to the
public but only offers the same to select parties with whom she may contract in the
conduct of her business.

The contention has no merit. In De Guzman v. Court of Appeals, [7] the Court
dismissed a similar contention and held the party to be a common carrier, thus
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whoseprincipal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillaryactivity . . . Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering
its services to the general public, i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making such
distinctions.
So understood, the concept of common carrier under Article 1732 may be seen to
coincide neatly with the notion of public service, under the Public Service Act
(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b)
of the Public Service Act, public service includes:
x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either
for freight or passenger, or both, with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless

communications systems, wire or wireless broadcasting stations and other similar

public services. x x x[8]
There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioners
contention would be to deprive those with whom she contracts the protection which
the law affords them notwithstanding the fact that the obligation to carry goods for
her customers, as already noted, is part and parcel of petitioners business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of
each case. . . .
In Compania Maritima v. Court of Appeals, [9] the meaning of extraordinary
diligence in the vigilance over goods was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and
delivery. It requires common carriers to render service with the greatest skill and
foresight and to use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires.
In the case at bar, petitioner denies liability for the damage to the cargo. She
claims that the spoilage or wettage took place while the goods were in the custody
of either the carrying vessel M/V Hayakawa Maru, which transported the cargo to
Manila, or the arrastre operator, to whom the goods were unloaded and who allegedly
kept them in open air for nine days from July 14 to July 23, 1998 notwithstanding the
fact that some of the containers were deformed, cracked, or otherwise damaged, as
noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880

rain gutter deformed/cracked

ICSU-363461-3

left side rubber gasket on door distorted/partly loose

PERU-204209-4

TOLU-213674-3

MAXU-201406-0

ICSU-412105-0
loosened.[10]

with pinholes on roof panel right portion

-

wood flooring we[t] and/or with signs of water

soaked
with dent/crack on roof panel

rubber gasket on left side/door panel partly detached

In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino

testified that he has no personal knowledge on whether the container vans were first
stored in petitioners warehouse prior to their delivery to the consignee. She likewise
claims that after withdrawing the container vans from the arrastre operator, her driver,
Ricardo Nazarro, immediately delivered the cargo to SMCs warehouse in Ermita,
Manila, which is a mere thirty-minute drive from the Port Area where the cargo came
from. Thus, the damage to the cargo could not have taken place while these were in
her custody.[11]
Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question to the
arrastre operator, these were covered by clean Equipment Interchange Report (EIR)
and, when petitioners employees withdrew the cargo from the arrastre operator, they
did so without exception or protest either with regard to the condition of container
vans or their contents. The Survey Report pertinently reads
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to
dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20
secure metal vans, covered by clean EIRs. Except for slight dents and paint scratches
on side and roof panels, these containers were deemed to have [been] received in good
condition.
. . . .
Transfer/Delivery:

On July 23, 1990, shipment housed onto 30 x 20 cargo containers was

[withdrawn] by Transorient Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignees storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the
vessel to the arrastre, Marina Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports (EIRs). Had there been any
damage to the shipment, there would have been a report to that effect made by the
arrastre operator. The cargoes were withdrawn by the defendant-appellant from the
arrastre still in good order and condition as the same were received by the
former without exception, that is, without any report of damage or loss. Surely, if the
container vans were deformed, cracked, distorted or dented, the defendant-appellant
would report it immediately to the consignee or make an exception on the delivery
receipt or note the same in the Warehouse Entry Slip (WES). None of these took
place. To put it simply, the defendant-appellant received the shipment in good order
and condition and delivered the same to the consignee damaged. We can only
conclude that the damages to the cargo occurred while it was in the possession of the
defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the
debtor (or obligor), it shall be presumed that the loss (or damage) was due to his fault,
unless there is proof to the contrary. No proof was proffered to rebut this legal
presumption and the presumption of negligence attached to a common carrier in case
of loss or damage to the goods.[13]
Anent petitioners insistence that the cargo could not have been damaged while in
her custody as she immediately delivered the containers to SMCs compound, suffice
it to say that to prove the exercise of extraordinary diligence, petitioner must do more
than merely show the possibility that some other party could be responsible for the
damage. It must prove that it used all reasonable means to ascertain the nature and
characteristic of goods tendered for [transport] and that [it] exercise[d] due care in the
handling [thereof]. Petitioner failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which
provides

Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
. . . .
(4) The character of the goods or defects in the packing or in the containers.
. . . .
For this provision to apply, the rule is that if the improper packing or, in this case,
the defect/s in the container, is/are known to the carrier or his employees or apparent
upon ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for damage
resulting therefrom.[14] In this case, petitioner accepted the cargo without exception
despite the apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage of goods
in this case or that she is exempt from liability, the presumption of negligence as
provided under Art. 1735[15] holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. 141910

August 6, 2002

FGU INSURANCE CORPORATION, petitioner,

vs.
G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M. EROLES, respondents.
VITUG, J.:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30)
units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert
Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang,
Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was traversing
the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it
collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the
cargoes.

FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries,
Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the
subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the
amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim,
FGU filed a complaint for damages and breach of contract of carriage against GPS and its
driver Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its answer,
respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc.,
since 1988, and it was not so engaged in business as a common carrier. Respondents further
claimed that the cause of damage was purely accidental.
1wphi1.nt

The issues having thus been joined, FGU presented its evidence, establishing the extent of
damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting
its evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to
evidence on the ground that petitioner had failed to prove that it was a common carrier.
The trial court, in its order of 30 April 1996,1 granted the motion to dismiss, explaining thusly:
"Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must prove
his own affirmative allegation, xxx.
"In the instant case, plaintiff did not present any single evidence that would prove that
defendant is a common carrier.
"x x x

xxx

xxx

"Accordingly, the application of the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common carrier in case of loss, damage
or deterioration of goods during transport under 1735 of the Civil Code is not availing.
"Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff
was subrogated and the owner of the vehicle which transports the cargo are the laws on
obligation and contract of the Civil Code as well as the law on quasi delicts.
"Under the law on obligation and contract, negligence or fault is not presumed. The law on
quasi delict provides for some presumption of negligence but only upon the attendance of
some circumstances. Thus, Article 2185 provides:
Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a
motor vehicle has been negligent if at the time of the mishap, he was violating any
traffic regulation.
"Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation.
Hence, the presumption of negligence is not obtaining.

"Considering that plaintiff failed to adduce evidence that defendant is a common carrier and
defendants driver was the one negligent, defendant cannot be made liable for the damages
of the subject cargoes."2

The subsequent motion for reconsideration having been denied,3 plaintiff interposed an appeal
to the Court of Appeals, contending that the trial court had erred (a) in holding that the appellee
corporation was not a common carrier defined under the law and existing jurisprudence; and (b)
in dismissing the complaint on a demurrer to evidence.
The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate
court, in its decision of 10 June 1999,4 discoursed, among other things, that "x x x in order for the presumption of negligence provided for under the law governing
common carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the
appellee is a common carrier. Should the appellant fail to prove that the appellee is a
common carrier, the presumption would not arise; consequently, the appellant would have to
prove that the carrier was negligent.
"x x x

xxx

xxx

"Because it is the appellant who insists that the appellees can still be considered as a
common carrier, despite its `limited clientele, (assuming it was really a common carrier), it
follows that it (appellant) has the burden of proving the same. It (plaintiff-appellant) `must
establish his case by a preponderance of evidence, which means that the evidence as a
whole adduced by one side is superior to that of the other. (Summa Insurance Corporation
vs. Court of Appeals, 243 SCRA 175). This, unfortunately, the appellant failed to do -- hence,
the dismissal of the plaintiffs complaint by the trial court is justified.
"x x x

xxx

xxx

"Based on the foregoing disquisitions and considering the circumstances that the appellee
trucking corporation has been `its exclusive contractor, hauler since 1970, defendant has no
choice but to comply with the directive of its principal, the inevitable conclusion is that the
appellee is a private carrier.
"x x x

xxx

xxx

"x x x the lower court correctly ruled that 'the application of the law on common carriers is not
warranted and the presumption of fault or negligence on the part of a common carrier in case
of loss, damage or deterioration of good[s] during transport under [article] 1735 of the Civil
Code is not availing.' x x x.
"Finally, We advert to the long established rule that conclusions and findings of fact of a trial
court are entitled to great weight on appeal and should not be disturbed unless for strong
and valid reasons."5

Petitioner's motion for reconsideration was likewise denied;6 hence, the instant petition,7 raising
the following issues:
I
WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS
DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE.
II
WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE
CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT
UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN
ITS PROTECTIVE CUSTODY AND POSSESSION.
III
WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT
CASE.

On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be
amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc.,
rendering or offering its services to no other individual or entity, cannot be considered a common
carrier. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for hire
or compensation, offering their services to the public,8 whether to the public in general or to a
limited clientele in particular, but never on an exclusive basis.9 The true test of a common carrier
is the carriage of passengers or goods, providing space for those who opt to avail themselves of
its transportation service for a fee.10 Given accepted standards, GPS scarcely falls within the
term "common carrier."
The above conclusion nothwithstanding, GPS cannot escape from liability.
In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief.11 The law, recognizing the
obligatory force of contracts,12 will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof.13 A
breach upon the contract confers upon the injured party a valid cause for recovering that which
may have been lost or suffered. The remedy serves to preserve the interests of the promisee
that may include his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the contract been
performed, or his "reliance interest," which is his interest in being reimbursed for loss caused by
reliance on the contract by being put in as good a position as he would have been in had the
contract not been made; or his "restitution interest," which is his interest in having restored to

him any benefit that he has conferred on the other party.14 Indeed, agreements can accomplish
little, either for their makers or for society, unless they are made the basis for action.15 The effect
of every infraction is to create a new duty, that is, to make recompense to the one who has been
injured by the failure of another to observe his contractual obligation16 unless he can show
extenuating circumstances, like proof of his exercise of due diligence (normally that of the
diligence of a good father of a family or, exceptionally by stipulation or by law such as in the
case of common carriers, that of extraordinary diligence) or of the attendance of fortuitous
event, to excuse him from his ensuing liability.
Respondent trucking corporation recognizes the existence of a contract of carriage between it
and petitioners assured, and admits that the cargoes it has assumed to deliver have been lost
or damaged while in its custody. In such a situation, a default on, or failure of compliance with,
the obligation in this case, the delivery of the goods in its custody to the place of destination gives rise to a presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not
himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage
between petitioners principal and defendant, may not be held liable under the agreement. A
contract can only bind the parties who have entered into it or their successors who have
assumed their personality or their juridical position.17 Consonantly with the axiom res inter alios
acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third person.
Petitioners civil action against the driver can only be based on culpa aquiliana, which,
unlike culpa contractual, would require the claimant for damages to prove negligence or fault on
the part of the defendant.18
A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant
liable where the thing which caused the injury complained of is shown to be under the latters
management and the accident is such that, in the ordinary course of things, cannot be expected
to happen if those who have its management or control use proper care. It affords reasonable
evidence, in the absence of explanation by the defendant, that the accident arose from want of
care.19 It is not a rule of substantive law and, as such, it does not create an independent ground
of liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since it
furnishes a substitute for, and relieves the plaintiff of, the burden of producing specific proof of
negligence. The maxim simply places on the defendant the burden of going forward with the
proof.20 Resort to the doctrine, however, may be allowed only when (a) the event is of a kind
which does not ordinarily occur in the absence of negligence; (b) other responsible causes,
including the conduct of the plaintiff and third persons, are sufficiently eliminated by the
evidence; and (c) the indicated negligence is within the scope of the defendant's duty to the
plaintiff.21 Thus, it is not applicable when an unexplained accident may be attributable to one of
several causes, for some of which the defendant could not be responsible.22
Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the

circumstances and nature of the occurrence and not from the nature of the relation of the
parties.23 Nevertheless, the requirement that responsible causes other than those due to
defendants conduct must first be eliminated, for the doctrine to apply, should be understood as
being confined only to cases of pure (non-contractual) tort since obviously the presumption of
negligence in culpa contractual, as previously so pointed out, immediately attaches by a failure
of the covenant or its tenor. In the case of the truck driver, whose liability in a civil action is
predicated on culpa acquiliana, while he admittedly can be said to have been in control and
management of the vehicle which figured in the accident, it is not equally shown, however, that
the accident could have been exclusively due to his negligence, a matter that can allow,
forthwith, res ipsa loquitur to work against him.
If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the
movant shall be deemed to have waived the right to present evidence.24 Thus, respondent
corporation may no longer offer proof to establish that it has exercised due care in transporting
the cargoes of the assured so as to still warrant a remand of the case to the trial court.
1wphi1.nt

WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati
City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED only insofar
as respondent Lambert M. Eroles is concerned, but said assailed order of the trial court and
decision of the appellate court are REVERSEDas regards G.P. Sarmiento Trucking Corporation
which, instead, is hereby ordered to pay FGU Insurance Corporation the value of the damaged
and lost cargoes in the amount of P204,450.00. No costs.
SO ORDERED.

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

PHILIPPINE
AMERICAN
COMPANY, petitioner, vs.
COMPANY, respondent.

GENERAL
PKS

INSURANCE
SHIPPING

DECISION
VITUG, J.:

The petition before the Court seeks a review of the decision of the Court of
Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of
Makati, dismissing the complaint for damages filed by petitioner insurance
corporation against respondent shipping company.

Davao Union Marketing Corporation (DUMC) contracted the services of

respondent PKS Shipping Company (PKS Shipping) for the shipment to
Tacloban City of seventy-five thousand (75,000) bags of cement worth Three
Million
Three
Hundred
Seventy-Five
Thousand
Pesos
(P3,375,000.00). DUMC insured the goods for its full value with petitioner
Philippine American General Insurance Company (Philamgen). The goods
were loaded aboard the dumb barge Limar I belonging to PKS Shipping. On
the evening of 22 December 1988, about nine oclock, while Limar I was being
towed by respondents tugboat, MT Iron Eagle, the barge sank a couple of
miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down
with it the entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the
insurance. Philamgen promptly made payment; it then sought reimbursement
from PKS Shipping of the sum paid to DUMC but the shipping company
refused to pay, prompting Philamgen to file suit against PKS Shipping with the
Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the
cargo could have been caused either by a fortuitous event, in which case the
ship owner was not liable, or through the negligence of the captain and crew
of the vessel and that, under Article 587 of the Code of Commerce adopting
the Limited Liability Rule, the ship owner could free itself of liability by
abandoning, as it apparently so did, the vessel with all her equipment and
earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in
toto the decision of the trial court. The appellate court ruled that evidence to
establish that PKS Shipping was a common carrier at the time it undertook to
transport the bags of cement was wanting because the peculiar method of the
shipping companys carrying goods for others was not generally held out as a
business but as a casual occupation. It then concluded that PKS Shipping,
not being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The
appellate court, moreover, found that the loss of the goods was sufficiently
established as having been due to fortuitous event, negating any liability on
the part of PKS Shipping to the shipper.

In the instant appeal, Philamgen contends that the appellate court has
committed a patent error in ruling that PKS Shipping is not a common carrier
and that it is not liable for the loss of the subject cargo. The fact that
respondent has a limited clientele, petitioner argues, does not militate against
respondents being a common carrier and that the only way by which such
carrier can be held exempt for the loss of the cargo would be if the loss were
caused by natural disaster or calamity. Petitioner avers that typhoon
"APIANG" has not entered the Philippine area of responsibility and that, even
if it did, respondent would not be exempt from liability because its employees,
particularly the tugmaster, have failed to exercise due diligence to prevent or
minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied
because what Philamgen seeks is not a review on points or errors of law but a
review of the undisputed factual findings of the RTC and the appellate
court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils
down to the question of whether it is a private carrier or a common carrier and,
in either case, to the other question of whether or not it has observed the
proper diligence (ordinary, if a private carrier, or extraordinary, if a common
carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such
findings are consistent with those of the trial court, may not at liberty be
reviewed by this Court in a petition for review under Rule 45 of the Rules of
Court. The conclusions derived from those factual findings, however, are
not necessarily just matters of fact as when they are so linked to, or
inextricably intertwined with, a requisite appreciation of the applicable law. In
such instances, the conclusions made could well be raised as being
appropriate issues in a petition for review before this Court. Thus, an issue
whether a carrier is private or common on the basis of the facts found by a
trial court or the appellate court can be a valid and reviewable question of law.
[1]

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
Complementary to the codal definition is Section 13, paragraph (b), of the
Public Service Act; it defines public service to be
x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or steamship, or
steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless communication
systems, wire or wireless broadcasting stations and other similar public services. x x
x. (Underscoring supplied).
The prevailing doctrine on the question is that enunciated in the leading
case of De Guzman vs. Court of Appeals. Applying Article 1732 of the Code,
in conjunction with Section 13(b) of the Public Service Act, this Court has held:
[2]

The above article makes no distinction between one whoseprincipal business activity
is the carrying of persons or goods or both, and one who does such carrying only as
an ancillaryactivity (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 anoccasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the `general public, i.e., the general community or
population, and one who offers services or solicits business only from a narrow
segment of the general population. We think that Article 1732 deliberately refrained
from making such distinctions.
So understood, the concept of `common carrier under Article 1732 may be seen to
coincide neatly with the notion of `public service, under the Public Service Act

(Commonwealth Act No. 1416, as amended) which at least partially supplements the
law on common carriers set forth in the Civil Code.
Much of the distinction between a common or public carrier and a
private or special carrier lies in the character of the business, such that if the
undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for the
general public or to a limited clientele, although involving the carriage of
goods for a fee, the person or corporation providing such service could very
well be just a private carrier. A typical case is that of a charter party which
includes both the vessel and its crew, such as in a bareboat or demise, where
the charterer obtains the use and service of all or some part of a ship for a
period of time or a voyage or voyages and gets the control of the vessel and
its crew. Contrary to the conclusion made by the appellate court, its factual
findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry
such goods for a fee. The regularity of its activities in this area indicates more
than just a casual activity on its part. Neither can the concept of a common
carrier change merely because individual contracts are executed or entered
into with patrons of the carrier. Such restrictive interpretation would make it
easy for a common carrier to escape liability by the simple expedient of
entering into those distinct agreements with clients.
[3]

[4]

[5]

[6]

Addressing now the issue of whether or not PKS Shipping has exercised
the proper diligence demanded of common carriers, Article 1733 of the Civil
Code requires common carriers to observe extraordinary diligence in the
vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or
to have acted negligently, and the burden of proving otherwise rests on them.
The provisions of Article 1733, notwithstanding, common carriers are
exempt from liability for loss, destruction, or deterioration of the goods due to
any of the following causes:
[7]

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;
and
(5) Order or act of competent public authority.

[8]

The appellate court ruled, gathered from the testimonies and sworn
marine protests of the respective vessel masters of Limar I and MT Iron
Eagle, that there was no way by which the barges or the tugboats crew could
have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong
winds of 1.5 knots resulting in the entry of water into the barges hatches. The
official Certificate of Inspection of the barge issued by the Philippine
Coastguard and the Coastwise Load Line Certificate would attest to the
seaworthiness of Limar I and should strengthen the factual findings of the
appellate court.
Findings of fact of the Court of Appeals generally conclude this Court;
none of the recognized exceptions from the rule - (1) when the factual
findings of the Court of Appeals and the trial court are contradictory; (2) when
the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its
findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is
a grave abuse of discretion in the appreciation of facts; (5) when the appellate
court, in making its findings, went beyond the issues of the case and such
findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice
certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when
the findings of fact are conclusions without citation of the specific evidence on
which they are based; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record would appear to be clearly extant in
this instance.

All given then, the appellate court did not err in its judgment absolving
PKS Shipping from liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.

THIRD DIVISION
[G.R. No. 147246. August 19, 2003]

ASIA LIGHTERAGE AND SHIPPING, INC.,petitioner, vs. COURT OF

APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents.
DECISION
PUNO, J.:

On appeal is the Court of Appeals May 11, 2000 Decision in CA-G.R. CV

No. 49195 and February 21, 2001 Resolution affirming with modification the
April 6, 1994 Decision of the Regional Trial Court of Manila which found
petitioner liable to pay private respondent the amount of indemnity and
attorney's fees.
[1]

[2]

[3]

First, the facts.

On June 13, 1990, 3,150 metric tons of Better Western White Wheat in
bulk, valued at US$423,192.35 was shipped by Marubeni American
Corporation of Portland, Oregon on board the vessel M/V NEO CYMBIDIUM
V-26 for delivery to the consignee, General Milling Corporation in Manila,
evidenced by Bill of Lading No. PTD/Man-4. The shipment was insured by
the private respondent Prudential Guarantee and Assurance, Inc. against loss
or damage forP14,621,771.75 under Marine Cargo Risk Note RN 11859/90.
[4]

[5]

[6]

On July 25, 1990, the carrying vessel arrived in Manila and the cargo was
transferred to the custody of the petitioner Asia Lighterage and Shipping,

Inc. The petitioner was contracted by the consignee as carrier to deliver the
cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge
PSTSI III, evidenced by Lighterage Receipt No. 0364 for delivery to
consignee. The cargo did not reach its destination.
[7]

It appears that on August 17, 1990, the transport of said cargo was
suspended due to a warning of an incoming typhoon. On August 22, 1990,
the petitioner proceeded to pull the barge to Engineering Island off Baseco to
seek shelter from the approaching typhoon. PSTSI III was tied down to other
barges which arrived ahead of it while weathering out the storm that night. A
few days after, the barge developed a list because of a hole it sustained after
hitting an unseen protuberance underneath the water. The petitioner filed a
Marine Protest on August 28, 1990. It likewise secured the services of
Gaspar Salvaging Corporation which refloated the barge. The hole was then
patched with clay and cement.
[8]

[9]

The barge was then towed to ISLOFF terminal before it finally headed
towards the consignee's wharf on September 5, 1990. Upon reaching the Sta.
Mesa spillways, the barge again ran aground due to strong current. To avoid
the complete sinking of the barge, a portion of the goods was transferred to
three other barges.
[10]

The next day, September 6, 1990, the towing bits of the barge broke. It
sank completely, resulting in the total loss of the remaining cargo. A second
Marine Protest was filed on September 7, 1990.
[11]

[12]

On September 14, 1990, a bidding was conducted to dispose of the

damaged wheat retrieved and loaded on the three other barges. The total
proceeds from the sale of the salvaged cargo was P201,379.75.
[13]

[14]

On the same date, September 14, 1990, consignee sent a claim letter to
the petitioner, and another letter dated September 18, 1990 to the private
respondent for the value of the lost cargo.

On January 30, 1991, the private respondent indemnified the consignee in

the amount ofP4,104,654.22. Thereafter, as subrogee, it sought recovery of
said amount from the petitioner, but to no avail.
[15]

On July 3, 1991, the private respondent filed a complaint against the

petitioner for recovery of the amount of indemnity, attorney's fees and cost of
suit. Petitioner filed its answer with counterclaim.
[16]

[17]

The Regional Trial Court ruled in favor of the private respondent. The
dispositive portion of its Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering
defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential
Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from the date
complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount
awarded as and for attorney's fees. Defendant's counterclaim is hereby
DISMISSED. With costs against defendant.
[18]

Petitioner appealed to the Court of Appeals insisting that it is not a

common carrier. The appellate court affirmed the decision of the trial court
with modification. The dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification
in the sense that the salvage value of P201,379.75 shall be deducted from the amount
ofP4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioners Motion for Reconsideration dated June 3, 2000 was likewise
denied by the appellate court in a Resolution promulgated on February 21,
2001.
Hence, this petition. Petitioner submits the following errors allegedly
committed by the appellate court, viz:
[19]

(1)

THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN

ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT HELD THAT PETITIONER IS A COMMON
CARRIER.

(2)

THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN

ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE LOWER
COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL
CODE APPLICABLE TO COMMON CARRIERS, THE LOSS OF THE CARGO
IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES EXCEPT IN THE
FIVE (5) CASES ENUMERATED.

(3)

THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN

ACCORD WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER
FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS
CARE AND CUSTODY OF THE CONSIGNEES CARGO.

The issues to be resolved are:

(1)

Whether the petitioner is a common carrier; and,

(2)
Assuming the petitioner is a common carrier, whether it
exercised extraordinary diligence in its care and custody of the consignees
cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private
carrier. Allegedly, it has no fixed and publicly known route, maintains no
terminals, and issues no tickets. It points out that it is not obliged to carry
indiscriminately for any person. It is not bound to carry goods unless it
consents. In short, it does not hold out its services to the general public.
[20]

We disagree.
In De Guzman vs. Court of Appeals, we held that the definition
of common carriers in Article 1732 of the Civil Code makes no distinction
between one whose principal business activity is the carrying of persons or
[21]

goods or both, and one who does such carrying only as an ancillary
activity. We also did not distinguish 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. Further, we ruled
that Article 1732 does not distinguish between a carrier offering its services to
thegeneral public, and one who offers services or solicits business only from a
narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of
lighterage and drayage and it offers its barges to the public for carrying or
transporting goods by water for compensation. Petitioner is clearly a common
carrier. In De Guzman, supra, we considered private respondent Ernesto
Cendaa to be a common carrier even if his principal occupation was not the
carriage of goods for others, but that of buying used bottles and scrap metal in
Pangasinan and selling these items in Manila.
[22]

[23]

We therefore hold that petitioner is a common carrier whether its carrying

of goods is done on an irregular rather than scheduled manner, and with an
only limited clientele. A common carrier need not have fixed and publicly
known routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down
in Bascos vs. Court of Appeals. The test to determine a common carrier is
whether the given undertaking is a part of the business engaged in by the
carrier which he has held out to the general public as his occupation rather
than the quantity or extent of the business transacted. In the case at bar, the
petitioner admitted that it is engaged in the business of shipping and
lighterage, offering its barges to the public, despite its limited clientele for
carrying or transporting goods by water for compensation.
[24]

[25]

[26]

[27]

On the second issue, we uphold the findings of the lower courts that
petitioner failed to exercise extraordinary diligence in its care and custody of
the consignees goods.
Common carriers are bound to observe extraordinary diligence in the
vigilance over the goods transported by them. They are presumed to have
been at fault or to have acted negligently if the goods are lost, destroyed or
[28]

deteriorated. To overcome the presumption of negligence in the case of

loss, destruction or deterioration of the goods, the common carrier must prove
that it exercised extraordinary diligence. There are, however, exceptions to
this rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach:
[29]

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:
(1)

Flood, storm, earthquake, lightning, or other natural disaster or

calamity;

(2)

Act of the public enemy in war, whether international or civil;

(3)

Act or omission of the shipper or owner of the goods;

(4)

(5)

The character of the goods or defects in the packing or in the

containers;
Order or act of competent public authority.

In the case at bar, the barge completely sank after its towing bits broke,
resulting in the total loss of its cargo. Petitioner claims that this was caused by
a typhoon, hence, it should not be held liable for the loss of the
cargo. However, petitioner failed to prove that the typhoon is the proximate
and only cause of the loss of the goods, and that it has exercised due
diligence before, during and after the occurrence of the typhoon to prevent or
minimize the loss. The evidence show that, even before the towing bits of the
barge broke, it had already previously sustained damage when it hit a sunken
object while docked at the Engineering Island. It even suffered a
hole. Clearly, this could not be solely attributed to the typhoon. The partlysubmerged vessel was refloated but its hole was patched with only clay and
cement. The patch work was merely a provisional remedy, not enough for the
barge to sail safely. Thus, when petitioner persisted to proceed with the
voyage, it recklessly exposed the cargo to further damage. A portion of the
cross-examination of Alfredo Cunanan, cargo-surveyor of Tan-Gatue
Adjustment Co., Inc., states:
[30]

CROSS-EXAMINATION BY ATTY. DONN LEE:

x
x

[31]

xxx

q - Can you tell us what else transpired after that incident?

a - After the first accident, through the initiative of the barge owners, they tried to pull
out the barge from the place of the accident, and bring it to the anchor terminal for
safety, then after deciding if the vessel is stabilized, they tried to pull it to the
consignees warehouse, now while on route another accident occurred, now this
time the barge totally hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the
second accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what caused the
sinking?
a - Mostly it was related to the first accident because there was already a
whole (sic) on the bottom part of the barge.

x
x

xxx

This is not all. Petitioner still headed to the consignees wharf despite
knowledge of an incoming typhoon. During the time that the barge was
heading towards the consignee's wharf on September 5, 1990, typhoon
Loleng has already entered the Philippine area of responsibility. A part of
the testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner,
reveals:
[32]

DIRECT-EXAMINATION BY ATTY. LEE:

x
x

[33]

x
xxx

q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to
lie where she was instead of towing it?

a - Since that time that the Barge was refloated, GMC (General Milling Corporation,
the consignee) as I have said was in a hurry for their goods to be delivered at their
Wharf since they needed badly the wheat that was loaded in PSTSI-3. It was
needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.

x
x

xxx

CROSS-EXAMINATION BY ATTY. IGNACIO:

x
x

[34]

x
xxx

q-

And then from ISLOFF Terminal you proceeded to the premises of the
GMC? Am I correct?

a-

The next day, in the morning, we hired for additional two (2) tugboats as
I have stated.

q-

Despite of the threats of an incoming typhoon as you testified a while

ago?

a-

It is already in an inner portion of Pasig River. The typhoon would be

coming and it would be dangerous if we are in the vicinity of Manila
Bay.

q-

But the fact is, the typhoon was incoming? Yes or no?

a-

Yes.

q-

And yet as a standard operating procedure of your Company, you have

to secure a sort of Certification to determine the weather condition, am I
correct?

a-

Yes, sir.

q-

So, more or less, you had the knowledge of the incoming typhoon,
right?

a-

Yes, sir.

q-

And yet you proceeded to the premises of the GMC?

a-

ISLOFF Terminal is far from Manila Bay and anytime even with the
typhoon if you are already inside the vicinity or inside Pasig entrance, it
is a safe place to tow upstream.

Accordingly, the petitioner cannot invoke the occurrence of the typhoon as

force majeure to escape liability for the loss sustained by the private
respondent. Surely, meeting a typhoon head-on falls short of due diligence
required from a common carrier. More importantly, the officers/employees
themselves of petitioner admitted that when the towing bits of the vessel broke
that caused its sinking and the total loss of the cargo upon reaching the Pasig
River, it was no longer affected by the typhoon. The typhoon then is not the
proximate cause of the loss of the cargo; a human factor, i.e., negligence had
intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 49195 dated May 11, 2000 and its Resolution
dated February 21, 2001 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

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

ESTELA
L.
CRISOSTOMO, petitioner, vs. THE
COURT
OF
APPEALS and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., respondents.
DECISION
YNARES-SANTIAGO, J.:

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

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

docketed as Civil Case No. 92-133 and raffled to Branch 59 of the Regional
Trial Court of Makati City.
In her complaint, petitioner alleged that her failure to join Jewels of
Europe was due to respondents fault since it did not clearly indicate the
departure date on the plane ticket. Respondent was also negligent in
informing her of the wrong flight schedule through its employee Menor. She
insisted that the British Pageant was merely a substitute for the Jewels of
Europe tour, such that the cost of the former should be properly set-off
against the sum paid for the latter.
[2]

For its part, respondent company, through its Operations Manager,

Concepcion Chipeco, denied responsibility for petitioners failure to join the
first tour. Chipeco insisted that petitioner was informed of the correct
departure date, which was clearly and legibly printed on the plane ticket. The
travel documents were given to petitioner two days ahead of the scheduled
trip. Petitioner had only herself to blame for missing the flight, as she did not
bother to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for
Jewels of Europe, considering that the same had already been remitted to its
principal in Singapore, Lotus Travel Ltd., which had already billed the same
even if petitioner did not join the tour. Lotus European tour organizer, Insight
International Tours Ltd., determines the cost of a package tour based on a
minimum number of projected participants. For this reason, it is accepted
industry practice to disallow refund for individuals who failed to take a booked
tour.
[3]

Lastly, respondent maintained that the British Pageant was not a

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

After due proceedings, the trial court rendered a decision, the dispositive
part of which reads:
[4]

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

1.

Ordering the defendant to return and/or refund to the plaintiff the

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

2.

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

3.

Dismissing the defendants counterclaim, for lack of merit; and

4.

With costs against the defendant.

SO ORDERED.

[5]

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

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

[6]

Upon denial of her motion for reconsideration, petitioner filed the instant
petition under Rule 45 on the following grounds:
[7]

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

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

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

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

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

[10]

It is obvious from the above definition that respondent is not an entity

engaged in the business of transporting either passengers or goods and is
therefore, neither a private nor a common carrier. Respondent did not
undertake to transport petitioner from one place to another since its covenant
with its customers is simply to make travel arrangements in their behalf.
Respondents services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of
respondent company, this does not mean that the latter ipso facto is a
common carrier. At most, respondent acted merely as an agent of the airline,
with whom petitioner ultimately contracted for her carriage to Europe.
Respondents obligation to petitioner in this regard was simply to see to it that

petitioner was properly booked with the airline for the appointed date and
time. Her transport to the place of destination, meanwhile, pertained directly to
the airline.
The object of petitioners contractual relation with respondent is the latters
service of arranging and facilitating petitioners booking, ticketing and
accommodation in the package tour. In contrast, the object of a contract of
carriage is the transportation of passengers or goods. It is in this sense that
the contract between the parties in this case was an ordinary one for services
and not one of carriage. Petitioners submission is premised on a wrong
assumption.
The nature of the contractual relation between petitioner and respondent is
determinative of the degree of care required in the performance of the latters
obligation under the contract. For reasons of public policy, a common carrier in
a contract of carriage is bound by law to carry passengers as far as human
care and foresight can provide using the utmost diligence of very cautious
persons and with due regard for all the circumstances. As earlier stated,
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.
[11]

Since the contract between the parties is an ordinary one for services, the
standard of care required of respondent is that of a good father of a family
under Article 1173 of the Civil Code. This connotes reasonable care
consistent with that which an ordinarily prudent person would have observed
when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant in
doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then
he is guilty of negligence.
[12]

[13]

In the case at bar, the lower court found Menor negligent when she
allegedly informed petitioner of the wrong day of departure. Petitioners
testimony was accepted as indubitable evidence of Menors alleged negligent
act since respondent did not call Menor to the witness stand to refute the
allegation. The lower court applied the presumption under Rule 131, Section 3

(e) of the Rules of Court that evidence willfully suppressed would be adverse
if produced and thus considered petitioners uncontradicted testimony to be
sufficient proof of her claim.
[14]

On the other hand, respondent has consistently denied that Menor was
negligent and maintains that petitioners assertion is belied by the evidence on
record. The date and time of departure was legibly written on the plane ticket
and the travel papers were delivered two days in advance precisely so that
petitioner could prepare for the trip. It performed all its obligations to enable
petitioner to join the tour and exercised due diligence in its dealings with the
latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners
testimony could not give rise to an inference unfavorable to the former. Menor
was already working in France at the time of the filing of the complaint,
thereby making it physically impossible for respondent to present her as a
witness. Then too, even if it were possible for respondent to secure Menors
testimony, the presumption under Rule 131, Section 3(e) would still not
apply. The opportunity and possibility for obtaining Menors testimony
belonged to both parties, considering that Menor was not just respondents
employee, but also petitioners niece. It was thus error for the lower court to
invoke the presumption that respondent willfully suppressed evidence under
Rule 131, Section 3(e). Said presumption would logically be inoperative if the
evidence is not intentionally omitted but is simply unavailable, or when the
same could have been obtained by both parties.
[15]

[16]

In sum, we do not agree with the finding of the lower court that Menors
negligence concurred with the negligence of petitioner and resultantly caused
damage to the latter. Menors negligence was not sufficiently proved,
considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging
a fact has the burden of proving it and a mere allegation cannot take the place
of evidence. If the plaintiff, upon whom rests the burden of proving his cause
of action, fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or defense.
[17]

[18]

Contrary to petitioners claim, the evidence on record shows that

respondent exercised due diligence in performing its obligations under the
contract and followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the plane ticket issued to
petitioner clearly reflected the departure date and time, contrary to petitioners
contention. The travel documents, consisting of the tour itinerary, vouchers
and instructions, were likewise delivered to petitioner two days prior to the trip.
Respondent also properly booked petitioner for the tour, prepared the
necessary documents and procured the plane tickets. It arranged petitioners
hotel accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.
[19]

Therefore, it is clear that respondent performed its prestation under the

contract as well as everything else that was essential to book petitioner for the
tour. Had petitioner exercised due diligence in the conduct of her affairs, there
would have been no reason for her to miss the flight. Needless to say, after
the travel papers were delivered to petitioner, it became incumbent upon her
to take ordinary care of her concerns. This undoubtedly would require that she
at least read the documents in order to assure herself of the important details
regarding the trip.
The negligence of the obligor in the performance of the obligation renders
him liable for damages for the resulting loss suffered by the obligee. Fault or
negligence of the obligor consists in his failure to exercise due care and
prudence in the performance of the obligation as the nature of the obligation
so demands. There is no fixed standard of diligence applicable to each and
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.
[20]

[21]

The lower court declared that respondents employee was negligent. This
factual finding, however, is not supported by the evidence on record. While
factual findings below are generally conclusive upon this court, the rule is
subject to certain exceptions, as when the trial court overlooked,

misunderstood, or misapplied some facts or circumstances of weight and

substance which will affect the result of the case.
[22]

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

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

SO ORDERED.

THIRD DIVISION
[G.R. No. 150255. April 22, 2005]

SCHMITZ
TRANSPORT
&
BROKERAGE
CORPORATION, petitioner,
vs. TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY,
LTD., and BLACK SEA SHIPPING AND DODWELL now INCHCAPE
SHIPPING SERVICES, respondents.
DECISION
CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision of the Court of Appeals, as well
as its Resolution dated September 28, 2001 denying the motion for reconsideration,
which affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil
Case No. 92-63132 holding petitioner Schmitz Transport Brokerage Corporation
(Schmitz Transport), together with Black Sea Shipping Corporation (Black Sea),
represented by its ship agent Inchcape Shipping Inc. (Inchcape), and Transport Venture
[1]

[2]

[3]

(TVI), solidarily liable for the loss of 37 hot rolled steel sheets in coil that were washed
overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of
Ilyichevsk, Russia on board M/V Alexander Saveliev (a vessel of Russian registry and
owned by Black Sea) 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the
consignee, Little Giant Steel Pipe Corporation (Little Giant), were insured against all
risks with Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy
No. M-91-3747-TIS.
[4]

[5]

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine
Ports Authority (PPA) assigned it a place of berth at the outside breakwater at the
Manila South Harbor.
[6]

Schmitz Transport, whose services the consignee engaged to secure the requisite
clearances, to receive the cargoes from the shipside, and to deliver them to its (the
consignees) warehouse at Cainta, Rizal, in turn engaged the services of TVI to send a
barge and tugboat at shipside.
[7]

On October 26, 1991, around 4:30 p.m., TVIs tugboat Lailani towed the barge
Erika V to shipside.
[8]

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge
alongside the vessel, left and returned to the port terminal. At 9:00 p.m., arrastre
operator Ocean Terminal Services Inc. commenced to unload 37 of the 545 coils from
the vessel unto the barge.
[9]

By 12:30 a.m. of October 27, 1991 during which the weather condition had become
inclement due to an approaching storm, the unloading unto the barge of the 37 coils
was accomplished. No tugboat pulled the barge back to the pier, however.
[10]

At around 5:30 a.m. of October 27, 1991, due to strong waves, the crew of the
barge abandoned it and transferred to the vessel. The barge pitched and rolled with the
waves and eventually capsized, washing the 37 coils into the sea. At 7:00 a.m., a
tugboat finally arrived to pull the already empty and damaged barge back to the pier.
[11]

[12]

[13]

Earnest efforts on the part of both the consignee Little Giant and Industrial
Insurance to recover the lost cargoes proved futile.
[14]

Little Giant thus filed a formal claim against Industrial Insurance which paid it the
amount of P5,246,113.11. Little Giant thereupon executed a subrogation receipt in
favor of Industrial Insurance.
[15]

Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black
Sea through its representative Inchcape (the defendants) before the RTC of Manila, for
the recovery of the amount it paid to Little Giant plus adjustment fees, attorneys fees,
and litigation expenses.
[16]

Industrial Insurance faulted the defendants for undertaking the unloading of the
cargoes while typhoon signal No. 1 was raised in Metro Manila.
[17]

By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants
negligent for unloading the cargoes outside of the breakwater notwithstanding the storm
signal. The dispositive portion of the decision reads:
[18]

WHEREFORE, premises considered, the Court renders judgment in favor of the

plaintiff, ordering the defendants to pay plaintiff jointly and severally the sum
of P5,246,113.11 with interest from the date the complaint was filed until fully satisfied,
as well as the sum of P5,000.00 representing the adjustment fee plus the sum of 20%
of the amount recoverable from the defendants as attorneys fees plus the costs of suit.
The counterclaims and cross claims of defendants are hereby DISMISSED for lack of
[m]erit.
[19]

To the trial courts decision, the defendants Schmitz Transport and TVI filed a joint
motion for reconsideration assailing the finding that they are common carriers and the
award of excessive attorneys fees of more than P1,000,000. And they argued that they
were not motivated by gross or evident bad faith and that the incident was caused by a
fortuitous event.
[20]

By resolution of February 4, 1998, the trial court denied the motion for
reconsideration.
[21]

All the defendants appealed to the Court of Appeals which, by decision of June 27,
2001, affirmed in toto the decision of the trial court, it finding that all the defendants
[22]

were common carriers Black Sea and TVI for engaging in the transport of goods and
cargoes over the seas as a regular business and not as an isolated transaction, and
Schmitz Transport for entering into a contract with Little Giant to transport the cargoes
from ship to port for a fee.
[23]

[24]

In holding all the defendants solidarily liable, the appellate court ruled that each one
was essential such that without each others contributory negligence the incident would
not have happened and so much so that the person principally liable cannot be
distinguished with sufficient accuracy.
[25]

In discrediting the defense of fortuitous event, the appellate court held that although
defendants obviously had nothing to do with the force of nature, they however had
control of where to anchor the vessel, where discharge will take place and even when
the discharging will commence.
[26]

The defendants respective motions for reconsideration having been denied by

Resolution of September 28, 2001, Schmitz Transport (hereinafter referred to as
petitioner) filed the present petition against TVI, Industrial Insurance and Black Sea.
[27]

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its
principal, consignee Little Giant, hence, the transportation contract was by and between
Little Giant and TVI.
[28]

By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black

Sea, and TVI were required to file their respective Comments.
[29]

By its Comment, Black Sea argued that the cargoes were received by the consignee
through petitioner in good order, hence, it cannot be faulted, it having had no control
and supervision thereover.
[30]

For its part, TVI maintained that it acted as a passive party as it merely received the
cargoes and transferred them unto the barge upon the instruction of petitioner.
[31]

In issue then are:

(1) Whether the loss of the cargoes was due to a fortuitous event, independent of
any act of negligence on the part of petitioner Black Sea and TVI, and

(2) If there was negligence, whether liability for the loss may attach to Black Sea,
petitioner and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party
from any and all liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which though foreseen, were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligation, must be independent of human will; (2) it must be impossible to foresee the
event which constitute the caso fortuito, or if it can be foreseen it must be impossible to
avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill
his obligation in any manner; and (4) the obligor must be free from any participation in
the aggravation of the injury resulting to the creditor.
[32]

[T]he principle embodied in the act of God doctrine strictly requires that the act must be
occasioned solely by the violence of nature. Human intervention is to be excluded from
creating or entering into the cause of the mischief. When the effect is found to be in
part the result of the participation of man, whether due to his active intervention or
neglect or failure to act, the whole occurrence is then humanized and removed from the
rules applicable to the acts of God.
[33]

The appellate court, in affirming the finding of the trial court that human intervention
in the form of contributory negligence by all the defendants resulted to the loss of the
cargoes, held that unloading outside the breakwater, instead of inside the breakwater,
while a storm signal was up constitutes negligence. It thus concluded that the
proximate cause of the loss was Black Seas negligence in deciding to unload the
cargoes at an unsafe place and while a typhoon was approaching.
[34]

[35]

[36]

From a review of the records of the case, there is no indication that there was
greater risk in loading the cargoes outside the breakwater. As the defendants proffered,
the weather on October 26, 1991 remained normal with moderate sea condition such
that port operations continued and proceeded normally.
[37]

The weather data report, furnished and verified by the Chief of the Climate Data
Section of PAG-ASA and marked as a common exhibit of the parties, states that while
typhoon signal No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea
condition at the port of Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was
moderate. It cannot, therefore, be said that the defendants were negligent in not
unloading the cargoes upon the barge on October 26, 1991 inside the breakwater.
[38]

That no tugboat towed back the barge to the pier after the cargoes were completely
loaded by 12:30 in the morning is, however, a material fact which the appellate court
failed to properly consider and appreciate the proximate cause of the loss of the
cargoes. Had the barge been towed back promptly to the pier, the deteriorating sea
conditions notwithstanding, the loss could have been avoided. But the barge was left
floating in open sea until big waves set in at 5:30 a.m., causing it to sink along with the
cargoes. The loss thus falls outside the act of God doctrine.
[39]

[40]

[41]

The proximate cause of the loss having been determined, who among the parties
is/are responsible therefor?
Contrary to petitioners insistence, this Court, as did the appellate court, finds that
petitioner is a common carrier. For it undertook to transport the cargoes from the
shipside of M/V Alexander Saveliev to the consignees warehouse at Cainta, Rizal. As
the appellate court put it, as long as a person or corporation holds [itself] to the public
for the purpose of transporting goods as [a] business, [it] is already considered a
common carrier regardless if [it] owns the vehicle to be used or has to hire one. That
petitioner is a common carrier, the testimony of its own Vice-President and General
Manager Noel Aro that part of the services it offers to its clients as a brokerage firm
includes the transportation of cargoes reflects so.
[42]

Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive
Vice-President and General Manager of said Company?
Mr. Aro: Well, I oversee the entire operation of the brokerage and transport
business of the company. I also handle the various division heads of the
company for operation matters, and all other related functions that the
President may assign to me from time to time, Sir.

Q: Now, in connection [with] your duties and functions as you mentioned, will
you please tell the Honorable Court if you came to know the company by the
name Little Giant Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can
recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company. What work or
duty did you perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of
Customs. We [are] also in-charged of the delivery of the goods to their
warehouses. We also handled the clearances of their shipment at the
Bureau of Customs, Sir.
xxx
Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe
Corporation with regards to this shipment? What work did you do with this
shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the
delivery of [the] cargo[es] from lighter to BASECO then to the truck and to the
warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are
supposed to perform, what equipment do (sic) you require or did you use in
order to effect this unloading, transfer and delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this unloading
[from] vessel to lighter, and on this we hired or we sub-contracted with
[T]ransport Ventures, Inc. which [was] in-charged (sic) of the barges. Also, in
BASECO compound we are leasing cranes to have the cargo unloaded from

the barge to trucks, [and] then we used trucks to deliver [the cargoes] to the
consignees warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignees
warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks,
Sir.
xxx
ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you
have to contract for the barges of Transport Ventures Incorporated in this
particular operation?
A: Firstly, we dont own any barges. That is why we hired the services of
another firm whom we know [al]ready for quite sometime, which is Transport
Ventures, Inc. (Emphasis supplied)
[43]

It is settled that under a given set of facts, a customs broker may be regarded as a
common carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable
Court of Appeals, held:
[44]

The appellate court did not err in finding petitioner, a customs broker, to be also a
common carrier, as defined under Article 1732 of the Civil Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water,
or air, for compensation, offering their services to the public.
xxx
Article 1732 does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity. The
contention, therefore, of petitioner that it is not a common carrier but a customs broker
whose principal function is to prepare the correct customs declaration and proper
shipping documents as required by law is bereft of merit. It suffices that petitioner
undertakes to deliver the goods for pecuniary consideration.
[45]

And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the
transportation of goods is an integral part of a customs broker, the customs broker is
also a common carrier. For to declare otherwise would be to deprive those with whom
[it] contracts the protection which the law affords them notwithstanding the fact that the
obligation to carry goods for [its] customers, is part and parcel of petitioners
business.
[46]

[47]

As for petitioners argument that being the agent of Little Giant, any negligence it
committed was deemed the negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the
cargoes. In effecting the transportation of the cargoes from the shipside and into Little
Giants warehouse, however, petitioner was discharging its own personal obligation
under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as
handler to provide the barge and the tugboat. In their Service Contract, while Little
Giant was named as the consignee, petitioner did not disclose that it was acting on
commission and was chartering the vessel for Little Giant. Little Giant did not thus
automatically become a party to the Service Contract and was not, therefore, bound by
the terms and conditions therein.
[48]

[49]

[50]

Not being a party to the service contract, Little Giant cannot directly sue TVI based
thereon but it can maintain a cause of action for negligence.
[51]

In the case of TVI, while it acted as a private carrier for which it was under no duty to
observe extraordinary diligence, it was still required to observe ordinary diligence to
ensure the proper and careful handling, care and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the

circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2202, paragraph 2, shall apply.
If the law or contract 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.
Was the reasonable care and caution which an ordinarily prudent person would
have used in the same situation exercised by TVI?
[52]

This Court holds not.

TVIs failure to promptly provide a tugboat did not only increase the risk that might
have been reasonably anticipated during the shipside operation, but was the proximate
cause of the loss. A man of ordinary prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a precarious time, and in the open
sea, knowing that the barge does not have any power of its own and is totally
defenseless from the ravages of the sea. That it was nighttime and, therefore, the
members of the crew of a tugboat would be charging overtime pay did not excuse TVI
from calling for one such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 1739 of
the Civil Code, prove that it exercised due diligence to prevent or minimize the loss,
before, during and after the occurrence of the storm in order that it may be exempted
from liability for the loss of the goods.
[53]

While petitioner sent checkers and a supervisor on board the vessel to countercheck the operations of TVI, it failed to take all available and reasonable precautions to
avoid the loss. After noting that TVI failed to arrange for the prompt towage of the barge
despite the deteriorating sea conditions, it should have summoned the same or another
tugboat to extend help, but it did not.
[54]

[55]

This Court holds then that petitioner and TVI are solidarily liable for the loss of the
cargoes. The following pronouncement of the Supreme Court is instructive:
[56]

The foundation of LRTAs liability is the contract of carriage and its obligation to
indemnify the victim arises from the breach of that contract by reason of its failure to
exercise the high diligence required of the common carrier. In the discharge of its
commitment to ensure the safety of passengers, a carrier may choose to hire its own

employees or avail itself of the services of an outsider or an independent firm to

undertake the task. In either case, the common carrier is not relieved of its
responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort
under the provisions of Article 2176 and related provisions, in conjunction with Article
2180 of the Civil Code. x x x[O]ne might ask further, how then must the liability of the
common carrier, on one hand, and an independent contractor, on the other hand, be
described? It would be solidary. A contractual obligation can be breached by tort and
when the same act or omission causes the injury, one resulting in culpa contractual and
the other in culpa aquiliana, Article 2194 of the Civil Code can well apply. In fine, a
liability for tort may arise even under a contract, where tort is that which breaches the
contract. Stated differently, when an act which constitutes a breach of contract would
have itself constituted the source of a quasi-delictual liability had no contract existed
between the parties, the contract can be said to have been breached by tort, thereby
allowing the rules on tort to apply.
[57]

As for Black Sea, its duty as a common carrier extended only from the time the
goods were surrendered or unconditionally placed in its possession and received for
transportation until they were delivered actually or constructively to consignee Little
Giant.
[58]

Parties to a contract of carriage may, however, agree upon a definition of delivery

that extends the services rendered by the carrier. In the case at bar, Bill of Lading No. 2
covering the shipment provides that delivery be made to the port of discharge or so
near thereto as she may safely get, always afloat. The delivery of the goods to the
consignee was not from pier to pier but from the shipside of M/V Alexander Saveliev
and into barges, for which reason the consignee contracted the services of petitioner.
Since Black Sea had constructively delivered the cargoes to Little Giant, through
petitioner, it had discharged its duty.
[59]

[60]

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorneys fees in an amount over P1,000,000.00 to
Industrial Insurance, for lack of factual and legal basis, this Court sets it aside. While
Industrial Insurance was compelled to litigate its rights, such fact by itself does not
justify the award of attorneys fees under Article 2208 of the Civil Code. For no

sufficient showing of bad faith would be reflected in a partys persistence in a case other
than an erroneous conviction of the righteousness of his cause. To award attorneys
fees to a party just because the judgment is rendered in its favor would be tantamount
to imposing a premium on ones right to litigate or seek judicial redress of legitimate
grievances.
[61]

[62]

On the award of adjustment fees: The adjustment fees and expense of divers were
incurred by Industrial Insurance in its voluntary but unsuccessful efforts to locate and
retrieve the lost cargo. They do not constitute actual damages.
[63]

As for the court a quos award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals that
when the demand cannot be reasonably established at the time the demand is made,
the interest shall begin to run not from the time the claim is made judicially or
extrajudicially but from the date the judgment of the court is made (at which the time the
quantification of damages may be deemed to have been reasonably ascertained).
[64]

[65]

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport

& Brokerage Corporation, and Transport Venture Incorporation jointly and severally
liable for the amount ofP5,246,113.11 with the MODIFICATION that interest at SIX
PERCENT per annum of the amount due should be computed from the promulgation on
November 24, 1997 of the decision of the trial court.
Costs against petitioner.
SO ORDERED.

SECOND DIVISION
PHILIPPINES FIRST INSURANCE G.R. No. 165647
CO., INC.,
Petitioner,
Present:

versus -

MARTINEZ,*
CORONA,**
TINGA,

Acting Chairperson,
VELASCO, JR., and
BRION, JJ.
WALLEM PHILS. SHIPPING,
INC., UNKNOWN OWNER AND/OR Promulgated:
UNKNOWN CHARTERER OF THE
VESSEL M/S OFFSHORE MASTER March 26, 2009
AND SHANGHAI FAREAST SHIP
BUSINESS COMPANY,
Respondents.

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

DECISION
TINGA, J.:
Before us is a Rule 45 petition[1] which seeks the reversal of the
Decision[2] and Resolution[3] of the Court of Appeals in CA-G.R. No. 61885. The
Court of Appeals reversed the Decision[4] of the Regional Trial Court (RTC)
of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the complaint for
sum of money.
The facts of the case follow.[5]
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation
loaded on board M/S Offshore Master a shipment consisting of 10,000 bags of
sodium sulphate anhydrous 99 PCT Min. (shipment), complete and in good order
for transportation to and delivery at the port of Manila for consignee, L.G.
Atkimson Import-Export, Inc. (consignee), covered by a Clean Bill of Lading. The
Bill of Lading reflects the gross weight of the total cargo at 500,200 kilograms.
[6]
The Owner and/or Charterer of M/V Offshore Master is unknown while the
shipper of the shipment is Shanghai Fareast Ship Business Company. Both are
foreign firms doing business in the Philippines, thru its local ship agent, respondent
Wallem Philippines Shipping, Inc. (Wallem).[7]
On or about 16 October 1995, the shipment arrived at the port of Manila on
board the vessel M/S Offshore Master from which it was subsequently discharged.
It was disclosed during the discharge of the shipment from the carrier that 2,426
poly bags (bags) were in bad order and condition, having sustained various
degrees of spillages and losses. This is evidenced by the Turn Over Survey of Bad
Order Cargoes (turn-over survey) of the arrastre operator, Asian Terminals, Inc.
(arrastre operator).[8] The bad state of the bags is also evinced by the arrastre
operators Request for Bad Order Survey.[9]
Asia Star Freight Services, Inc. undertook the delivery of the subject
shipment from the pier to the consignees warehouse in Quezon City,[10] while the
final inspection was conducted jointly by the consignees representative and the

cargo surveyor. During the unloading, it was found and noted that the bags had
been discharged in damaged and bad order condition. Upon inspection, it was
discovered that 63,065.00 kilograms of the shipment had sustained unrecovered
spillages, while 58,235.00 kilograms had been exposed and contaminated, resulting
in losses due to depreciation and downgrading.[11]
On 29 April 1996, the consignee filed a formal claim with Wallem for the
value of the damaged shipment, to no avail. Since the shipment was insured with
petitioner Philippines First Insurance Co., Inc. against all risks in the amount
of P2,470,213.50,[12]the consignee filed a formal claim[13] with petitioner for the
damage and losses sustained by the shipment. After evaluating the invoices, the
turn-over survey, the bad order certificate and other documents,[14]petitioner found
the claim to be in order and compensable under the marine insurance policy.
Consequently, petitioner paid the consignee the sum of P397,879.69 and the latter
signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to
Wallem for the recovery of the amount paid by petitioner to the
consignee. However, despite receipt of the letter, Wallem did not settle nor even
send a response to petitioners claim.[15]
Consequently, petitioner instituted an action before the RTC for damages
against respondents for the recovery of P397,879.69 representing the actual
damages suffered by petitioner plus legal interest thereon computed from the time
of the filing of the complaint until fully paid and attorneys fees equivalent to 25%
of the principal claim plus costs of suit.

In a decision[16] dated 3 November 1998, the RTC ordered respondents to

pay petitionerP397,879.69 with 6% interest plus attorneys fees and costs of the
suit.
It
attributed
the
damage
and
losses sustained by the shipment to the arrastre operators mishandling in the
discharge of the shipment. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,
[17]
the RTC held the shipping company and the arrastre operator solidarily liable
since both the arrastre operator and the carrier are charged with and obligated to

deliver the goods in good order condition to the consignee. It also ruled that the
ship functioned as a common carrier and was obliged to observe the degree of care
required of a common carrier in handling cargoes. Further, it held that a notice of
loss or damage in writing is not required in this case because said goods already
underwent a joint inspection or survey at the time of receipt thereof by the
consignee, which dispensed with the notice requirement.
The Court of Appeals reversed and set aside the RTCs decision.
According to the appellate court, there is no solidary liability between the
carrier and the arrastre operator because it was clearly established by the court a
quo that the damage and losses of the shipment were attributed to the mishandling
by the arrastre operator in the discharge of the shipment. The appellate court ruled
that the instant case falls under an exception recognized in Eastern
[18]

Shipping Lines.[19] Hence, the arrastre operator was held solely liable to the
consignee.
Petitioner raises the following issues:
1.

2.
3.

4.

Whether or not the Court of Appeals erred in not holding that as a

common carrier, the carriers duties extend to the obligation to safely
discharge the cargo from the vessel;
Whether or not the carrier should be held liable for the cost of the
damaged shipment;
Whether or not Wallems failure to answer the extra judicial demand by
petitioner for the cost of the lost/damaged shipment is an implied
admission of the formers liability for said goods;
Whether or not the courts below erred in giving credence to the
testimony of Mr. Talens.

It is beyond question that respondents vessel is a common carrier.[20] Thus,

the standards for determining the existence or absence of the respondents liability
will be gauged on the degree of diligence required of a common carrier. Moreover,
as the shipment was an exercise of international trade, the provisions of the
Carriage of Goods

by Sea Act[21] (COGSA), together with the Civil Code and the Code of Commerce,
shall apply.[22]
The first and second issues raised in the petition will be resolved
concurrently since they are interrelated.
It is undisputed that the shipment was damaged prior to its receipt by the
insured consignee. Thedamage to the shipment was documented by the turn-over
survey[23] and Request for Bad Order Survey.[24] The turn-over survey, in particular,
expressly stipulates that 2,426 bags of the shipment were received by the arrastre
operator in damaged condition. With these documents, petitioner insists that the
shipment incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre operator.
The trial court, however, found through the testimony of Mr. Maximino
Velasquez Talens, a cargo surveyor of Oceanica Cargo Marine Surveyors
Corporation, that the losses and damage to the cargo were caused by the
mishandling of the arrastre operator. Specifically, that the torn cargo bags resulted
from the use of steel hooks/spikes in piling the cargo bags to the pallet board and in
pushing the bags by the stevedores of the arrastre operator to the tug boats then to
the ports.[25] The appellate court affirmed the finding of mishandling in the
discharge of cargo and it served as its basis for exculpating respondents from
liability, rationalizing that with the fault of the arrastre operator in the unloading of
the cargo established it should bear sole liability for the cost of the damaged/lost
cargo.
While it is established that damage or losses were incurred by the
shipment during the unloading, it is disputed who should be liable for the damage
incurred at that point of transport. To address this issue, the pertinent laws and
jurisprudence are examined.
Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods
transported by them.[26] Subject to certain exceptions enumerated under Article
1734[27]of the Civil Code, common carriers are responsible for the loss, destruction,

or deterioration of the goods. The extraordinary responsibility of the common

carrier lasts from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person who has
a right to receive them.[28]
For marine vessels, Article 619 of the Code of Commerce provides that the
ship captain is liable for the cargo from the time it is turned over to him at the dock
or afloat alongside the vessel at the port of loading, until he delivers it on the shore
or on the discharging wharf at the port of unloading, unless agreed otherwise.
In Standard Oil Co. of New York v. Lopez Castelo,[29] the Court interpreted the ship
captains liability as ultimately that of the shipowner by regarding the captain as
the representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of
carriage of goods by sea, the carrier in relation to the loading, handling, stowage,
carriage, custody, care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities set forth in
the Act.[30] Section 3 (2) thereof then states that among the carriers responsibilities
are to properly and carefully load, handle, stow, carry, keep, care for, and discharge
the goods carried.
The above doctrines are in fact expressly incorporated in the bill of lading
between the shipper Shanghai Fareast Business Co., and the consignee, to wit:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier
shall commence from the time when the goods are loaded on board
the vessel and shall cease when they are discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods
before loading and after discharging from the vessel, howsoever such
loss or damage arises.[31]

On the other hand, the functions of an arrastre operator involve the handling
of cargo deposited on the wharf or between the establishment of the consignee or
shipper and the ship's tackle.[32] Being the custodian of the goods discharged from a

vessel, an arrastre operator's duty is to take good care of the goods and to turn them
over to the party entitled to their possession.[33]
Handling cargo is mainly the arrastre operator's principal work so its
drivers/operators or employees should observe the standards and measures
necessary to prevent losses and damage to shipments under its custody.[34]
In Firemans Fund Insurance Co. v. Metro Port Service, Inc. [35] the Court
explained the relationship and responsibility of an arrastre operator to a consignee
of a cargo, to quote:
The legal relationship between the consignee and the arrastre
operator is akin to that of a depositor and warehouseman. The
relationship between the consignee and the common carrier is similar
to that of the consignee and the arrastre operator. Since it is the duty
of the ARRASTRE to take good care of the goods that are in its
custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and
obligated to deliver the goods in good condition to the consignee.
(Emphasis supplied) (Citations omitted)

The liability of the arrastre operator was reiterated in Eastern Shipping

Lines, Inc. v. Court of Appeals[36] with the clarification that the arrastre operator and
the carrier are not always and necessarily solidarily liable as the facts of a case may
vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled that an
arrastre operator and a carrier may not be held solidarily liable at all times. But the
precise question is which entity had custody of the shipment during its unloading
from the vessel?
The aforementioned Section 3(2) of the COGSA states that among the
carriers responsibilities are to properly and carefully load, care for and discharge
the goods carried. The bill of lading covering the subject shipment likewise
stipulates that the carriers liability for loss or damage to the goods ceases after its
discharge from the vessel. Article 619 of the Code of Commerce holds a ship

captain liable for the cargo from the time it is turned over to him until its delivery
at the port of unloading.
In a case decided by a U.S. Circuit Court,Nichimen Company v. M./V.
Farland,[37] it was ruled that like the duty of seaworthiness, the duty of care of the
cargo is non-delegable,[38] and the carrier is accordingly responsible for the acts of
the master, the crew, the stevedore, and his other agents. It has also been held that
it is ordinarily the duty of the master of a vessel to unload the cargo and place it in
readiness for delivery to the consignee, and there is an implied obligation that this
shall be accomplished with sound machinery, competent hands, and in such
manner that no unnecessary injury shall be done thereto. [39] And the fact that a
consignee is required to furnish persons to assist in unloading a shipment may not
relieve the carrier of its duty as to such unloading.[40]
The exercise of the carriers custody and responsibility over the subject
shipment during the unloading actually transpired in the instant case during the
unloading of the shipment as testified by Mr. Talens, the cargo surveyor, to quote:
Atty. Repol:
A
Q
A

Do you agree with me that Wallem Philippines is a shipping

[company]?
Yes, sir.
And, who hired the services of the stevedores?
The checker of the vessel of Wallem, sir.[41]

xxx
Q
A
Q
A
Q
A

Mr. Witness, during the discharging operation of this cargo, where was
the master of the vessel?
On board the vessel, supervising, sir.
And, observed the discharging operation?
Yes, sir.
And, what did the master of the vessel do when the cargo was being
unloaded from the vessel?
He would report to the head checker, sir.

Q
A

He did not send the stevedores to what manner in the discharging of the
cargo from the vessel?
And head checker po and siyang nagpapatakbo ng trabaho sa loob ng
barko, sir.[42]

xxx
Q
A

Is he [the head checker] an employee of the company?

He is a contractor/checker of WallemPhilippines, sir.[43]

Moreover, the liability of Wallem is highlighted by Mr. Talens notes in

the Bad Order Inspection, to wit:

The bad order torn bags, was due to stevedores[] utilizing steel
hooks/spikes in piling the cargo to [the] pallet board at the vessels cargo
holds and at the pier designated area before and after discharged that
cause the bags to torn [sic].[44] (Emphasis supplied)

The records are replete with evidence which show that the damage to the bags
happened before and after their discharge[45] and it was caused by the stevedores of
the arrastre operator who were then under the supervision of Wallem.
It is settled in maritime law jurisprudence that cargoes while being unloaded
generally remain under the custody of the carrier. In the instant case, the damage or
losses were incurred during the discharge of the shipment while under the
supervision of the carrier. Consequently, the carrier is liable for the damage or
losses caused to the shipment. As the cost of the actual damage to the subject
shipment has long been settled, the trial courts finding of actual damages in the
amount of P397,879.69 has to be sustained.

On the credibility of Mr. Talens which is the fourth issue, the general rule in
assessing credibility of witnesses is well-settled:

x x x the trial court's evaluation as to the credibility of witnesses is

viewed as correct and entitled to the highest respect because it is more
competent to so conclude, having had the opportunity to observe the
witnesses' demeanor and deportment on the stand, and the manner in
which they gave their testimonies. The trial judge therefore can better
determine if such witnesses were telling the truth, being in the ideal
position to weigh conflicting testimonies. Therefore, unless the trial
judge plainly overlooked certain facts of substance and value which, if
considered, might affect the result of the case, his assessment on
credibility must be respected.[46]

Contrary to petitioners stance on the third issue, Wallems failure to respond

to its demand letter does not constitute an implied admission of liability. To borrow
the words of Mr. Justice Oliver Wendell Holmes, thus:
A man cannot make evidence for himself by writing a letter
containing the statements that he wishes to prove. He does not make the
letter evidence by sending it to the party against whom he wishes to
prove the facts [stated therein]. He no more can impose a duty to answer
a charge than he can impose a duty to pay by sending goods. Therefore a
failure to answer such adverse assertions in the absence of further
circumstances making an answer requisite or natural has no effect as an
admission.[47]

With respect to the attorneys fees, it is evident that petitioner was compelled
to litigate this matter to protect its interest. The RTCs award of P20,000.00 as
attorneys fees is reasonable.

WHEREFORE, the petition is GRANTED.The Decision of the Court of

Appeals dated 22 June 2004 and its Resolution dated 11 October
2004 areREVERSED and SET ASIDE. Wallem is ordered to pay petitioner the
sum of P397,879.69, with interest thereon at 6% per annum from the filing of the
complaint on 7 October 1996 until the judgment becomes final and executory.
Thereafter, an interest rate of 12% per annum shall be imposed.[48] Respondents are
also ordered to pay petitioner the amount of P20,000.00 for and as attorneys fees,
together with the costs of the suit.
SO ORDERED.
SECOND DIVISION
UNSWORTH TRANSPORT
INTERNATIONAL (PHILS.), INC.,
Petitioner,

G.R. No. 166250

Present:
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

COURT OF APPEALS and PIONEER

INSURANCE AND SURETY
CORPORATION,
Respondents.

Promulgated:
July 26, 2010

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

For review is the Court of Appeals (CA) Decision [1] dated April 29, 2004
and Resolution[2]dated November 26, 2004. The assailed Decision affirmed the
Regional Trial Court (RTC) decision[3]dated February 22, 2001; while the assailed
Resolution denied petitioner Unsworth Transport International (Philippines), Inc.,
American President Lines, Ltd. (APL), and Unsworth Transport International,
Inc.s (UTIs) motion for reconsideration.

The facts of the case are:

On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to
UTI a shipment of 27 drums of various raw materials for pharmaceutical
manufacturing, consisting of: 1) 3 drums (of) extracts, flavoring liquid,
flammable liquid x x x banana flavoring; 2) 2 drums (of) flammable liquids x x x
turpentine oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs:
Vitamin B Complex Extract.[4] UTI issued Bill of Lading No. C320/C15991-2,
[5]
covering the aforesaid shipment. The subject shipment was insured with private
respondent Pioneer Insurance and Surety Corporation in favor of Unilab against all
risks in the amount ofP1,779,664.77 under and by virtue of Marine Risk Note
Number MC RM UL 0627 92[6] and Open Cargo Policy No. HO-022-RIU.[7]
On the same day that the bill of lading was issued, the shipment was loaded
in a sealed 1x40 container van, with no. APLU-982012, boarded on APLs
vessel M/V Pres. Jackson, Voyage 42, and transshipped to APLs M/V Pres.
Taft[8] for delivery to petitioner in favor of the consignee United Laboratories, Inc.
(Unilab).
On September 30, 1992, the shipment arrived at the port of Manila. On
October 6, 1992, petitioner received the said shipment in its warehouse after it
stamped the Permit to Deliver Imported Goods [9]procured by the Champs Customs
Brokerage.[10] Three days thereafter, or on October 9, 1992, Oceanica Cargo Marine
Surveyors Corporation (OCMSC) conducted a stripping survey of the shipment
located in petitioners warehouse. The survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition
and properly sealed
19- steel drums STC Vitamin B Complex Extract, all in good
order condition and properly sealed
1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on
side, with approx. spilling of 1%[11]

On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc.
(Jardine) issued Gate Pass No. 7614[12] which stated that 22 drums [13]Raw
Materials for Pharmaceutical Mfg. were loaded on a truck with Plate No. PCK434 facilitated by Champs for delivery to Unilabs warehouse. The materials were
noted to be complete and in good order in the gate pass. [14] On the same day, the
shipment arrived in Unilabs warehouse and was immediately surveyed by an
independent surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The
Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery[15]

On October 23 and 28, 1992, the same independent surveyor conducted final
inspection surveys which yielded the same results. Consequently, Unilabs quality
control representative rejected one paper bag containing dried yeast and one steel
drum containing Vitamin B Complex as unfit for the intended purpose.[16]
On November 7, 1992, Unilab filed a formal claim [17] for the damage against
private respondent and UTI. On November 20, 1992, UTI denied liability on the
basis of the gate pass issued by Jardine that the goods were in complete and good
condition; while private respondent paid the claimed amount on March 23, 1993.
By virtue of the Loss and Subrogation Receipt[18] issued by Unilab in favor of
private respondent, the latter filed a complaint for Damagesagainst APL, UTI and
petitioner with the RTC of Makati. [19] The case was docketed as Civil Case No. 933473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial on the merits ensued.
On February 22, 2001, the RTC decided in favor of private respondent and against
APL, UTI and petitioner, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintif
PIONEER INSURANCE & SURETY CORPORATION and against the
defendants AMERICAN PRESIDENT LINES and UNSWORTH
TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as
JUGRO TRANSPORT INTL., PHILS.), ordering the latter to pay,
jointly and severally, the former the following amounts:

1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED

THIRTY ONE and 27/100 (Php76,231.27) with interest at the legal rate
of 6% per annum to be computed starting from September 30, 1993 until
fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorneys
fees;
3. Cost of this litigation.
SO ORDERED.[20]

On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA
rejected UTIs defense that it was merely a forwarder, declaring instead that it was
a common carrier. The appellate court added that by issuing the Bill of Lading,
UTI acknowledged receipt of the goods and agreed to transport and deliver them at
a specific place to a person named or his order. The court further concluded that
upon the delivery of the subject shipment to petitioners warehouse, its liability
became similar to that of a depositary. As such, it ought to have exercised ordinary
diligence in the care of the goods. And as found by the RTC, the CA agreed that
petitioner failed to exercise the required diligence. The CA also rejected
petitioners claim that its liability should be limited to $500 per package pursuant
to the Carriage of Goods by Sea Act (COGSA) considering that the value of the
shipment was declared pursuant to the letter of credit and the pro forma invoice. As
to APL, the court considered it as a common carrier notwithstanding the nonissuance of a bill of lading inasmuch as a bill of lading is not indispensable for the
execution of a contract of carriage.[21]
Unsatisfied, petitioner comes to us in this petition for review on certiorari,
raising the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN UPHOLDING THE
DECISION OF THE REGIONAL TRIAL COURT DATED 22
FEBRUARY 2001, AWARDING THE SUM OF SEVENTY SIX
THOUSAND TWO HUNDRED THIRTY ONE AND 27/100 PESOS

(PHP76,231.27) WITH LEGAL INTEREST AT 6% PER ANNUM AS

ACTUAL DAMAGES AND 25% AS ATTORNEYS FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON
CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE
REQUIRED ORDINARY DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT
SUFFICIENTLY ESTABLISHED THE ALLEGED DAMAGE TO ITS
CARGO.[22]

Petitioner admits that it is a forwarder but disagrees with the CAs

conclusion that it is a common carrier. It also questions the appellate courts
findings that it failed to establish that it exercised extraordinary or ordinary
diligence in the vigilance over the subject shipment. As to the damages allegedly
suffered by private respondent, petitioner counters that they were not sufficiently
proven. Lastly, it insists that its liability, in any event, should be limited to $500
pursuant to the package limitation rule. Indeed, petitioner wants us to review the
factual findings of the RTC and the CA and to evaluate anew the evidence
presented by the parties.
The petition is partly meritorious.
Well established is the rule that factual questions may not be raised in a
petition for review on certiorari as clearly stated in Section 1, Rule 45 of the Rules
of Court, viz.:
Section 1. Filing of petition with Supreme Court. A party
desiring to appeal bycertiorari from a judgment or final order or
resolution of the Court of Appeals, the Sandiganbayan, the Regional
Trial Court or other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition
shall raise only questions of law which must be distinctly set forth.

Admittedly, petitioner is a freight forwarder. The term freight forwarder"

refers to a firm holding itself out to the general public (other than as a pipeline,
rail, motor, or water carrier) to provide transportation of property for compensation
and, in the ordinary course of its business, (1) to
assemble and consolidate, or to provide for assembling and consolidating,
shipments, and to perform or provide for break-bulk and distribution operations of
the shipments; (2) to assume responsibility for the transportation of goods from the
place of receipt to the place of destination; and (3) to use for any part of the
transportation a carrier subject to the federal law pertaining to common carriers.[23]
A freight forwarders liability is limited to damages arising from its own
negligence, including negligence in choosing the carrier; however, where the
forwarder contracts to deliver goods to their destination instead of merely
arranging for their transportation, it becomes liable as a common carrier for loss or
damage to goods. A freight forwarder assumes the responsibility of a carrier, which
actually executes the transport, even though the forwarder does not carry the
merchandise itself.[24]
It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant
thereto, petitioner undertook to transport, ship, and deliver the 27 drums of raw
materials for pharmaceutical manufacturing to the consignee.
A bill of lading is a written acknowledgement of the receipt of goods and an
agreement to transport and to deliver them at a specified place to a person named
or on his or her order.[25] It operates both as a receipt and as a contract. It is a
receipt for the goods shipped and a contract to transport and
deliver the same as therein stipulated. As a receipt, it recites the date and place of
shipment, describes the goods as to quantity, weight, dimensions, identification
marks, condition, quality, and value. As a contract, it names the contracting parties,
which include the consignee; fixes the route, destination, and freight rate or
charges; and stipulates the rights and obligations assumed by the parties.[26]
Undoubtedly, UTI is liable as a common carrier. Common carriers, as a
general rule, are presumed to have been at fault or negligent if the goods they
transported deteriorated or got lost or destroyed. That is, unless they prove that
they exercised extraordinary diligence in transporting the goods. In order to avoid

responsibility for any loss or damage, therefore, they have the burden of proving
that they observed such diligence.[27] Mere proof of delivery of the goods in good
order to a common carrier and of their arrival in bad order at their destination
constitutes a prima facie case of fault or negligence against the carrier. If no
adequate explanation is given as to how the deterioration, loss, or destruction of the
goods happened, the transporter shall be held responsible.[28]
Though it is not our function to evaluate anew the evidence presented, we
refer to the records of the case to show that, as correctly found by the RTC and the
CA, petitioner failed to rebut the prima facie presumption of negligence in the
carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received by
UTI in apparent good order and condition in New York, United States of
America. Second, the OCMSC Survey Report stated that one steel drum STC
Vitamin B Complex Extract was discovered to be with a cut/hole on the side, with
approximate spilling of 1%. Third, though Gate Pass No. 7614, issued by Jardine,
noted that the subject shipment was in good order and condition, it was specifically
stated that there were 22 (should be 27 drums per Bill of Lading No.
C320/C15991-2) drums of raw materials for pharmaceutical manufacturing.Last,
J.G. Bernas Survey Report stated that 1-s/drum was punctured and retaped on the
bottom side and the content was lacking, and there was a short delivery of 5drums.
All these conclusively prove the fact of shipment in good order and
condition, and the consequent damage to one steel drum of Vitamin B Complex
Extract while in the possession of petitioner which failed to explain the reason for
the damage. Further, petitioner failed to prove that it observed the extraordinary
diligence and precaution which the law requires a common carrier to exercise and
to follow in order to avoid damage to or destruction of the goods entrusted to it for
safe carriage and delivery.[29]
However, we affirm the applicability of the Package Limitation Rule under
the COGSA, contrary to the RTC and the CAs findings.

It is to be noted that the Civil Code does not limit the liability of the
common carrier to a fixed amount per package. In all matters not regulated by the
Civil Code, the rights and obligations of common carriers are governed by the
Code of Commerce and special laws. Thus, the COGSA supplements the Civil
Code by establishing a provision limiting the carriers liability in the absence of a
shippers declaration of a higher value in the bill of lading. [30] Section 4(5) of the
COGSA provides:
(5) Neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the transportation
of goods in an amount exceeding $500 per package of lawful money of
the United States, or in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that sum in other currency,
unless the nature and value of such goods have been declared by the
shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.

In the present case, the shipper did not declare a higher valuation of the
goods to be shipped. Contrary to the CAs conclusion, the insertion of the words
L/C No. LC No. 1-187-008394/ NY 69867 covering shipment of raw materials
for pharmaceutical Mfg. x x x cannot be the basis of petitioners liability.
[31]
Furthermore, the insertion of an invoice number does not in itself sufficiently
and convincingly show that petitioner had knowledge of the value of the cargo.[32]
In light of the foregoing, petitioners liability should be limited to $500 per
steel drum. In this case, as there was only one drum lost, private respondent is
entitled to receive only $500 as damages for the loss. In addition to said amount, as
aptly held by the trial court, an interest rate of 6% per annum should also be
imposed, plus 25% of the total sum as attorneys fees.
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Court of Appeals Decision dated April 29, 2004 and Resolution
dated November 26, 2004 areAFFIRMED with MODIFICATION by reducing
the principal amount due private respondent Pioneer Insurance and Surety

Corporation from P76,231.27 to $500, with interest of 6% per annum from date of
demand, and 25% of the amount due as attorneys fees.
The other aspects of the assailed Decision and Resolution STAND.

SO ORDERED.

SECOND DIVISION
LOADMASTERS CUSTOMS
SERVICES, INC.,
Petitioner,

G.R. No. 179446

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

GLODEL BROKERAGE
CORPORATION and
R&B INSURANCE
CORPORATION,
Respondents.

Promulgated:
January 10, 2011

X -------------------------------------------------------------------------------------- X

DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules
of Court assailing the August 24, 2007 Decision [1] of the Court of Appeals (CA) in
CA-G.R. CV No. 82822, entitled R&B Insurance Corporation v. Glodel

Brokerage Corporation and Loadmasters Customs Services, Inc., which held

petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to respondent
Glodel Brokerage Corporation (Glodel) in the amount of P1,896,789.62
representing the insurance indemnity which R&B Insurance Corporation (R&B
Insurance) paid to the insured-consignee, Columbia Wire and Cable
Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN00105/2001 in favor ofColumbia to insure the shipment of 132 bundles of electric
copper cathodes against All Risks. OnAugust 28, 2001, the cargoes were shipped
on board the vessel Richard Rey from Isabela, Leyte, to Pier
10, North Harbor, Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and withdrawal of
the cargoes from the pier and the subsequent delivery to its
warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the
use of its delivery trucks to transport the cargoes to Columbias warehouses/plants
in Bulacan and Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by Loadmasters,
driven by its employed drivers and accompanied by its employed truck
helpers. Six (6) truckloads of copper cathodes were to be delivered to Balagtas,
Bulacan, while the other six (6) truckloads were destined for Lawang
Bato,Valenzuela City. The cargoes in six truckloads for Lawang Bato were duly
delivered in Columbias warehouses there. Of the six (6) trucks en route to
Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck,
loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but
without the copper cathodes. Because of this incident, Columbia filed with R&B
Insurance a claim for insurance indemnity in the amount of P1,903,335.39. After

the requisite investigation and adjustment, R&B Insurance paidColumbia the

amount of P1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both
Loadmasters and Glodel before the Regional Trial Court, Branch 14, Manila
(RTC), docketed as Civil Case No. 02-103040. It sought reimbursement of the
amount it had paid toColumbia for the loss of the subject cargo. It claimed that it
had been subrogated to the right of the consignee to recover from the party/parties
who may be held legally liable for the loss.[2]
On November 19, 2003, the RTC rendered a decision [3] holding Glodel liable
for damages for the loss of the subject cargo and dismissing Loadmasters
counterclaim for damages and attorneys fees against R&B Insurance. The
dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff having
established by preponderance of evidence its claims against
defendant Glodel Brokerage Corporation, judgment is hereby
rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the
sum of P1,896,789.62 as actual and compensatory
damages, with interest from the date of complaint
until fully paid;
2. To pay plaintiff R&B Insurance Corporation the
amount equivalent to 10% of the principal amount
recovered as and for attorneys fees plusP1,500.00
per appearance in Court;
3. To pay plaintiff R&B Insurance Corporation the
sum of P22,427.18 as litigation expenses.
WHEREAS, the defendant Loadmasters Customs Services,
Inc.s counterclaim for damages and attorneys fees against
plaintiff are hereby dismissed.

With costs against defendant Glodel Brokerage Corporation.

SO ORDERED.[4]

Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads in
part:
Considering that appellee is an agent of appellant Glodel,
whatever liability the latter owes to appellant R&B Insurance
Corporation as insurance indemnity must likewise be the amount
it shall be paid by appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is
PARTLY GRANTED in that the appellee Loadmasters is likewise
held liable to appellant Glodel in the amount ofP1,896,789.62
representing the insurance indemnity appellant Glodel has been
held liable to appellant R&B Insurance Corporation.
Appellant Glodels appeal to absolve it from any liability is
herein DISMISSED.
SO ORDERED.[5]

Hence, Loadmasters filed the present petition for review on certiorari before
this Court presenting the following
ISSUES
1. Can
Petitioner
Loadmasters
be
held
liable
to
Respondent
Glodel in spite of the fact that the latter

respondent Glodel did not file a cross-claim against it

(Loadmasters)?
2. Under the set of facts established and undisputed in the case,
can petitioner Loadmasters be legally considered as an Agent of
respondent Glodel?[6]

To totally exculpate itself from responsibility for the lost goods,

Loadmasters argues that it cannot be considered an agent of Glodel because it
never represented the latter in its dealings with the consignee. At any rate, it further
contends that Glodel has no recourse against it for its (Glodels) failure to file a
cross-claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure.
Glodel, in its Comment,[7] counters that Loadmasters is liable to it under its
cross-claim because the latter was grossly negligent in the transportation of the
subject cargo. With respect to Loadmasters claim that it is already estopped from
filing a cross-claim, Glodel insists that it can still do so even for the first time on
appeal because there is no rule that provides otherwise. Finally, Glodel argues that
its relationship with Loadmasters is that of Charter wherein the transporter
(Loadmasters) is only hired for the specific job of delivering the
merchandise. Thus, the diligence required in this case is merely ordinary diligence
or that of a good father of the family, not the extraordinary diligence required of
common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed
a cross-claim against Loadmasters because it was not prevented from presenting
evidence to prove its position even without amending its Answer. As to the
relationship between Loadmasters and Glodel, it contends that a contract of agency
existed between the two corporations.[8]
Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to the
rights of the other in relation to a debt or claim, including its remedies or securities.
[9]
Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent

of the amount it paid the consignee under the marine insurance, as provided under
Article 2207 of the Civil Code, which reads:
ART. 2207. If the plaintiffs property has been insured, and
he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the
rights of the insured against the wrong-doer or the person who
has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person
causing the loss or injury.

As subrogee of the rights and interest of the consignee, R&B Insurance has
the right to seek reimbursement from either Loadmasters or Glodel or both for
breach of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay
R&B Insurance for the amount of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and
Glodel are common carriers to determine their liability for the loss of the subject
cargo. Under Article 1732 of the Civil Code,common carriers are persons,
corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for compensation,
offering their services to the public.

Based on the aforecited definition, Loadmasters is a common carrier because

it is engaged in the business of transporting goods by land, through its trucking
service. It is a common carrier as distinguished from a private carrier wherein
thecarriage is generally undertaken by special agreement and it does not hold itself
out to carry goods for the general public.[10] The distinction is significant in the
sense that 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.[11]
In the present case, there is no indication that the undertaking in the contract
between Loadmasters and Glodel was private in character. There is no showing
that Loadmasters solely and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.[12]
In the same vein, Glodel is also considered a common carrier within the
context of Article 1732. In its Memorandum,[13] it states that it is a corporation
duly organized and existing under the laws of the Republic of the Philippines and
is engaged in the business of customs brokering. It cannot be considered
otherwise because as held by this Court inSchmitz Transport & Brokerage
Corporation v. Transport Venture, Inc.,[14] a customs broker is also regarded as a
common carrier, the transportation of goods being an integral part of its business.
Loadmasters and Glodel, being both common carriers, are mandated from
the nature of their business and for reasons of public policy, to observe the
extraordinary diligence in the vigilance over the goods transported by them
according to all the circumstances of such case, as required by Article 1733 of the
Civil Code. When the Court speaks of extraordinary diligence, it is that extreme
measure of care and caution which persons of unusual prudence and
circumspection observe for securing and preserving their own property or rights.
[15]
This exacting standard imposed on common carriers in a contract of carriage of
goods is intended to tilt the scales in favor of the shipper who is at the mercy of the
common carrier once the goods have been lodged for shipment. [16] Thus, in case of
loss of the goods, the common carrier is presumed to have been at fault or to have
acted negligently.[17] This presumption of fault or negligence, however, may be
rebutted by proof that the common carrier has observed extraordinary diligence
over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil
Code provides that the exercise of extraordinary diligence lasts from the time the
goods are unconditionally placed in the possession of, and received by, the carrier

for transportation until the same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a right to receive them.[18]
Premises considered, the Court is of the view that both Loadmasters and
Glodel are jointly and severally liable to R & B Insurance for the loss of the
subject cargo. Under Article 2194 of the New Civil Code, the responsibility of
two or more persons who are liable for a quasi-delict is solidary.
Loadmasters claim that it was never privy to the contract entered into by
Glodel with the consigneeColumbia or R&B Insurance as subrogee, is not a valid
defense. It may not have a direct contractual relation with Columbia, but it is
liable for tort under the provisions of Article 2176 of the Civil Code on quasidelicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter.

Pertinent is the ruling enunciated in the case ofMindanao Terminal and

Brokerage Service, Inc. v. Phoenix Assurance Company of New York,/McGee &
Co., Inc.[19] where this Court held that a tort may arise despite the absence of a
contractual relationship,to wit:
We agree with the Court of Appeals that the complaint filed
by Phoenix and McGee against Mindanao Terminal, from which
the present case has arisen, states a cause of action. The present
action is based on quasi-delict, arising from the negligent and
careless loading and stowing of the cargoes belonging to Del
Monte Produce. Even assuming that both Phoenix and McGee
have only been subrogated in the rights of Del Monte Produce,
who is not a party to the contract of service between Mindanao
Terminal and Del Monte, still the insurance carriers may have a
cause of action in light of the Courts consistent ruling that the act
that breaks the contractmay be also a tort. In fine, a liability for

tort may arise even under a contract, where tort is that which
breaches the contract. In the present case, Phoenix and McGee
are not suing for damages for injuries arising from the breach of the
contract of service but from the alleged negligent manner by which
Mindanao Terminal handled the cargoes belonging to Del Monte
Produce. Despite the absence of contractual relationship between
Del Monte Produce and Mindanao Terminal, the allegation of
negligence on the part of the defendant should be sufficient to
establish a cause of action arising from quasi-delict. [Emphases
supplied]

In connection therewith, Article 2180 provides:

ART. 2180. The obligation imposed by Article 2176 is
demandable not only for ones own acts or omissions, but also for
those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any
business or industry.

It is not disputed that the subject cargo was lost while in the custody of
Loadmasters whose employees (truck driver and helper) were instrumental in the
hijacking or robbery of the shipment. As employer, Loadmasters should be made
answerable for the damages caused by its employees who acted within the scope of
their assigned task of delivering the goods safely to the warehouse.
Whenever an employees negligence causes damage or injury to another,
there instantly arises a presumption juris tantum that the employer failed to
exercise diligentissimi patris families in the selection(culpa in eligiendo) or
supervision (culpa in vigilando) of its employees.[20] To avoid liability for a quasidelict committed by its employee, an employer must overcome the presumption by
presenting convincing proof that he exercised the care and diligence of a good

father of a family in the selection and supervision of his employee. [21] In this
regard, Loadmasters failed.
Glodel is also liable because of its failure to exercise extraordinary
diligence. It failed to ensure that Loadmasters would fully comply with the
undertaking to safely transport the subject cargo to the designated destination. It
should have been more prudent in entrusting the goods to Loadmasters by taking
precautionary measures, such as providing escorts to accompany the trucks in
delivering the cargoes. Glodel should, therefore, be held liable with
Loadmasters. Its defense of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent
relationship between Glodel and Loadmasters, as erroneously found by the
CA. Article 1868 of the Civil Code provides: By the contract of agency a person
binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter. The elements of a
contract of agency are: (1) consent, express or implied, of the parties to establish
the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agent acts as a representative and not for himself; (4) the agent
acts within the scope of his authority.[22]
Accordingly, there can be no contract of agency between the
parties. Loadmasters never represented Glodel. Neither was it ever authorized to
make such representation. It is a settled rule that the basis for agency is
representation, that is, the agent acts for and on behalf of the principal on matters
within the scope of his authority and said acts have the same legal effect as if they
were personally executed by the principal. On the part of the principal, there must
be an actual intention to appoint or an intention naturally inferable from his words
or actions, while on the part of the agent, there must be an intention to accept the
appointment and act on it.[23] Such mutual intent is not obtaining in this case.
What then is the extent of the respective liabilities of Loadmasters and
Glodel? Each wrongdoer is liable for the total damage suffered by R&B Insurance.
Where there are several causes for the resulting damages, a party is not relieved
from liability, even partially. It is sufficient that the negligence of a party is an
efficient cause without which the damage would not have resulted. It is no defense

to one of the concurrent tortfeasors that the damage would not have resulted from
his negligence alone, without the negligence or wrongful acts of the other
concurrent tortfeasor. As stated in the case ofFar Eastern Shipping v. Court of
Appeals,[24]
X x x. Where several causes producing an injury are
concurrent and each is an efficient cause without which the injury
would not have happened, the injury may be attributed to all or
any of the causes and recovery may be had against any or all of the
responsible persons although under the circumstances of the case,
it may appear that one of them was more culpable, and that the
duty owed by them to the injured person was not the same. No
actor's negligence ceases to be a proximate cause merely because
it does not exceed the negligence of other actors. Each wrongdoer
is responsible for the entire result and is liable as though his acts
were the sole cause of the injury.
There is no contribution between joint tortfeasors whose
liability is solidary since both of them are liable for the total
damage. Where the concurrent or successive negligent acts or
omissions of two or more persons, although acting independently,
are in combination the direct and proximate cause of a single
injury to a third person, it is impossible to determine in what
proportion each contributed to the injury and either of them is
responsible for the whole injury. Where their concurring negligence
resulted in injury or damage to a third party, they become joint
tortfeasors and are solidarily liable for the resulting damage under
Article 2194 of the Civil Code. [Emphasis supplied]

The Court now resolves the issue of whether Glodel can collect from
Loadmasters, it having failed to file a cross-claim against the latter.
Undoubtedly, Glodel has a definite cause of action against Loadmasters for
breach of contract of service as the latter is primarily liable for the loss of the
subject cargo. In this case, however, it cannot succeed in seeking judicial sanction
against Loadmasters because the records disclose that it did not properly interpose
a cross-claim against the latter. Glodel did not even pray that Loadmasters be
liable for any and all claims that it may be adjudged liable in favor of R&B
Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not set

up shall be barred.[25] Thus, a cross-claim cannot be set up for the first time on
appeal.
For the consequence, Glodel has no one to blame but itself. The Court
cannot come to its aid on equitable grounds. Equity, which has been aptly
described as a justice outside legality, is applied only in the absence of, and never
against, statutory law or judicial rules of procedure.[26] The Court cannot be a
lawyer and take the cudgels for a party who has been at fault or negligent.

WHEREFORE, the petition is PARTIALLY GRANTED. The August 24,

2007 Decision of the Court of Appeals is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner
Loadmasters Customs Services, Inc. and respondent Glodel Brokerage
Corporation jointly and severally liable to respondent R&B Insurance
Corporation for the insurance indemnity it paid to consignee
Columbia Wire & Cable Corporation and ordering both parties to pay,
jointly and severally, R&B Insurance Corporation a] the amount
of P1,896,789.62 representing the insurance indemnity; b] the amount
equivalent to ten (10%) percent thereof for attorneys fees; and c] the
amount ofP22,427.18 for litigation expenses.
The cross-claim belatedly prayed for by respondent Glodel
Brokerage Corporation against petitioner Loadmasters Customs
Services, Inc. is DENIED.
SO ORDERED.
SECOND DIVISION
G.R. No. 184300

July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.

PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES,

INC., Respondents.
DECISION
REYES, J.:
Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance Co.,
lnc. (Malayan) assailing the Decision1 dated February 29, 2008 and Resolution2 dated August
28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with
modification the decision of the Regional Trial Court (RTC), Branch 38 of Manila.
Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services,
Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter
undertook to transport and deliver the formers products to its customers, dealers or salesmen.3
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from
respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its
own products. Philippines First thereby insured Wyeths nutritional, pharmaceutical and other
products usual or incidental to the insureds business while the same were being transported or
shipped in the Philippines. The policy covers all risks of direct physical loss or damage from any
external cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.
On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned
out, however, that the contract was not signed by Wyeths representative/s.4 Nevertheless, it
was admittedly signed by Reputables representatives, the terms thereof faithfully observed by
the parties and, as previously stated, the same contract of carriage had been annually executed
by the parties every year since 1989.5
Under the contract, Reputable undertook to answer for "all risks with respect to the goods and
shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the
goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm,
earthquakes, lightning, and other force majeure while the goods/products are in transit and until
actual delivery to the customers, salesmen, and dealers of the COMPANY".6
The contract also required Reputable to secure an insurance policy on Wyeths goods.7 Thus,
on February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with
petitioner Malayan for the amount of P1,000,000.00.
On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable
received from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered
by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same
date, the truck carrying Wyeths products was hijacked by about 10 armed men. They

threatened to kill the truck driver and two of his helpers should they refuse to turn over the truck
and its contents to the said highway robbers. The hijacked truck was recovered two weeks later
without its cargo.
On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the
Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded
reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the
payment. The latter, however, ignored the demand.
Consequently, Philippines First instituted an action for sum of money against Reputable on
August 12, 1996.8 In its complaint, Philippines First stated that Reputable is a "private
corporation engaged in the business of a common carrier." In its answer,9 Reputable claimed
that it is a private carrier. It also claimed that it cannot be made liable under the contract of
carriage with Wyeth since the contract was not signed by Wyeths representative and that the
cause of the loss was force majeure, i.e., the hijacking incident.
Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the
amount covered in the SR Policy. According to Reputable, "it was validly insured with Malayan
for P1,000,000.00 with respect to the lost products under the latters Insurance Policy No. SR0001-02577 effective February 1, 1994 to February 1, 1995" and that the SR Policy covered the
risk of robbery or hijacking.10
Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy,
the insurance does not cover any loss or damage to property which at the time of the happening
of such loss or damage is insured by any marine policy and that the SR Policy expressly
excluded third-party liability.
After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines First for the
amount of indemnity it paid to Wyeth, among others. In turn, Malayan was found by the RTC to
be liable to Reputable to the extent of the policy coverage. The dispositive portion of the RTC
decision provides:
WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable
for the loss of the Wyeth products and orders it to pay Philippines First the following:
1. the amount of P2,133,257.00 representing the amount paid by Philippines First to Wyeth
for the loss of the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid by Philippines First to
hired adjusters/surveyors;
3. the amount of P50,000.00 as attorneys fees; and
4. the costs of suit.

On the third-party Complaint, judgment is hereby rendered finding

Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;
2. the amount of P50,000.00 as attorneys fees; and
3. the costs of suit.

SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.
Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was
binding despite Wyeths failure to sign the same. Reputable further contended that the
provisions of the contract are unreasonable, unjust, and contrary to law and public policy.
For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or
damage to property which at the time of the happening of such loss or damage is insured by or
would but for the existence of this policy, be insured by any Fire or Marine policy or policies
except in respect of any excess beyond the amount which would have been payable under the
Fire or Marine policy or policies had this insurance not been effected.
Malayan argued that inasmuch as there was already a marine policy issued by Philippines First
securing the same subject matter against loss and that since the monetary coverage/value of
the Marine Policy is more than enough to indemnify the hijacked cargo, Philippines First alone
must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed
that it be held liable for no more than P468,766.70, its alleged pro-rata share of the loss based
on the amount covered by the policy, subject to the provision of Section 12 of the SR Policy,
which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any
property hereby insured, there be any other subsisting insurance or insurances, whether
effected by the insured or by any other person or persons, covering the same property, the
company shall not be liable to pay or contribute more than its ratable proportion of such loss or
damage.
On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC,
the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as
modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION in that the award
of attorneys fees in favor of Reputable is DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the
contract of carriage on the ground of lack of signature of Wyeths representative/s; (2)
Reputable is liable under the contract for the value of the goods even if the same was lost due
to fortuitous event; and (3) Section 12 of the SR Policy prevails over Section 5, it being the latter
provision; however, since the ratable proportion provision of Section 12 applies only in case of
double insurance, which is not present, then it should not be applied and Malayan should be
held liable for the full amount of the policy coverage, that is, P1,000,000.00.14
On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was
denied by the CA in its Resolution dated August 28, 2008.15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations on
the liability of common carriers" and the "difference between an other insurance clause and an
over insurance clause."
Malayan also contends that the CA erred when it held that Reputable is a private carrier and
should be bound by the contractual stipulations in the contract of carriage. This argument is
based on its assertion that Philippines First judicially admitted in its complaint that Reputable is
a common carrier and as such, Reputable should not be held liable pursuant to Article 1745(6)
of the Civil Code.16 Necessarily, if Reputable is not liable for the loss, then there is no reason to
hold Malayan liable to Reputable.
Further, Malayan posits that there resulted in an impairment of contract when the CA failed to
apply the express provisions of Section 5 (referred to by Malayan as over insurance clause) and
Section 12 (referred to by Malayan as other insurance clause) of its SR Policy as these
provisions could have been read together there being no actual conflict between them.
Reputable, meanwhile, contends that it is exempt from liability for acts committed by
thieves/robbers who act with grave or irresistible threat whether it is a common carrier or a
private/special carrier. It, however, maintains the correctness of the CA ruling that Malayan is
liable to Philippines First for the full amount of its policy coverage and not merely a ratable
portion thereof under Section 12 of the SR Policy.
Finally, Philippines First contends that the factual finding that Reputable is a private carrier
should be accorded the highest degree of respect and must be considered conclusive between
the parties, and that a review of such finding by the Court is not warranted under the
circumstances. As to its alleged judicial admission that Reputable is a common carrier,

Philippines First proffered the declaration made by Reputable that it is a private carrier. Said
declaration was allegedly reiterated by Reputable in its third party complaint, which in turn was
duly admitted by Malayan in its answer to the said third-party complaint. In addition, Reputable
even presented evidence to prove that it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the
ruling of the CA. Philippines First, however, prayed for a slight modification of the assailed
decision, praying that Reputable and Malayan be rendered solidarily liable to it in the amount of
P998,000.00, which represents the balance from the P1,000.000.00 coverage of the SR Policy
after deducting P2,000.00 under Section 10 of the said SR Policy.17
Issues
The liability of Malayan under the SR Policy hinges on the following issues for resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with
Wyeth, such that it should be liable for any risk of loss or damage, for any cause whatsoever,
including that due to theft or robbery and other force majeure;
3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the
SR Policy; and
4) Whether Reputable should be held solidarily liable with Malayan for the amount of
P998,000.00 due to Philippines First.

The Courts Ruling

On the first issue Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in
jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect and considered conclusive between
the parties, save for certain exceptional and meritorious circumstances, none of which are
present in this case.18
Malayan relies on the alleged judicial admission of Philippines First in its complaint that
Reputable is a common carrier.19 Invoking Section 4, Rule 129 of the Rules on Evidence that "an
admission verbal or written, made by a party in the course of the proceeding in the same case,
does not require proof," it is Malayans position that the RTC and CA should have ruled that
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the
liability of Reputable for the loss of Wyeths goods should be dispensed with, or at least
diminished.

It is true that judicial admissions, such as matters alleged in the pleadings do not require proof,
and need not be offered to be considered by the court. "The court, for the proper decision of the
case, may and should consider, without the introduction of evidence, the facts admitted by the
parties."20 The rule on judicial admission, however, also states that such allegation, statement, or
admission is conclusive as against the pleader,21 and that the facts alleged in the complaint are
deemed admissions of the plaintiff and binding upon him.22 In this case, the pleader or the
plaintiff who alleged that Reputable is a common carrier was Philippines First. It cannot, by any
stretch of imagination, be made conclusive as against Reputable whose nature of business is in
question.
It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and
Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from Reputable under
the terms of the contract of carriage. Philippines First is not in any position to make any
admission, much more a definitive pronouncement, as to the nature of Reputables business
and there appears no other connection between Philippines First and Reputable which suggests
mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First was essentially
disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its answer that it is actually a
private or special carrier.23In addition, Reputable stated in paragraph 2 of its third-party
complaint that it is "a private carrier engaged in the carriage of goods."24 Such allegation was, in
turn, admitted by Malayan in paragraph 2 of its answer to the third-party complaint.25 There is
also nothing in the records which show that Philippines First persistently maintained its stance
that Reputable is a common carrier or that it even contested or proved otherwise Reputables
position that it is a private or special carrier.
Hence, in the face of Reputables contrary admission as to the nature of its own business, what
was stated by Philippines First in its complaint is reduced to nothing more than mere allegation,
which must be proved for it to be given any weight or value. The settled rule is that mere
allegation is not proof.26
More importantly, the finding of the RTC and CA that Reputable is a special or private carrier is
warranted by the evidence on record, primarily, the unrebutted testimony of Reputables Vice
President and General Manager, Mr. William Ang Lian Suan, who expressly stated in open court
that Reputable serves only one customer, Wyeth.27
Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or
associations engaged in the business of carrying or transporting passenger or goods, or both by
land, water or air for compensation, offering their services to the public. On the other hand, a
private carrier is one wherein the carriage is generally undertaken by special agreement and it
does not hold itself out to carry goods for the general public.28 A common carrier becomes a
private carrier when it undertakes to carry a special cargo or chartered to a special person
only.29 For all intents and purposes, therefore, Reputable operated as a private/special carrier
with regard to its contract of carriage with Wyeth.

On the second issue Reputable is bound by the terms of the contract of carriage.
The extent of a private carriers obligation is dictated by the stipulations of a contract it entered
into, provided its stipulations, clauses, terms and conditions are not contrary to law, morals,
good customs, public order, or public policy. "The Civil Code provisions on common carriers
should not be applied where the carrier is not acting as such but as a private carrier. Public
policy governing common carriers has no force where the public at large is not involved."30
Thus, being a private carrier, the extent of Reputables liability is fully governed by the
stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the loss
of the goods/products due to any and all causes whatsoever, including theft, robbery and other
force majeure while the goods/products are in transit and until actual delivery to Wyeths
customers, salesmen and dealers.31
On the third issue other insurance vis--vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as
a "modified other insurance clause".32 In rendering inapplicable said provisions in the SR Policy,
the CA ruled in this wise:
Since Sec. 5 calls for Malayans complete absolution in case the other insurance would be
sufficient to cover the entire amount of the loss, it is in direct conflict with Sec. 12 which provides
only for a pro-rated contribution between the two insurers. Being the later provision, and
pursuant to the rules on interpretation of contracts, Sec. 12 should therefore prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given effect as against the
wordings of Sec. 12 of their contract, as it was intended by the parties to operate only in case of
double insurance, or where the benefits of the policies of both plaintiff-appellee and Malayan
should pertain to Reputable alone. But since the court a quo correctly ruled that there is no
double insurance in this case inasmuch as Reputable was not privy thereto, and therefore did
not stand to benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then Malayans
stand should be rejected.
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to
Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not
be entitled to recover said amount for the simple reason that the same property is covered by
another insurance policy, a policy to which it was not a party to and much less, from which it did
not stand to benefit. Plainly, this unfair situation could not have been the intention of both
Reputable and Malayan in signing the insurance contract in question.33
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions
applicable under distinct circumstances. Malayan argues that "it will not be completely absolved
under Section 5 of its policy if it were the assured itself who obtained additional insurance

coverage on the same property and the loss incurred by Wyeths cargo was more than that
insured by Philippines Firsts marine policy. On the other hand, Section 12 will not completely
absolve Malayan if additional insurance coverage on the same cargo were obtained by
someone besides Reputable, in which case Malayans SR policy will contribute or share ratable
proportion of a covered cargo loss."34
Malayans position cannot be countenanced.
Section 5 is actually the other insurance clause (also called "additional insurance" and "double
insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA,35 which validity was upheld
by the Court as a warranty that no other insurance exists. The Court ruled that Condition No.
336 is a condition which is not proscribed by law as its incorporation in the policy is allowed by
Section 75 of the Insurance Code. It was also the Courts finding that unlike the other insurance
clauses, Condition No. 3 does not absolutely declare void any violation thereof but expressly
provides that the condition "shall not apply when the total insurance or insurances in force at the
time of the loss or damage is not more than P200,000.00."
In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of
the SR Policy but simply limits the liability of Malayan only up to the excess of the amount that
was not covered by the other insurance policy. In interpreting the "other insurance clause" in
Geagonia, the Court ruled that the prohibition applies only in case of double insurance. The
Court ruled that in order to constitute a violation of the clause, the other insurance must be upon
same subject matter, the same interest therein, and the same risk. Thus, even though the
multiple insurance policies involved were all issued in the name of the same assured, over the
same subject matter and covering the same risk, it was ruled that there was no violation of the
"other insurance clause" since there was no double insurance.
Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it
covers the situation where there is over insurance due to double insurance. In such case,
Section 15 provides that Malayan shall "not be liable to pay or contribute more than its ratable
proportion of such loss or damage." This is in accord with the principle of contribution provided
under Section 94(e) of the Insurance Code,37 which states that "where the insured is over
insured by double insurance, each insurer is bound, as between himself and the other insurers,
to contribute ratably to the loss in proportion to the amount for which he is liable under his
contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal
question that now arises is whether there is double insurance in this case such that either
Section 5 or Section 12 of the SR Policy may be applied.
By the express provision of Section 93 of the Insurance Code, double insurance exists where
the same person is insured by several insurers separately in respect to the same subject and
interest. The requisites in order for double insurance to arise are as follows:38
1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued
over the same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril
insured against, it is, however, beyond cavil that the said policies were issued to two different
persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines First
under its Marine Policy, while Reputable is the recognized insured of Malayan under the SR
Policy. The fact that Reputable procured Malayans SR Policy over the goods of Wyeth pursuant
merely to the stipulated requirement under its contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance contracts is also
different and distinct from that of Reputables. The policy issued by Philippines First was in
consideration of the legal and/or equitable interest of Wyeth over its own goods. On the other
hand, what was issued by Malayan to Reputable was over the latters insurable interest over the
safety of the goods, which may become the basis of the latters liability in case of loss or
damage to the property and falls within the contemplation of Section 15 of the Insurance Code.39
Therefore, even though the two concerned insurance policies were issued over the same goods
and cover the same risk, there arises no double insurance since they were issued to two
different persons/entities having distinct insurable interests. Necessarily, over insurance by
double insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither
Section 5 nor Section 12 of the SR Policy can be applied.
Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions
of the SR Policy against Malayan. This is in keeping with the rule that:
1wphi1

"Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared
by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer
from noncompliance with its obligations."40
Moreover, the CA correctly ruled that:
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to
Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not

be entitled to recover said amount for the simple reason that the same property is covered by
another insurance policy, a policy to which it was not a party to and much less, from which it did
not stand to benefit. x x x41
On the fourth issue Reputable is not solidarily liable with Malayan.
There is solidary liability only when the obligation expressly so states, when the law so provides
or when the nature of the obligation so requires.
In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled that:
Where the insurance contract provides for indemnity against liability to third persons, the liability
of the insurer is direct and such third persons can directly sue the insurer. The direct liability of
the insurer under indemnity contracts against third party[- ]liability does not mean, however, that
the insurer can be held solidarily liable with the insured and/or the other parties found at fault,
since they are being held liable under different obligations. The liability of the insured carrier or
vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of
the insurer arises from contract, particularly, the insurance policy:43 (Citation omitted and
emphasis supplied)
Suffice it to say that Malayan's and Reputable's respective liabilities arose from different
obligations- Malayan's is based on the SR Policy while Reputable's is based on the contract of
carriage.
All told, the Court finds no reversible error in the judgment sought to be reviewed.
WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29,
2008 and Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No. 71204
are hereby AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc.
SO ORDERED.
FIRST DIVISION
G.R. No. 157917

August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

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

BERSAMIN, J.:
The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to
observe extraordinary diligence in the conduct of his business. He is presumed to be negligent
when death occurs to a passenger. His liability may include indemnity for loss of earning
capacity even if the deceased passenger may only be an unemployed high school student at
the time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the
adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA)
affirmed with modification the decision rendered on December 3, 1999 by the Regional Trial
Court (RTC), Branch 260, in Paraaque City that had decreed them jointly and severally liable
with Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita
Zarate (Zarates) for the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a
high school student of Don Bosco Technical Institute (Don Bosco).
Antecedents
The Pereas were engaged in the business of transporting students from their respective
residences in Paraaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their
business, the Pereas used a KIA Ceres Van (van) with Plate No. PYA 896, which had the
capacity to transport 14 students at a time, two of whom would be seated in the front beside the
driver, and the others in the rear, with six students on either side. They employed Clemente
Alfaro (Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereas to transport Aaron to and from Don Bosco.
On August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m.
from the Zarates residence. Aaron took his place on the left side of the van near the rear door.
The van, with its air-conditioning unit turned on and the stereo playing loudly, ultimately carried
all the 14 student riders on their way to Don Bosco. Considering that the students were due at
Don Bosco by 7:15 a.m., and that they were already running late because of the heavy
vehicular traffic on the South Superhighway, Alfaro took the van to an alternate route at about
6:45 a.m. by traversing the narrow path underneath the Magallanes Interchange that was then
commonly used by Makati-bound vehicles as a short cut into Makati. At the time, the narrow
path was marked by piles of construction materials and parked passenger jeepneys, and the
railroad crossing in the narrow path had no railroad warning signs, or watchmen, or other
responsible persons manning the crossing. In fact, the bamboo barandilla was up, leaving the
railroad crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train),
operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange travelling
northbound. As the train neared the railroad crossing, Alfaro drove the van eastward across the
railroad tracks, closely tailing a large passenger bus. His view of the oncoming train was

blocked because he overtook the passenger bus on its left side. The train blew its horn to warn
motorists of its approach. When the train was about 50 meters away from the passenger bus
and the van, Alano applied the ordinary brakes of the train. He applied the emergency brakes
only when he saw that a collision was imminent. The passenger bus successfully crossed the
railroad tracks, but the van driven by Alfaro did not. The train hit the rear end of the van, and the
impact threw nine of the 12 students in the rear, including Aaron, out of the van. Aaron landed in
the path of the train, which dragged his body and severed his head, instantaneously killing him.
Alano fled the scene on board the train, and did not wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
damages against Alfaro, the Pereas, PNR and Alano. The Pereas and PNR filed their
respective answers, with cross-claims against each other, but Alfaro could not be served with
summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;
(2) Spouses Zarate engaged the services of spouses Perea for the adequate and safe
transportation carriage of the former spouses' son from their residence in Paraaque to his
school at the Don Bosco Technical Institute in Makati City;
(3) During the effectivity of the contract of carriage and in the implementation thereof, Aaron,
the minor son of spouses Zarate died in connection with a vehicular/train collision which
occurred while Aaron was riding the contracted carrier Kia Ceres van of spouses Perea,
then driven and operated by the latter's employee/authorized driver Clemente Alfaro, which
van collided with the train of PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity
of the Magallanes Interchange in Makati City, Metro Manila, Philippines;
(4) At the time of the vehicular/train collision, the subject site of the vehicular/train collision
was a railroad crossing used by motorists for crossing the railroad tracks;
(5) During the said time of the vehicular/train collision, there were no appropriate and safety
warning signs and railings at the site commonly used for railroad crossing;
(6) At the material time, countless number of Makati bound public utility and private vehicles
used on a daily basis the site of the collision as an alternative route and short-cut to Makati;
(7) The train driver or operator left the scene of the incident on board the commuter train
involved without waiting for the police investigator;
(8) The site commonly used for railroad crossing by motorists was not in fact intended by
the railroad operator for railroad crossing at the time of the vehicular collision;

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

(10) PNR refused to acknowledge any liability for the vehicular/train collision;
(11) The eventual closure of the railroad crossing alleged by PNR was an internal
arrangement between the former and its project contractor; and
(12) The site of the vehicular/train collision was within the vicinity or less than 100 meters
from the Magallanes station of PNR.
B. ISSUES
(1) Whether or not defendant-driver of the van is, in the performance of his functions, liable
for negligence constituting the proximate cause of the vehicular collision, which resulted in
the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Perea being the employer of defendant Alfaro
are liable for any negligence which may be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the operator of the railroad
system is liable for negligence in failing to provide adequate safety warning signs and
railings in the area commonly used by motorists for railroad crossings, constituting the
proximate cause of the vehicular collision which resulted in the death of the plaintiff spouses'
son;
(4) Whether or not defendant spouses Perea are liable for breach of the contract of carriage
with plaintiff-spouses in failing to provide adequate and safe transportation for the latter's
son;
(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary
damages, and attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette Perea observed the
diligence of employers and school bus operators;
(7) Whether or not defendant-spouses are civilly liable for the accidental death of Aaron John
Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating the commuter train
involved in the accident, in allowing or tolerating the motoring public to cross, and its failure
to install safety devices or equipment at the site of the accident for the protection of the
public;
(9) Whether or not defendant PNR should be made to reimburse defendant spouses for any
and whatever amount the latter may be held answerable or which they may be ordered to
pay in favor of plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts
claimed by the latter in their Complaint by reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and
exemplary damages and attorney's fees.2

The Zarates claim against the Pereas was upon breach of the contract of carriage for the safe
transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil
Code.
In their defense, the Pereas adduced evidence to show that they had exercised the diligence
of a good father of the family in the selection and supervision of Alfaro, by making sure that
Alfaro had been issued a drivers license and had not been involved in any vehicular accident
prior to the collision; that their own son had taken the van daily; and that Teodoro Perea had
sometimes accompanied Alfaro in the vans trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had been the reckless
crossing of the van whose driver had not first stopped, looked and listened; and that the narrow
path traversed by the van had not been intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision, 3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering them to jointly and severally pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorneys fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.

On June 29, 2000, the RTC denied the Pereas motion for reconsideration,4 reiterating that the
cooperative gross negligence of the Pereas and PNR had caused the collision that led to the

death of Aaron; and that the damages awarded to the Zarates were not excessive, but based on
the established circumstances.
The CAs Ruling
Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways jointly and severally liable
together with defendant-appellants spouses Teodorico and Nanette Perea and defendantappellant Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron Zarate and
damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses despite
overwhelming documentary evidence on record, supporting the case of defendantsappellants Philippine National Railways.
The Pereas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral and
exemplary damages and attorneys fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereas against the Philippine
National Railways and in not holding the latter and its train driver primarily responsible for the
incident.
The trial court erred in awarding excessive damages and attorneys fees.
The trial court erred in awarding damages in the form of deceaseds loss of earning capacity in the
absence of sufficient basis for such an award.

On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to P 2,500,000.00; and deleted the attorneys fees because the RTC
did not state the factual and legal bases, to wit:6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260
of Paraaque City is AFFIRMED with the modification that the award of Actual Damages is reduced
to P59,502.76; Moral Damages is reduced to P 2,500,000.00; and the award for Attorneys Fees is
Deleted.
SO ORDERED.

The CA upheld the award for the loss of Aarons earning capacity, taking cognizance of the
ruling in Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company,7 wherein the
Court gave the heirs of Cariaga a sum representing the loss of the deceaseds earning capacity
despite Cariaga being only a medical student at the time of the fatal incident. Applying the
formula adopted in the American Expectancy Table of Mortality:
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life
expectancy from age of 21 (the age when he would have graduated from college and started
working for his own livelihood) instead of 15 years (his age when he died). Considering that the
nature of his work and his salary at the time of Aarons death were unknown, it used the
prevailing minimum wage of P 280.00/day to compute Aarons gross annual salary to
beP 110,716.65, inclusive of the thirteenth month pay. Multiplying this annual salary by Aarons
life expectancy of 39.3 years, his gross income would aggregate to P 4,351,164.30, from which
his estimated expenses in the sum ofP 2,189,664.30 was deducted to finally arrive at P
2,161,500.00 as net income. Due to Aarons computed net income turning out to be higher than
the amount claimed by the Zarates, only P 2,109,071.00, the amount expressly prayed for by
them, was granted.
On April 4, 2003, the CA denied the Pereas motion for reconsideration.8
Issues
In this appeal, the Pereas list the following as the errors committed by the CA, to wit:
I. The lower court erred when it upheld the trial courts decision holding the petitioners jointly and
severally liable to pay damages with Philippine National Railways and dismissing their cross-claim
against the latter.
II. The lower court erred in affirming the trial courts decision awarding damages for loss of earning
capacity of a minor who was only a high school student at the time of his death in the absence of
sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of damages awarded, assuming
petitioners are liable at all.
Ruling
The petition has no merit.

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

The Zarates brought this action for recovery of damages against both the Pereas and the
PNR, basing their claim against the Pereas on breach of contract of carriage and against the
PNR on quasi-delict.
The RTC found the Pereas and the PNR negligent. The CA affirmed the findings.
We concur with the CA.

To start with, the Pereas defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a
drivers license and that he had not been involved in any vehicular accident prior to the fatal
collision with the train; that they even had their own son travel to and from school on a daily
basis; and that Teodoro Perea himself sometimes accompanied Alfaro in transporting the
passengers to and from school. The RTC gave scant consideration to such defense by
regarding such defense as inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereas
operated as a common carrier; and that their standard of care was extraordinary diligence, not
the ordinary diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has been usually regarded as a
private carrier,9primarily because he only caters to some specific or privileged individuals, and
his operation is neither open to the indefinite public nor for public use, the exact nature of the
operation of a school bus service has not been finally settled. This is the occasion to lay the
matter to rest.
A carrier is a person or corporation who undertakes to transport or convey goods or persons
from one place to another, gratuitously or for hire. The carrier is classified either as a
private/special carrier or as a common/public carrier.10 A private carrier is one who, without
making the activity a vocation, or without holding himself or itself out to the public as ready to
act for all who may desire his or its services, undertakes, by special agreement in a particular
instance only, to transport goods or persons from one place to another either gratuitously or for
hire.11The provisions on ordinary contracts of the Civil Code govern the contract of private
carriage.The diligence required of a private carrier is only ordinary, that is, the diligence of a
good father of the family. In contrast, a common carrier is a person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering such services to the public.12Contracts of common
carriage are governed by the provisions on common carriers of the Civil Code, the Public
Service Act,13 and other special laws relating to transportation. A common carrier is required to
observe extraordinary diligence, and is presumed to be at fault or to have acted negligently in
case of the loss of the effects of passengers, or the death or injuries to passengers.14
In relation to common carriers, the Court defined public use in the following terms in United
States v. Tan Piaco,15viz:

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

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided
any distinction between a person or an enterprise offering transportation on a regular or an
isolated basis; and has not distinguished a carrier offering his services to the general public, that
is, the general community or population, from one offering his services only to a narrow
segment of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code
coincides neatly with the notion of public service under the Public Service Act, which
supplements the law on common carriers found in the Civil Code. Public service, according to
Section 13, paragraph (b) of the Public Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientle, whether permanent or occasional, and done
for the general business purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public services. x
x x.17

Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators,18 custom brokers and warehousemen,19 and
barge operators20 even if they had limited clientle.
As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of
the business actually transacted, or the number and character of the conveyances used in the
activity, but whether the undertaking is a part of the activity engaged in by the carrier that he has
held out to the general public as his business or occupation. If the undertaking is a single
transaction, not a part of the general business or occupation engaged in, as advertised and held
out to the general public, the individual or the entity rendering such service is a private, not a
common, carrier. The question must be determined by the character of the business actually

carried on by the carrier, not by any secret intention or mental reservation it may entertain or
assert when charged with the duties and obligations that the law imposes.21
Applying these considerations to the case before us, there is no question that the Pereas as
the operators of a school bus service were: (a) engaged in transporting passengers generally as
a business, not just as a casual occupation; (b) undertaking to carry passengers over
established roads by the method by which the business was conducted; and (c) transporting
students for a fee. Despite catering to a limited clientle, the Pereas operated as a common
carrier because they held themselves out as a ready transportation indiscriminately to the
students of a particular school living within or near where they operated the service and for a
fee.
The common carriers standard of care and vigilance as to the safety of the passengers is
defined by law. Given the nature of the business and for reasons of public policy, the common
carrier is bound "to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each
case."22 Article 1755 of the Civil Code specifies that the common carrier should "carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances." To successfully fend off
liability in an action upon the death or injury to a passenger, the common carrier must prove his
or its observance of that extraordinary diligence; otherwise, the legal presumption that he or it
was at fault or acted negligently would stand.23 No device, whether by stipulation, posting of
notices, statements on tickets, or otherwise, may dispense with or lessen the responsibility of
the common carrier as defined under Article 1755 of the Civil Code. 24
And, secondly, the Pereas have not presented any compelling defense or reason by which the
Court might now reverse the CAs findings on their liability. On the contrary, an examination of
the records shows that the evidence fully supported the findings of the CA.
As earlier stated, the Pereas, acting as a common carrier, were already presumed to be
negligent at the time of the accident because death had occurred to their passenger.25 The
presumption of negligence, being a presumption of law, laid the burden of evidence on their
shoulders to establish that they had not been negligent.26It was the law no less that required
them to prove their observance of extraordinary diligence in seeing to the safe and secure
carriage of the passengers to their destination. Until they did so in a credible manner, they stood
to be held legally responsible for the death of Aaron and thus to be held liable for all the natural
consequences of such death.
There is no question that the Pereas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family in
the selection and supervision of their driver was not legally sufficient. According to Article 1759
of the Civil Code, their liability as a common carrier did not cease upon proof that they exercised
all the diligence of a good father of a family in the selection and supervision of their employee.

This was the reason why the RTC treated this defense of the Pereas as inappropriate in this
action for breach of contract of carriage.
The Pereas were liable for the death of Aaron despite the fact that their driver might have
acted beyond the scope of his authority or even in violation of the orders of the common
carrier.27 In this connection, the records showed their drivers actual negligence. There was a
showing, to begin with, that their driver traversed the railroad tracks at a point at which the PNR
did not permit motorists going into the Makati area to cross the railroad tracks. Although that
point had been used by motorists as a shortcut into the Makati area, that fact alone did not
excuse their driver into taking that route. On the other hand, with his familiarity with that
shortcut, their driver was fully aware of the risks to his passengers but he still disregarded the
risks. Compounding his lack of care was that loud music was playing inside the air-conditioned
van at the time of the accident. The loudness most probably reduced his ability to hear the
warning horns of the oncoming train to allow him to correctly appreciate the lurking dangers on
the railroad tracks. Also, he sought to overtake a passenger bus on the left side as both vehicles
traversed the railroad tracks. In so doing, he lost his view of the train that was then coming from
the opposite side of the passenger bus, leading him to miscalculate his chances of beating the
bus in their race, and of getting clear of the train. As a result, the bus avoided a collision with the
train but the van got slammed at its rear, causing the fatality. Lastly, he did not slow down or go
to a full stop before traversing the railroad tracks despite knowing that his slackening of speed
and going to a full stop were in observance of the right of way at railroad tracks as defined by
the traffic laws and regulations.28 He thereby violated a specific traffic regulation on right of way,
by virtue of which he was immediately presumed to be negligent.29
The omissions of care on the part of the van driver constituted negligence,30 which, according to
Layugan v. Intermediate Appellate Court,31 is "the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man would not do,32 or as
Judge Cooley defines it, (t)he failure to observe for the protection of the interests of another
person, that degree of care, precaution, and vigilance which the circumstances justly demand,
whereby such other person suffers injury."33
The test by which to determine the existence of negligence in a particular case has been aptly stated
in the leading case of Picart v. Smith,34 thuswise:
The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case
is not determined by reference to the personal judgment of the actor in the situation before him. The
law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence
and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of
course be always determined in the light of human experience and in view of the facts involved in
the particular case. Abstract speculation cannot here be of much value but this much can be
profitably said: Reasonable men govern their conduct by the circumstances which are before them
or known to them. They are not, and are not supposed to be, omniscient of the future. Hence they
can be expected to take care only when there is something before them to suggest or warn of
danger. Could a prudent man, in the case under consideration, foresee harm as a result of the
course actually pursued? If so, it was the duty of the actor to take precautions to guard against that
harm. Reasonable foresight of harm, followed by the ignoring of the suggestion born of this
prevision, is always necessary before negligence can be held to exist. Stated in these terms, the
proper criterion for determining the existence of negligence in a given case is this: Conduct is said to
be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect
harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against
its consequences. (Emphasis supplied)

Pursuant to the Picart v. Smith test of negligence, the Pereas driver was entirely negligent
when he traversed the railroad tracks at a point not allowed for a motorists crossing despite
being fully aware of the grave harm to be thereby caused to his passengers; and when he
disregarded the foresight of harm to his passengers by overtaking the bus on the left side as to
leave himself blind to the approach of the oncoming train that he knew was on the opposite side
of the bus.
Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate Court,35 where
the Court held the PNR solely liable for the damages caused to a passenger bus and its
passengers when its train hit the rear end of the bus that was then traversing the railroad
crossing. But the circumstances of that case and this one share no similarities. In Philippine
National Railways v. Intermediate Appellate Court, no evidence of contributory negligence was
adduced against the owner of the bus. Instead, it was the owner of the bus who proved the
exercise of extraordinary diligence by preponderant evidence. Also, the records are replete with
the showing of negligence on the part of both the Pereas and the PNR. Another distinction is
that the passenger bus in Philippine National Railways v. Intermediate Appellate Court was
traversing the dedicated railroad crossing when it was hit by the train, but the Pereas school
van traversed the railroad tracks at a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereas and the PNR "jointly and severally"
liable for damages arising from the death of Aaron. They had been impleaded in the same
complaint as defendants against whom the Zarates had the right to relief, whether jointly,
severally, or in the alternative, in respect to or arising out of the accident, and questions of fact
and of law were common as to the Zarates.36 Although the basis of the right to relief of the
Zarates (i.e., breach of contract of carriage) against the Pereas was distinct from the basis of
the Zarates right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they
nonetheless could be held jointly and severally liable by virtue of their respective negligence
combining to cause the death of Aaron. As to the PNR, the RTC rightly found the PNR also
guilty of negligence despite the school van of the Pereas traversing the railroad tracks at a
point not dedicated by the PNR as a railroad crossing for pedestrians and motorists, because

the PNR did not ensure the safety of others through the placing of crossbars, signal lights,
warning signs, and other permanent safety barriers to prevent vehicles or pedestrians from
crossing there. The RTC observed that the fact that a crossing guard had been assigned to man
that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the risks to
others as well as the need to control the vehicular and other traffic there. Verily, the Pereas and
the PNR were joint tortfeasors.
2.
Was the indemnity for loss of
Aarons earning capacity proper?
The RTC awarded indemnity for loss of Aarons earning capacity. Although agreeing with the
RTC on the liability, the CA modified the amount. Both lower courts took into consideration that
Aaron, while only a high school student, had been enrolled in one of the reputable schools in the
Philippines and that he had been a normal and able-bodied child prior to his death. The basis
for the computation of Aarons earning capacity was not what he would have become or what he
would have wanted to be if not for his untimely death, but the minimum wage in effect at the
time of his death. Moreover, the RTCs computation of Aarons life expectancy rate was not
reckoned from his age of 15 years at the time of his death, but on 21 years, his age when he
would have graduated from college.
We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.
Yet, the Pereas submit that the indemnity for loss of earning capacity was speculative and
unfounded. They cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity for
victim Jussi Leinos loss of earning capacity as a pilot for being speculative due to his having
graduated from high school at the International School in Manila only two years before the
shooting, and was at the time of the shooting only enrolled in the first semester at the Manila
Aero Club to pursue his ambition to become a professional pilot. That meant, according to the
Court, that he was for all intents and purposes only a high school graduate.
1wphi1

We reject the Pereas submission.

First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi
Leino was not akin to that of Aaron here. The CA and the RTC were not speculating that Aaron
would be some highly-paid professional, like a pilot (or, for that matter, an engineer, a physician,
or a lawyer). Instead, the computation of Aarons earning capacity was premised on him being a
lowly minimum wage earner despite his being then enrolled at a prestigious high school like Don
Bosco in Makati, a fact that would have likely ensured his success in his later years in life and at
work.
And, secondly, the fact that Aaron was then without a history of earnings should not be taken
against his parents and in favor of the defendants whose negligence not only cost Aaron his life
and his right to work and earn money, but also deprived his parents of their right to his presence

and his services as well. Our law itself states that the loss of the earning capacity of the
deceased shall be the liability of the guilty party in favor of the heirs of the deceased, and shall
in every case be assessed and awarded by the court "unless the deceased on account of
permanent physical disability not caused by the defendant, had no earning capacity at the time
of his death."38Accordingly, we emphatically hold in favor of the indemnification for Aarons loss
of earning capacity despite him having been unemployed, because compensation of this nature
is awarded not for loss of time or earnings but for loss of the deceaseds power or ability to earn
money.39
This favorable treatment of the Zarates claim is not unprecedented. In Cariaga v. Laguna
Tayabas Bus Company and Manila Railroad Company,40 fourth-year medical student Edgardo
Carriagas earning capacity, although he survived the accident but his injuries rendered him
permanently incapacitated, was computed to be that of the physician that he dreamed to
become. The Court considered his scholastic record sufficient to justify the assumption that he
could have finished the medical course and would have passed the medical board examinations
in due time, and that he could have possibly earned a modest income as a medical practitioner.
Also, in People v. Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta
and murder victim Allan Gomez could have easily landed good-paying jobs had they graduated
in due time, and that their jobs would probably pay them high monthly salaries from P 10,000.00
to P 15,000.00 upon their graduation. Their earning capacities were computed at rates higher
than the minimum wage at the time of their deaths due to their being already senior agriculture
students of the University of the Philippines in Los Baos, the countrys leading educational
institution in agriculture.
3.
Were the amounts of damages excessive?
The Pereas plead for the reduction of the moral and exemplary damages awarded to the
Zarates in the respective amounts of P 2,500,000.00 and P 1,000,000.00 on the ground that
such amounts were excessive.
The plea is unwarranted.

The moral damages of P 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates deep
mental anguish over their sons unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it would help the
Zarates obtain the means, diversions or amusements that would alleviate their suffering for the
loss of their child. At any rate, reducing the amount as excessive might prove to be an injustice,
given the passage of a long time from when their mental anguish was inflicted on them on
August 22, 1996.
Anent the P 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if
only to render effective the desired example for the public good. As a common carrier, the
Pereas needed to be vigorously reminded to observe their duty to exercise extraordinary

diligence to prevent a similarly senseless accident from happening again. Only by an award of
exemplary damages in that amount would suffice to instill in them and others similarly situated
like them the ever-present need for greater and constant vigilance in the conduct of a business
imbued with public interest.
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated
on November 13, 2002; and ORDER the petitioners to pay the costs of suit.
SO ORDERED.
EN BANC
G.R. No. L-12191

October 14, 1918

JOSE CANGCO, plaintiff-appellant,

vs.
MANILA RAILROAD CO., defendant-appellee.
Ramon Sotelo for appellant.
Kincaid & Hartigan for appellee.

FISHER, J.:
At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in
the employment of Manila Railroad Company in the capacity of clerk, with a monthly wage of
P25. He lived in the pueblo of San Mateo, in the province of Rizal, which is located upon the line
of the defendant railroad company; and in coming daily by train to the company's office in the
city of Manila where he worked, he used a pass, supplied by the company, which entitled him to
ride upon the company's trains free of charge. Upon the occasion in question, January 20,
1915, the plaintiff arose from his seat in the second class-car where he was riding and, making,
his exit through the door, took his position upon the steps of the coach, seizing the upright
guardrail with his right hand for support.
On the side of the train where passengers alight at the San Mateo station there is a cement
platform which begins to rise with a moderate gradient some distance away from the company's
office and extends along in front of said office for a distance sufficient to cover the length of
several coaches. As the train slowed down another passenger, named Emilio Zuiga, also an
employee of the railroad company, got off the same car, alighting safely at the point where the
platform begins to rise from the level of the ground. When the train had proceeded a little farther
the plaintiff Jose Cangco stepped off also, but one or both of his feet came in contact with a
sack of watermelons with the result that his feet slipped from under him and he fell violently on
the platform. His body at once rolled from the platform and was drawn under the moving car,

where his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted
from the train the car moved forward possibly six meters before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was
lighted dimly by a single light located some distance away, objects on the platform where the
accident occurred were difficult to discern especially to a person emerging from a lighted car.
The explanation of the presence of a sack of melons on the platform where the plaintiff alighted
is found in the fact that it was the customary season for harvesting these melons and a large lot
had been brought to the station for the shipment to the market. They were contained in
numerous sacks which has been piled on the platform in a row one upon another. The testimony
shows that this row of sacks was so placed of melons and the edge of platform; and it is clear
that the fall of the plaintiff was due to the fact that his foot alighted upon one of these melons at
the moment he stepped upon the platform. His statement that he failed to see these objects in
the darkness is readily to be credited.
The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the
injuries which he had received were very serious. He was therefore brought at once to a certain
hospital in the city of Manila where an examination was made and his arm was amputated. The
result of this operation was unsatisfactory, and the plaintiff was then carried to another hospital
where a second operation was performed and the member was again amputated higher up near
the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form
of medical and surgical fees and for other expenses in connection with the process of his
curation.
Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of
Manila to recover damages of the defendant company, founding his action upon the negligence
of the servants and employees of the defendant in placing the sacks of melons upon the
platform and leaving them so placed as to be a menace to the security of passenger alighting
from the company's trains. At the hearing in the Court of First Instance, his Honor, the trial
judge, found the facts substantially as above stated, and drew therefrom his conclusion to the
effect that, although negligence was attributable to the defendant by reason of the fact that the
sacks of melons were so placed as to obstruct passengers passing to and from the cars,
nevertheless, the plaintiff himself had failed to use due caution in alighting from the coach and
was therefore precluded form recovering. Judgment was accordingly entered in favor of the
defendant company, and the plaintiff appealed.
It can not be doubted that the employees of the railroad company were guilty of negligence in
piling these sacks on the platform in the manner above stated; that their presence caused the
plaintiff to fall as he alighted from the train; and that they therefore constituted an effective legal
cause of the injuries sustained by the plaintiff. It necessarily follows that the defendant company
is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own
contributory negligence. In resolving this problem it is necessary that each of these conceptions

of liability, to-wit, the primary responsibility of the defendant company and the contributory
negligence of the plaintiff should be separately examined.
It is important to note that the foundation of the legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if
at all, from the breach of that contract by reason of the failure of defendant to exercise due care
in its performance. That is to say, its liability is direct and immediate, differing essentially, in legal
viewpoint from that presumptive responsibility for the negligence of its servants, imposed by
article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their
selection and supervision. Article 1903 of the Civil Code is not applicable to obligations arising
ex contractu, but only to extra-contractual obligations or to use the technical form of
expression, that article relates only to culpa aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code,
clearly points out this distinction, which was also recognized by this Court in its decision in the
case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article
1093 Manresa clearly points out the difference between "culpa, substantive and independent,
which of itself constitutes the source of an obligation between persons not formerly connected
by any legal tie" and culpa considered as an accident in the performance of an obligation
already existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest squarely upon the
proposition that article 1903 of the Civil Code is not applicable to acts of negligence which
constitute the breach of a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are
understood to be those not growing out of pre-existing duties of the parties to one another.
But where relations already formed give rise to duties, whether springing from contract or
quasi-contract, then breaches of those duties are subject to article 1101, 1103, and 1104 of
the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)

This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in
certain cases imposed upon employers with respect to damages occasioned by the negligence
of their employees to persons to whom they are not bound by contract, is not based, as in the
English Common Law, upon the principle ofrespondeat superior if it were, the master would
be liable in every case and unconditionally but upon the principle announced in article 1902
of the Civil Code, which imposes upon all persons who by their fault or negligence, do injury to
another, the obligation of making good the damage caused. One who places a powerful
automobile in the hands of a servant whom he knows to be ignorant of the method of managing
such a vehicle, is himself guilty of an act of negligence which makes him liable for all the
consequences of his imprudence. The obligation to make good the damage arises at the very
instant that the unskillful servant, while acting within the scope of his employment causes the
injury. The liability of the master is personal and direct. But, if the master has not been guilty of

any negligence whatever in the selection and direction of the servant, he is not liable for the acts
of the latter, whatever done within the scope of his employment or not, if the damage done by
the servant does not amount to a breach of the contract between the master and the person
injured.
It is not accurate to say that proof of diligence and care in the selection and control of the
servant relieves the master from liability for the latter's acts on the contrary, that proof shows
that the responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from
extra-contractual culpa is always based upon a voluntary act or omission which, without willful
intent, but by mere negligence or inattention, has caused damage to another. A master who
exercises all possible care in the selection of his servant, taking into consideration the
qualifications they should possess for the discharge of the duties which it is his purpose to
confide to them, and directs them with equal diligence, thereby performs his duty to third
persons to whom he is bound by no contractual ties, and he incurs no liability whatever if, by
reason of the negligence of his servants, even within the scope of their employment, such third
person suffer damage. True it is that under article 1903 of the Civil Code the law creates
a presumption that he has been negligent in the selection or direction of his servant, but the
presumption is rebuttable and yield to proof of due care and diligence in this respect.
The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico
Code, has held that these articles are applicable to cases of extra-contractual culpa exclusively.
(Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)
This distinction was again made patent by this Court in its decision in the case of
Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory
of the extra-contractual liability of the defendant to respond for the damage caused by the
carelessness of his employee while acting within the scope of his employment. The Court, after
citing the last paragraph of article 1903 of the Civil Code, said:
From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that there
was negligence on the part of the master or employer either in selection of the servant or
employee, or in supervision over him after the selection, or both; and (2) that that
presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in selection
and supervision he has exercised the care and diligence of a good father of a family, the
presumption is overcome and he is relieved from liability.
This theory bases the responsibility of the master ultimately on his own negligence and not
on that of his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of
course, in striking contrast to the American doctrine that, in relations with strangers, the
negligence of the servant in conclusively the negligence of the master.

The opinion there expressed by this Court, to the effect that in case of extracontractual culpa based upon negligence, it is necessary that there shall have been some fault

attributable to the defendant personally, and that the last paragraph of article 1903 merely
establishes a rebuttable presumption, is in complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by
reason of the breach of the duties inherent in the special relations of authority or superiority
existing between the person called upon to repair the damage and the one who, by his act or
omission, was the cause of it.
On the other hand, the liability of masters and employers for the negligent acts or omissions of
their servants or agents, when such acts or omissions cause damages which amount to the
breach of a contact, is not based upon a mere presumption of the master's negligence in their
selection or control, and proof of exercise of the utmost diligence and care in this regard does
not relieve the master of his liability for the breach of his contract.
Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual
obligation has its source in the breach or omission of those mutual duties which civilized society
imposes upon it members, or which arise from these relations, other than contractual, of certain
members of society to others, generally embraced in the concept of status. The legal rights of
each member of society constitute the measure of the corresponding legal duties, mainly
negative in character, which the existence of those rights imposes upon all other members of
society. The breach of these general duties whether due to willful intent or to mere inattention, if
productive of injury, give rise to an obligation to indemnify the injured party. The fundamental
distinction between obligations of this character and those which arise from contract, rests upon
the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission
itself which creates the vinculum juris, whereas in contractual relations the vinculum exists
independently of the breach of the voluntary duty assumed by the parties when entering into the
contractual relation.
With respect to extra-contractual obligation arising from negligence, whether of act or omission,
it is competent for the legislature to elect and our Legislature has so elected whom such
an obligation is imposed is morally culpable, or, on the contrary, for reasons of public policy, to
extend that liability, without regard to the lack of moral culpability, so as to include responsibility
for the negligence of those person who acts or mission are imputable, by a legal fiction, to
others who are in a position to exercise an absolute or limited control over them. The legislature
which adopted our Civil Code has elected to limit extra-contractual liability with certain welldefined exceptions to cases in which moral culpability can be directly imputed to the persons
to be charged. This moral responsibility may consist in having failed to exercise due care in the
selection and control of one's agents or servants, or in the control of persons who, by reason of
their status, occupy a position of dependency with respect to the person made liable for their
conduct.
The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the
obligation upon which plaintiff's cause of action depends is a negligent act or omission, the
burden of proof rests upon plaintiff to prove the negligence if he does not his action fails. But

when the facts averred show a contractual undertaking by defendant for the benefit of plaintiff,
and it is alleged that plaintiff has failed or refused to perform the contract, it is not necessary for
plaintiff to specify in his pleadings whether the breach of the contract is due to willful fault or to
negligence on the part of the defendant, or of his servants or agents. Proof of the contract and
of its nonperformance is sufficientprima facie to warrant a recovery.
As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor
should assume the burden of proof of its existence, as the only fact upon which his action is
based; while on the contrary, in a case of negligence which presupposes the existence of a
contractual obligation, if the creditor shows that it exists and that it has been broken, it is not
necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the
breach was due to the negligent conduct of defendant or of his servants, even though such be
in fact the actual cause of the breach, it is obvious that proof on the part of defendant that the
negligence or omission of his servants or agents caused the breach of the contract would not
constitute a defense to the action. If the negligence of servants or agents could be invoked as a
means of discharging the liability arising from contract, the anomalous result would be that
person acting through the medium of agents or servants in the performance of their contracts,
would be in a better position than those acting in person. If one delivers a valuable watch to
watchmaker who contract to repair it, and the bailee, by a personal negligent act causes its
destruction, he is unquestionably liable. Would it be logical to free him from his liability for the
breach of his contract, which involves the duty to exercise due care in the preservation of the
watch, if he shows that it was his servant whose negligence caused the injury? If such a theory
could be accepted, juridical persons would enjoy practically complete immunity from damages
arising from the breach of their contracts if caused by negligent acts as such juridical persons
can of necessity only act through agents or servants, and it would no doubt be true in most
instances that reasonable care had been taken in selection and direction of such servants. If
one delivers securities to a banking corporation as collateral, and they are lost by reason of the
negligence of some clerk employed by the bank, would it be just and reasonable to permit the
bank to relieve itself of liability for the breach of its contract to return the collateral upon the
payment of the debt by proving that due care had been exercised in the selection and direction
of the clerk?
This distinction between culpa aquiliana, as the source of an obligation, and culpa
contractual as a mere incident to the performance of a contract has frequently been recognized
by the supreme court of Spain. (Sentencias of June 27, 1894; November 20, 1896; and
December 13, 1896.) In the decisions of November 20, 1896, it appeared that plaintiff's action
arose ex contractu, but that defendant sought to avail himself of the provisions of article 1902 of
the Civil Code as a defense. The Spanish Supreme Court rejected defendant's contention,
saying:
These are not cases of injury caused, without any pre-existing obligation, by fault or
negligence, such as those to which article 1902 of the Civil Code relates, but of damages

caused by the defendant's failure to carry out the undertakings imposed by the
contracts . . . .

A brief review of the earlier decision of this court involving the liability of employers for damage
done by the negligent acts of their servants will show that in no case has the court ever decided
that the negligence of the defendant's servants has been held to constitute a defense to an
action for damages for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage
was not liable for the damages caused by the negligence of his driver. In that case the court
commented on the fact that no evidence had been adduced in the trial court that the defendant
had been negligent in the employment of the driver, or that he had any knowledge of his lack of
skill or carefulness.
In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the
plaintiff sued the defendant for damages caused by the loss of a barge belonging to plaintiff
which was allowed to get adrift by the negligence of defendant's servants in the course of the
performance of a contract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if
the "obligation of the defendant grew out of a contract made between it and the plaintiff . . . we
do not think that the provisions of articles 1902 and 1903 are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to
recover damages for the personal injuries caused by the negligence of defendant's chauffeur
while driving defendant's automobile in which defendant was riding at the time. The court found
that the damages were caused by the negligence of the driver of the automobile, but held that
the master was not liable, although he was present at the time, saying:
. . . unless the negligent acts of the driver are continued for a length of time as to give the
owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. .
. . The act complained of must be continued in the presence of the owner for such length of
time that the owner by his acquiescence, makes the driver's acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil.
Rep., 8), it is true that the court rested its conclusion as to the liability of the defendant upon
article 1903, although the facts disclosed that the injury complaint of by plaintiff constituted a
breach of the duty to him arising out of the contract of transportation. The express ground of the
decision in this case was that article 1903, in dealing with the liability of a master for the
negligent acts of his servants "makes the distinction between private individuals and public
enterprise;" that as to the latter the law creates a rebuttable presumption of negligence in the
selection or direction of servants; and that in the particular case the presumption of negligence
had not been overcome.
It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as
though founded in tort rather than as based upon the breach of the contract of carriage, and an
examination of the pleadings and of the briefs shows that the questions of law were in fact

discussed upon this theory. Viewed from the standpoint of the defendant the practical result
must have been the same in any event. The proof disclosed beyond doubt that the defendant's
servant was grossly negligent and that his negligence was the proximate cause of plaintiff's
injury. It also affirmatively appeared that defendant had been guilty of negligence in its failure to
exercise proper discretion in the direction of the servant. Defendant was, therefore, liable for the
injury suffered by plaintiff, whether the breach of the duty were to be regarded as
constituting culpa aquiliana or culpa contractual. As Manresa points out (vol. 8, pp. 29 and 69)
whether negligence occurs an incident in the course of the performance of a contractual
undertaking or its itself the source of an extra-contractual undertaking obligation, its essential
characteristics are identical. There is always an act or omission productive of damage due to
carelessness or inattention on the part of the defendant. Consequently, when the court holds
that a defendant is liable in damages for having failed to exercise due care, either directly, or in
failing to exercise proper care in the selection and direction of his servants, the practical result is
identical in either case. Therefore, it follows that it is not to be inferred, because the court held in
the Yamada case that defendant was liable for the damages negligently caused by its servants
to a person to whom it was bound by contract, and made reference to the fact that the
defendant was negligent in the selection and control of its servants, that in such a case the court
would have held that it would have been a good defense to the action, if presented squarely
upon the theory of the breach of the contract, for defendant to have proved that it did in fact
exercise care in the selection and control of the servant.
The true explanation of such cases is to be found by directing the attention to the relative
spheres of contractual and extra-contractual obligations. The field of non- contractual obligation
is much more broader than that of contractual obligations, comprising, as it does, the whole
extent of juridical human relations. These two fields, figuratively speaking, concentric; that is to
say, the mere fact that a person is bound to another by contract does not relieve him from extracontractual liability to such person. When such a contractual relation exists the obligor may
break the contract under such conditions that the same act which constitutes the source of an
extra-contractual obligation had no contract existed between the parties.
The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry
him in safety and to provide safe means of entering and leaving its trains (civil code, article
1258). That duty, being contractual, was direct and immediate, and its non-performance could
not be excused by proof that the fault was morally imputable to defendant's servants.
The railroad company's defense involves the assumption that even granting that the negligent
conduct of its servants in placing an obstruction upon the platform was a breach of its
contractual obligation to maintain safe means of approaching and leaving its trains, the direct
and proximate cause of the injury suffered by plaintiff was his own contributory negligence in
failing to wait until the train had come to a complete stop before alighting. Under the doctrine of
comparative negligence announced in the Rakes case (supra), if the accident was caused by
plaintiff's own negligence, no liability is imposed upon defendant's negligence and plaintiff's
negligence merely contributed to his injury, the damages should be apportioned. It is, therefore,
important to ascertain if defendant was in fact guilty of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop before alighting,
the particular injury suffered by him could not have occurred. Defendant contends, and cites
many authorities in support of the contention, that it is negligence per se for a passenger to
alight from a moving train. We are not disposed to subscribe to this doctrine in its absolute form.
We are of the opinion that this proposition is too badly stated and is at variance with the
experience of every-day life. In this particular instance, that the train was barely moving when
plaintiff alighted is shown conclusively by the fact that it came to stop within six meters from the
place where he stepped from it. Thousands of person alight from trains under these conditions
every day of the year, and sustain no injury where the company has kept its platform free from
dangerous obstructions. There is no reason to believe that plaintiff would have suffered any
injury whatever in alighting as he did had it not been for defendant's negligent failure to perform
its duty to provide a safe alighting place.
We are of the opinion that the correct doctrine relating to this subject is that expressed in
Thompson's work on Negligence (vol. 3, sec. 3010) as follows:
The test by which to determine whether the passenger has been guilty of negligence in
attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to
be considered whether an ordinarily prudent person, of the age, sex and condition of the
passenger, would have acted as the passenger acted under the circumstances disclosed by
the evidence. This care has been defined to be, not the care which may or should be used
by the prudent man generally, but the care which a man of ordinary prudence would use
under similar circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol.
3, sec. 3010.)

Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil.
rep., 809), we may say that the test is this; Was there anything in the circumstances surrounding
the plaintiff at the time he alighted from the train which would have admonished a person of
average prudence that to get off the train under the conditions then existing was dangerous? If
so, the plaintiff should have desisted from alighting; and his failure so to desist was contributory
negligence.
1awph!l.net

As the case now before us presents itself, the only fact from which a conclusion can be drawn to
the effect that plaintiff was guilty of contributory negligence is that he stepped off the car without
being able to discern clearly the condition of the platform and while the train was yet slowly
moving. In considering the situation thus presented, it should not be overlooked that the plaintiff
was, as we find, ignorant of the fact that the obstruction which was caused by the sacks of
melons piled on the platform existed; and as the defendant was bound by reason of its duty as a
public carrier to afford to its passengers facilities for safe egress from its trains, the plaintiff had
a right to assume, in the absence of some circumstance to warn him to the contrary, that the
platform was clear. The place, as we have already stated, was dark, or dimly lighted, and this
also is proof of a failure upon the part of the defendant in the performance of a duty owing by it
to the plaintiff; for if it were by any possibility concede that it had right to pile these sacks in the
path of alighting passengers, the placing of them adequately so that their presence would be
revealed.

As pertinent to the question of contributory negligence on the part of the plaintiff in this case the
following circumstances are to be noted: The company's platform was constructed upon a level
higher than that of the roadbed and the surrounding ground. The distance from the steps of the
car to the spot where the alighting passenger would place his feet on the platform was thus
reduced, thereby decreasing the risk incident to stepping off. The nature of the platform,
constructed as it was of cement material, also assured to the passenger a stable and even
surface on which to alight. Furthermore, the plaintiff was possessed of the vigor and agility of
young manhood, and it was by no means so risky for him to get off while the train was yet
moving as the same act would have been in an aged or feeble person. In determining the
question of contributory negligence in performing such act that is to say, whether the
passenger acted prudently or recklessly the age, sex, and physical condition of the
passenger are circumstances necessarily affecting the safety of the passenger, and should be
considered. Women, it has been observed, as a general rule are less capable than men of
alighting with safety under such conditions, as the nature of their wearing apparel obstructs the
free movement of the limbs. Again, it may be noted that the place was perfectly familiar to the
plaintiff as it was his daily custom to get on and of the train at this station. There could,
therefore, be no uncertainty in his mind with regard either to the length of the step which he was
required to take or the character of the platform where he was alighting. Our conclusion is that
the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was
not characterized by imprudence and that therefore he was not guilty of contributory negligence.
The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a
copyist clerk, and that the injuries he has suffered have permanently disabled him from
continuing that employment. Defendant has not shown that any other gainful occupation is open
to plaintiff. His expectancy of life, according to the standard mortality tables, is approximately
thirty-three years. We are of the opinion that a fair compensation for the damage suffered by
him for his permanent disability is the sum of P2,500, and that he is also entitled to recover of
defendant the additional sum of P790.25 for medical attention, hospital services, and other
incidental expenditures connected with the treatment of his injuries.
The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of
P3,290.25, and for the costs of both instances. So ordered.
Arellano, C.J., Torres, Street and Avancea, JJ., concur.

Separate Opinions

MALCOLM, J., dissenting:

With one sentence in the majority decision, we are of full accord, namely, "It may be admitted
that had plaintiff waited until the train had come to a full stop before alighting, the particular
injury suffered by him could not have occurred." With the general rule relative to a passenger's
contributory negligence, we are likewise in full accord, namely, "An attempt to alight from a
moving train is negligence per se." Adding these two points together, should be absolved from
the complaint, and judgment affirmed.
Johnson, J., concur.
EN BANC
[G.R. No. L-8194. July 11, 1956.]
EMERENCIANA M. VDA. DE MEDINA, ET AL., Plaintiffs-Appellees, vs.
GUILLERMO CRESENCIA, ET AL., Defendants. GUILLERMO
CRESENCIA, Appellant.
DECISION
REYES, J.B.L., J.:
Appeal by Defendant Guillermo Cresencia from the judgment of the Court of First
Instance of Manila in its civil case No. 19890, sentencing Appellant, jointly and
severally with his co-Defendant Brigido Avorque, to pay Plaintiffs Emerencia M. Vda.
de Medina and her minor children damages in the total amount of P56,000, P5,000
attorneys fees, and costs.
It appears that on May 31, 1953, passenger jeepney bearing plate No. TPU-2232
(Manila), driven by Brigido Avorque, smashed into a Meralco post on Azcarraga
Street, resulting in the death of Vicente Medina, one of its passengers. A criminal
case for homicide through reckless imprudence was filed against Avorque (criminal
case No. 22775 of the Court of First Instance of Manila), to which he pleaded guilty
on September 9, 1953. The heirs of the deceased, however, reserved their right to
file a separate action for damages, and on June 16, 1953, brought suit against the
driver Brigido Avorque and Appellant Guillermo Cresencia, the registered owner and
operator of the jeepney in question. Defendant Brigido Avorque did not file any
answer;
while DefendantCresencia answered, disclaiming liability on the ground
that he had sold the jeepney in question on October 14, 1950 to one Maria A.
Cudiamat;
that the jeepney had been repeatedly sold by one buyer after another,
until the vehicle was purchased on January 29, 1953 by Rosario Avorque, the
absolute owner thereof at the time of the accident. In view of Cresencias
answer,Plaintiffs filed leave, and was allowed, to amend their complaint making
Rosario Avorque a co-Defendant;
and the latter, by way of answer, admitted
having purchased the aforesaid jeepney on May 31, 1953, but alleged in defense
that she was never the public utility operator thereof. The case then proceeded to
trial,
during
which,
after
the Plaintiffs had
presented
their
evidence,Defendants Guillermo
Cresencia
and
Rosario
Avorque
made
manifestations admitting that the former was still the registered operator of the
jeepney in question in the records of the Motor Vehicles Office and the Public
chan

roblesvirt ualawlibrary

chan roblesvirt ualawlibrary

chan

roblesv irtualawlibrary

Service Commission, while the latter was the owner thereof at the time of the
accident;
and submitted the case for the decision on the question of who, as
between the two, should be held liable to Plaintiffs for damages. The lower court, by
Judge Jose Zulueta, held that as far as the public is concerned, Defendant Cresencia,
in the eyes of the law, continued to be the legal owner of the jeepney in question;
and rendered judgment against him, jointly and severally with the driver Brigido
Avorque, for P6,000 compensatory damages, P30,000 moral damages, P10,000
exemplary damages, P10,000 nominal damages, P5,000 attorneys fees, and costs,
while Defendant Rosario Avorque was absolved from liability. From this
judgment, Defendant Cresencia appealed.
chan

roblesv irtualawlibrary

chan

roblesv irtualawlibrary

We have already held in the case of Montoya vs. Ignacio, 94 Phil., 182 (December
29, 1953), which the court below cited, that the law (section 20 [g], C. A. No. 146 as
amended) requires the approval of the Public Service Commission in order that a
franchise, or any privilege pertaining thereto, may be sold or leased without
infringing the certificate issued to the grantee;
and that if property covered by
the franchise is transferred or leased without this requisite approval, the transfer is
not binding against the public or the Service Commission;
and in contemplation
of law, the grantee of record continues to be responsible under the franchise in
relation to the Commission and to the public. There we gave the reason for this rule
to be as follows:
chan

roblesv irtualawlibrary

chan

roblesvirt ualawlibrary

chanroblesvirt uallawlibrary

Since a franchise is personal in nature any transfer or lease thereof should be

notified to the Public Service Commission so that the latter may take proper
safeguards to protect the interest of the public. In fact, the law requires that, before
the approval is granted, there should be a public hearing, with notice to all
interested parties, in order that the Commission may determine if there are good
and reasonable grounds justifying the transfer or lease of the property covered by
the franchise, or if the sale or lease is detrimental to public interest .
cralaw

cralaw

The above ruling was later reiterated in the cases of Timbol vs. Osias, L-7547, April
30, 1955 and Roque vs. Malibay Transit Inc., L- 8561, November 18, 1955.
As the sale of the jeepney here in question was admittedly without the approval of
the Public Service Commission, Appellant herein, Guillermo Cresencia, who is the
registered owner and operator thereof, continued to be liable to the Commission
and the public for the consequences incident to its operation. Wherefore, the lower
court did not err in holding him, and not the buyer Rosario Avorque, responsible for
the damages sustained by Plaintiff by reason of the death of Vicente Medina
resulting from the reckless negligence of the jeepneys driver, Brigido Avorque.
Appellant also argues that the basis of Plaintiffs action being the employers
subsidiary liability under the Revised Penal Code for damages arising from his
employees criminal acts, it isDefendant Rosario Avorque who should answer
subsidiarily for the damages sustained byPlaintiffs, since she admits that she, and
not Appellant, is the employer of the negligent driver Brigido Avorque. The
argument is untenable, because Plaintiffs action for damages is independent of the
criminal case filed against Brigido Avorque, and based, not on the employers
subsidiary liability under the Revised Penal Code, but on a breach of the carriers
contractual obligation to carry his passengers safely to their destination (culpa
contractual). And it is also for this reason that there is no need of first proving the
insolvency of the driver Brigido Avorque before damages can be recovered from the
carrier, for in culpa contractual, the liability of the carrier is not merely subsidiary or

secondary, but direct and immediate (Articles 1755, 1756, and 1759, New Civil
Code).
The propriety of the damages awarded has not been questioned, Nevertheless, it is
patent upon the record that the award of P10,000 by way of nominal damages is
untenable as a matter of law, since nominal damages cannot co-exist with
compensatory damages. The purpose of nominal damages is to vindicate or
recognize a right that has been violated, in order to preclude further contest
thereon;
and not for the purpose of indemnifying the Plaintiff for any loss
suffered by him (Articles 2221, 2223, new Civil Code.) Since the court below has
already awarded compensatory and exemplary damages that are in themselves a
judicial recognition thatPlaintiffs right was violated, the award of nominal damages
is unnecessary and improper. Anyway, ten thousand pesos cannot, in common
sense, be deemed nominal.
chan

roblesvirt ualawlibrary

With the modification that the award of P10,000 nominal damages be eliminated,
the decision appealed from is affirmed. Costs against Appellant. SO ORDERED.
FIRST DIVISION
[G.R. No. L-46558 : July 31, 1981.]
PHILIPPINE AIR LINES, INC., Petitioner, vs. THE COURT OF APPEALS and JESUS V.
SAMSON, Respondents.
DECISION
GUERRERO, J.:
This is a petition for review on Certiorari of the decision of the Court of Appeals 1 dated April
18, 1977, affirming with modification the decision of the Court of First Instance of Albay in
Civil Case No. 1279, entitled Jesus V. Samson, plaintiff, vs. Philippine Air Lines, Inc.,
defendant, for damages.
The dispositive portion of the trial courts decision reads:
WHEREFORE, for all the foregoing considerations, judgment is hereby rendered in favor of
the plaintiff and against the defendant ordering the defendant to pay the plaintiff, the
following sums: P1988,000.00 as unearned income or damages; P50,000.00 for moral
damages; P20,000.00 as attorneys fees and P5,000.00 as expenses of litigation, or a total
of P273,000.00. Costs against the defendant.
The appellate court modified the above decision, to wit:
However, Plaintiff-Appellee, who has been deprived of his job since 1954, is entitled
to the legal rate of interest on the P198,000.00 unearned income from the filing of
the complaint (Sec. 8, Rule 51, Rules of Court).
cranad

WHEREFORE, with the modification indicated above, the judgment appealed from is
affirmed, with costs against defendant-appellant.
The complaint filed on July 1, 1954 by plaintiff Jesus V. Samson, private respondent herein,
averred that on January 8, 1951, he flew as co-pilot on a regular flight from Manila to
Legaspi with stops at Daet, Camarines Norte and Pili, Camarines Sur, with Captain Delfin
Bustamante as commanding pilot of a C-47 plane belonging to defendant Philippine Air

Lines, Inc., now the herein petitioner; that on attempting to land the plane at Daet airport,
Captain Delfin Bustamante due to his very slow reaction and poor judgment overshot the
airfield and as a result, notwithstanding the diligent efforts of the plaintiff co-pilot to avert
an accident, the airplane crashlanded beyond the runway; that the jolt caused the head of
the plaintiff to hit and break through the thick front windshield of the airplane causing him
severe brain concussion, wounds and abrasions on the forehead with intense pain and
suffering (par. 6, complaint).
cranad

:onad

The complaint further alleged that instead of giving plaintiff expert and proper medical
treatment called for by the nature and severity of his injuries, defendant simply referred
him to a company physician, a general medical practitioner, who limited the treatment to
the exterior injuries without examining the severe brain concussion of plaintiff (par. 7,
complaint); that several days after the accident, defendant Philippine Air Lines called back
the plaintiff to active duty as co-pilot, and inspite of the latters repeated request for expert
medical assistance, defendant had not given him any (par. 8, complaint); that as a
consequence of the brain injury sustained by plaintiff from the crash, he had been having
periodic dizzy spells and had been suffering from general debility and nervousness (par. 9,
complaint); that defendant airline company instead of submitting the plaintiff to expert
medical treatment, discharged the latter from its employ on December 21, 1953 on grounds
of physical disability, thereby causing plaintiff not only to lose his job but to become
physically unfit to continue as aviator due to defendants negligence in not giving him the
proper medical attention (pars. 10-11, complaint). Plaintiff prayed for damages in the
amount of P180,000.00 representing his unearned income, P50,000.00 as moral damages,
P20,000.00 as attorneys fees and P5,000.00 as expenses, or a total of P255,000.00.
cranad

cranad

cranad

cranad

In its answer filed on July 28, 1954, defendant PAL denied the substantial averments in the
complaint, alleging among others, that the accident was due solely and exclusively to
inevitable unforeseen circumstances whereby plaintiff sustained only superficial wounds and
minor injuries which were promptly treated by defendants medical personnel (par. 5,
answer); that plaintiff did not sustain brain injury or cerebral concussion from the accident
since he passed the annual physical and medical examination given thereafter on April 24,
1951; that the headaches and dizziness experienced by plaintiff were due to emotional
disturbance over his inability to pass the required up-grading or promotional course given
by defendant company (par. 6, answer), and that, as confirmed by an expert neurosurgeon, plaintiff was suffering-from neurosis and in view of this unfitness and
disqualification from continuing as a pilot, defendant had to terminate plaintiffs
employment (pars. 7, 9, answer).
cranad

cranad

cranad

Further, defendant alleged that by the very nature of its business as a common carrier, it is
bound to employ only pilots who are proficient and in good mental, emotional and physical
condition; that the pilot, Captain Delfin Bustamante, was a competent and proficient pilot,
and although he was already afflicted with a tumor of the nasopharynx even before the
accident of January 8, 1951, the Civil Aeronautics Administration, in passing upon the
fitness of pilots, gave Capt. Bustamante a waiver of physical standards to enable him to
retain his first class airman certificate since the affliction had not in the least affected his
proficiency (pars. 16-17, answer). By way of counterclaim, defendant prayed for
P10,000.00 as expenses for the litigation.
cranad

On March 25, 1958, defendant filed a Motion to Dismiss on the ground that the complaint is
essentially a Workmens Compensation claim, stating a cause of action not cognizable within
the general jurisdiction of the court. The Motion to Dismiss was denied in the order of April
14, 1958. After the reception of evidence, the trial court rendered on January 15, 1973 the
decision, the dispositive portion of which has been earlier cited.

The defendant Philippine Air Lines, Inc. appealed the decision to the Court of Appeals as
being contrary to law and unsupported by the evidence. It raised as errors of the trial
court (a) the holding that the damages allegedly suffered by plaintiff are attributable to the
accident of January 8, 1951 which was due to the negligence of defendant in having allowed
Capt. Delfin Bustamante to continue flying despite his alleged slow reaction and poor
judgment; (b) the finding that defendant was negligent in not having given plaintiff proper
and adequate expert medical treatment and assistance for the injuries allegedly sustained in
the accident of January 8, 1951; and (c) in ordering defendant to pay actual or
compensatory damages, moral damages and attorneys fees to the plaintiff.
cranad

cranad

cranad

On April 18, 1977, the Court of Appeals rendered its decision affirming the judgment of the
lower court but modified the award of damages by imposing legal rate of interest on the
P198,000.00 unearned income from the filing of the complaint, citing Sec. 8, Rule 51 of the
Rules of Court.
Its motion for reconsideration of the above judgment having been denied, Philippine Air
Lines, Inc. filed this instant petition for Certiorari on the ground that the decision is not in
accord with law or with the applicable jurisprudence, aside from its being replete with
findings in the nature of speculation, surmises and conjectures not borne out by the
evidence on record thereby resulting to misapprehension of facts and amounting to a grave
abuse of discretion (p. 7, Petition).
cranad

Petitioner raises the fundamental question in the case at bar as follows: Is there a causal
connection between the injuries suffered by private respondent during the accident on 8
January 1951 and the subsequent periodic dizzy spells, headache and general debility of
which private respondent complained every now and then, on the one hand, and such
periodic dizzy spells, headache and general debility allegedly caused by the accident and
private respondents eventual discharge from employment, on the other? PAL submits that
respondent courts award of damages to private respondent is anchored on findings in the
nature of speculations, surmises and conjectures and not borne out by the evidence on
record, thereby resulting in a misapprehension of facts and amounting to a grave abuse of
discretion.
Petitioners submission is without merit.
As found by the respondent court, the following are the essential facts of the case:
It appears that plaintiff, a licensee aviator, was employed by defendant a few years
prior to January 8, 1951 as a regular co-pilot on a guaranteed basic salary of
P750.00 a month. He was assigned to and/or paired with pilot Delfin Bustamante.
Sometime in December 1950, he complained to defendant through its authorized
official about the slow reaction and poor judgment of pilot Delfin Bustamante.
Notwithstanding said complaint, defendant allowed the pilot to continue flying.
On January 8, 1951, the two manned the regular afternoon flight of defendants
plane from Manila to Legaspi, with stops at Daet, Camarines Norte, and Pili,
Camarines Sur. Upon making a landing at Daet, the pilot, with his slow reaction and
poor judgment, overshot the airfield and, as a result of and notwithstanding diligent
efforts of plaintiff to avert an accident, the airplane crash-landed beyond the runway
into a mangrove. The jolt and impact caused plaintiff to hit his head upon the front
windshield of the plane thereby causing his brain concussions and wounds on the
forehead, with concomittant intense pain.
Plaintiff was not given proper medical attention and treatment demanded by the
nature and severity of his injuries. Defendant merely referred him to its clinic
attended by general practitioners on his external injuries. His brain injury was never

examined, much less treated. On top of that negligence, defendant recalled plaintiff
to active duty as a co-pilot, completely ignoring his plea for expert medical
assistance.
Suffering periodic dizzy spells, headache and general debility, plaintiff every now and
then complained to defendant. To make matters worst for plaintiff, defendant
discharged him from his employment on December 21, 1953. In consequence,
plaintiff has been beset with additional worries, basically financial. He is now a
liability instead of a provider, of his family.
On July 1, 1954, plaintiff filed a complaint for damages. Defendant vainly sought to
dismiss the complaint after filing an answer. Then, the judgment and this appeal.
Continuing, the respondent Court of Appeals further held:
There is no question about the employment of plaintiff by defendant, his age and
salary, the overshooting by pilot Bustamante of the airfield and crashlanding in a
mangrove, his hitting his head on the front windshield of the plane, his intermittent
dizzy spells, headache and general debility for which he was discharged from his
employment on December 21, 1953. As the lower court aptly stated:
From the evidence adduced by the parties, the Court finds the following facts
to be uncontroverted: That the plaintiff Jesus V. Samson, on January 8, 1951
and a few years prior thereto, December 21, 1953, was a duly licensed pilot
employed as a regular co-pilot of the defendant with assignment in its
domestic air service in the Philippines; that on January 8, 1951, the
defendants airplane met an accident in crashlanding at the Daet Airport,
Camarines Norte by overshooting the runway and reaching the mangroves at
the edge of the landing strip; that the jolt caused plaintiffs head to hit the
front windshield of the airplane causing him to suffer wounds and abrasion on
the forehead; that the defendant, instead of giving the plaintiff expert and
proper medical treatment called for by the nature and severity of the injuries
of the plaintiff, simply referred him to the clinic of the defendants physicians
who are only general medical practitioners and not brain specialists; that the
defendants physicians limited their treatment to the exterior injuries on the
forehead of the plaintiff and made no examination of the severe concussion of
the brain of the plaintiff; that the Medical Director and Flight Surgeon of the
defendant were not able to definitely determine the cause of the complaint of
the plaintiff as to the periodic attack of dizziness, spells and headache; that
due to this laxity of the defendants physician and the continuous suffering of
the ailment of the plaintiff complained of, he demanded for expert medical
assistance for his brain injury and to send him to the United States, which
demand was turned down and in effect denied by the defendant; that instead
the defendant referred the plaintiff to a neurologist, Dr. Victor Reyes; that
from the time that said accident occurred on January 21, 1953, he was
ordered grounded on several occasions because of his complaint of dizzy
spells and headache; that instead of submitting the plaintiff to expert medical
treatment as demanded by him and denied by the defendant, he was
discharged from its employment on December 21, 1953 on the ground of
physical disability, and that the plaintiff, at the time when the defendants
plane met the accident, up to the time he was discharged, was regularly
employed as a co-pilot and receiving a basic salary of P750.00 a month plus
extra pay for flying time, and bonuses amounting to P300.00 a month.
Even defendant-appellant itself admits as not controverted the following facts which
generally admit what have been stated above as not controverted.

In the case at bar, the following facts are not the subject of controversy:
(1) First, that from July 1950 to 21 December 1953, plaintiff was employed
with defendant company as a first officer or co-pilot and served in that
capacity in defendants domestic services.
(2) Second, that on January 1951, plaintiff did fly on defendants PI-C 94, as
first officer or co-pilot, with the late Capt. Delfin Bustamante in command as
pilot; that while making a landing at the Daet airport on that date, PI-C 94 did
meet an accident as stated above.
(3) Third, that at or about the time of the discharge from defendant company,
plaintiff had complained of spells of dizziness, headaches and
nervousness, by reason of which he was grounded from flight duty. In short,
that at that time, or approximately from November 1953 up to the date of his
discharge on 21 December 1953, plaintiff was actually physically unfit to
discharge his duties as pilot.
(4) Fourth, that plaintiffs unfitness for flight duty was properly established
after a thorough medical examination by competent medical experts. (pp.
11-12, appellants brief)
cralaw

cranad

hence, there can hardly be an issue, factual, legal or medical.

Taking exception from the rest of the essential facts of the case as found by the respondent
court PAL claims said facts are not fully borne out by the evidence on record and insists
that the injuries suffered by private respondent during the accident on January 8, 1951
were superficial in nature; that the periodic spells, headache, and general debility
complaint of every now and then by private respondent subsequent to the Jan. 8, 1951
incident were due to emotional disturbances and that no negligence can be attributed to
Capt. Delfin Bustamante much less to PAL for the occurrence on January 8, 1951, hence PAL
cannot be held liable for damages.
Petitioner claims absence of any causal connection between private respondents superficial
injuries and his alleged subsequent periodic spells, headache and general debility, pointing
out that these subsequent ailments were found by competent physician, including an expert
neuro-surgeon, to be due to emotional disturbances insights the conclusions of Dr. Trajano
V. Bernardo that respondents complaints were psychosomatic symptoms on the basis of
declarations made by respondent himself, which conclusions are supported by similar
diagnosis made by Drs. Damaceno J. Ago and Villaraza stating that respondent Samson was
suffering from neurosis as well as the report of Dr. Victor Reyes, a neurological specialist,
indicating that the symptoms were probably, most probably due to psychogenic factors and
have no organic basis.
In claiming that there is no factual basis for the finding of the respondent court that the
crash-landing caused respondents brain concussion . ., with concomittant intense pain, for
on the contrary, testimonial evidence establish the superficiality of the injuries sustained by
respondent during the accident of January 8, 1951, petitioner quotes portions of the
testimony of Dr. Manuel S. Sayas, who declared that he removed the band-aid on the
forehead of respondent and that he found out after removal that the latter had two
contussed superficial wounds over the supra orbiter regions or just above the eyes
measuring one centimeter long and one millimeter deep. He examined and found his blood
pressure normal, no discharges from the nose and ears. Dr. Trajano V. Bernardo also
testified that when he examined respondent Samson three days after the accident, the
wound was already healed and found nothing wrong with his ears, nose and throat so that
he was declared fit for duty after the sixth day.
cra

Petitioner goes further. It contends that there is no causal connection between respondents
superficial injuries sustained during the accident on January 8, 1951 and plaintiffs discharge
from employment with PAL on December 21, 1953. According to PAL, it was the repeated
recurrence of respondents neurasthenic symptoms (dizzy spells, headache, nervousness)
which prompted PALs Flight Surgeon, Dr. Bernardo, to recommend that plaintiff be
grounded permanently as respondent was psychologically unfit to resume his duties as
pilot. PAL concludes that respondents eventual discharge from employment with PAL was
effected for absolutely valid reasons, and only after he was thoroughly examined and found
unfit to carry out his responsibilities and duties as a pilot.
cranad

:onad

We agree with the respondent court in finding that the dizzy spells, headache and general
debility of private respondent Samson was an after-effect of the crash-landing and We find
that such holding is supported by substantial evidence, which We quote from the courts
decision, to wit:
Defendant would imply that plaintiff suffered only superficial wounds which were
treated and not brain injury. It would, by the opinion of its company doctors, Dr.
Bernardo and Dr. Reyes, attribute the dizzy spells and headache to organic or as
phychosomatic, neurasthenic or psychogenic, which we find outlandishly
exaggerated.
That plaintiffs condition as psychosomatic rather than organic in nature is allegedly
confirmed by the fact that on six (6) separate occasions after the accident he passed
the required CAA physical examination for airmans certificate. (Exhs. 78, 79, 80,
81, 83 and 92). We noticed, however, that there were other similar physical
examinations conducted by the CAA on the person of plaintiff the report on which
were not presented in evidence. Obviously, only those which suited defendants cause
were hand-picked and offered in evidence.
cranad

cranad

We hesitate to accept the opinion of the defendants two physicians, considering that
Dr. Bernardo admittedly referred to Dr. Reyes because he could not determine the
cause of the dizzy spells and headache and the latter admitted that it is extremely
hard to be certain of the cause of his dizzy spells, and suggested a possibility that it
was due to postraumatic syndrome, evidently due to the injuries suffered by the
plaintiff in hitting the forehead against the windshield of the plane during the
accident. Judgment are not based on possibilities.
The admitted difficulty of defendants doctors in determining the cause of the dizzy
spells and headache cannot be a sound basis for finding against the plaintiff and in
favor of defendant. Whatever it might be, the fact is that such dizzy spells, headache
and general debility was an after-effect of the crash-landing. Be it brain injury or
psychosomatic, neurasthenic or psychogenic, there is no gainsaying the fact that it
was caused by the crash-landing. As an effect of the cause, not fabricated or
concocted, plaintiff has to be indemnified. The fact is that such effect caused his
discharge.
We are prone to believe the testimony of the plaintiffs doctors.
Dr. Morales, a surgeon, found that blood was coming from plaintiffs ears and nose.
He testified that plaintiff was suffering from cerebral concussion as a result of
traumatic injury to the brain caused by his head hitting on the windshield of the
plane during the crash-landing (Exhibit G).
cranad

Dr. Conrado Aramil, a neurologist and psychiatrist with experience in two hospitals
abroad, found abnormality reflected by the electroencephalogram examination in the
frontal area on both sides of plaintiffs head (Exhibits K, K-1).
cranad

The opinion of these two specialist renders unnecessary that of plaintiffs wife who is
a physician in her own right and because of her relation to the plaintiff, her testimony
and opinion may not be discussed here, although her testimony is crystallized by the
opinions of Dr. Ador Dionisio, Dr. Marquez, Dr. Jose O. Chan, Dr. Yambao and Dr.
Sandico.
Even the doctors presented by defendant admit vital facts about plaintiffs brain
injury. Dr. Bernardo admits that due to the incident, the plaintiff continuously
complained of his fainting spells, dizziness and headache everytime he flew as a copilot and everytime he went to defendants clinic no less than 25 times (Exhibits
15 to 36), that he complained of the same to Dr. Reyes; that he promised to help
send plaintiff to the United States for expert medical assistance provided that
whatever finding thereat should not be attributed to the crash-landing incident to
which plaintiff did not agree and that plaintiff was completely ignored by the
defendant in his plea for expert medical assistance. They admitted that they could
not determine definitely the cause of the fainting spells, dizziness and headache,
which justifies the demand for expert medical assistance.
cranad

We also find the imputation of gross negligence by respondent court to PAL for having
allowed Capt. Delfin Bustamante to fly on that fateful day of the accident on January 8,
1951 to be correct, and We affirm the same, duly supported as it is by substantial evidence,
clearly established and cited in the decision of said court which states as follows:
The pilot was sick. He admittedly had tumor of the nasopharynx (nose). He is now
in the Great Beyond. The spot is very near the brain and the eyes. Tumor on the spot
will affect the sinus, the breathing, the eyes which are very near it. No one will
certify the fitness to fly a plane of one suffering from the disease.
cranad

. . The fact First Pilot Bustamante has a long standing tumor of the Nasopharynx for
which reason he was grounded since November 1947 is admitted in the letter (Exh.
69-A) of Dr. Bernardo to the Medical Director of the CAA requesting waiver of
physical standards. The request for waiver of physical standards is itself a positive
proof that the physical condition of Capt. Bustamante is short of the standard set by
the CAA. The Deputy Administrator of the CAA granted the request relying on the
representation and recommendation made by Dr. Bernardo (See Exh. 69). We
noted, however, that the request (Exh. 69-A) says that it is believed that his
continuing to fly as a co-pilot does not involve any hazard. (Italics supplied). Flying
as a First Officer entails a very different responsibility than flying as a mere co-pilot.
Defendant requested the CAA to allow Capt. Bustamante to fly merely as a co-pilot
and it is safe to conclude that the CAA approved the request thus allowing
Bustamante to fly only as a co-pilot. For having allowed Bustamante to fly as a First
Officer on January 8, 1951, defendant is guilty of gross negligence and therefore
should be made liable for the resulting accident.
cra

cranad

cranad

cranad

cralaw

cranad

As established by the evidence, the pilot used to get treatments from Dr. Sycangco. He used
to complain of pain in the face more particularly in the nose which caused him to have
sleepless nights. Plaintiffs observation of the pilot was reported to the Chief Pilot who did
nothing about it. Captain Carbonel of the defendant corroborated plaintiff of this matter. The
complaint against the slow reaction of the pilot at least proved the observation. The
observation could be disregarded. The fact that the complaint was not in writing does not
detract anything from the seriousness thereof, considering that a miscalculation would not
only cause the death of the crew but also of the passengers.
One month prior to the crash-landing, when the pilot was preparing to land in Daet, plaintiff
warned him that they were not in the vicinity of Daet but above the town of Ligao. The
plane hit outside the airstrip. In another instance, the pilot would hit the Mayon Volcano had

not plaintiff warned him. These more than prove what plaintiff had complained of. Disregard
thereof by defendant is condemnable.
To bolster the claim that Capt. Bustamante has not suffered from any kind of sickness which
hampered his flying ability, appellant contends that for at least one or more years following
the accident of January 8, 1951, Capt. Bustamante continued to fly for defendant company
as a pilot, and did so with great skill and proficiency, and without any further accident or
mishap, citing tsn. pp. 756-765, January 20, 1965. We have painstakingly perused the
records, particularly the transcript of stenographic notes cited, but found nothing therein to
substantiate appellants contention. Instead, We discovered that the citation covers the
testimony of Dr. Bernardo on the physical condition of Bustamante and nothing about his
skills or proficiency to fly nor on the mishaps or accidents, matters which are beyond Dr.
Bernardos competence anyway.
Assuming that the pilot was not sick or that the tumor did not affect the pilot in managing
the plane, the evidence shows that the overshooting of the runway and crash-landing at the
mangrove was caused by the pilot for which acts the defendant must answer for damages
caused thereby. And for this negligence of defendants employee, it is liable (Joaquin vs.
Aniceto, 12 SCRA 308). At least, the law presumes the employer negligent imposing upon it
the burden of proving that it exercised the diligence of a good father of a family in the
supervision of its employees.
cranad

Defendant would want to tie plaintiff to the report he signed about the crash-landing. The
report was prepared by his pilot and because the latter pleaded that he had a family too and
would have nowhere to go if he lost his job, plaintiffs compassion would not upturn the
truth about the crash-landing. We are for the truth not logic of any argumentation.
At any rate, it is incorrect to say that the Accident Report (Exh. 12 & 12-A), signed by
plaintiff, exculpated Capt. Bustamante from any fault. We observed that the Report does not
categorically state that Capt. Bustamante was not at fault. It merely relates in chronological
sequence what Capt. Bustamante and plaintiff did from the take-off from Manila to the
landing in Daet which resulted in an accident. On the contrary, we may infer the negligence
of Bustamante from the following portion of the Report, to wit:
cranad

. . I felt his brakes strong but as we neared the intersection of the NE-SW runway,
the brakes were not as strong and I glanced at the system pressure which indicated
900 lbs. per sq. m.
cra

It was during the above precise instance that Capt. Bustamante lost his bearing and
disposition. Had he maintained the pressure on the brakes the plane would not have
overshot the runway. Verily, Bustamante displayed slow reaction and poor judgment. (CA
decision, pp. 8-12).
cranad

This Court is not impressed by, much less can We accept petitioners invocation to calibrate
once again the evidence testified to in detail and plucked from the voluminous transcript to
support petitioners own conclusion. It is not the task of this Court to discharge the
functions of a trier of facts much less to enter into a calibration of the evidence,
notwithstanding petitioners wail that the judgment of the respondent court is based entirely
on speculations, surmises and conjectures. We are convinced that respondent courts
judgment is supported by strong, clear and substantial evidence.
:onad

Petitioner is a common carrier 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, as defined in Art. 1732, New Civil Code. The law is clear in requiring a
common carrier to exercise the highest degree of care in the discharge of its duty and
business of carriage and transportation under Arts. 1733, 1755 and 1756 of the New Civil
Code. These Articles provide:

Art. 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of
each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in Articles
1734, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.
Art. 1755. A common carrier is bound to carry the passenger safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances.
Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in Articles 1733 and 1755.
The duty to exercise the utmost diligence on the part of common carriers is for the safety of
passengers as well as for the members of the crew or the complement operating the carrier,
the airplane in the case at bar. And this must be so for any omission, lapse or neglect
thereof will certainly result to the damage, prejudice, nay injuries and even death to all
aboard the plane, passengers and crew members alike.
Now to the damages. The Court of Appeals affirmed the award of damages made by the trial
court, stating that the damages awarded plaintiff by the lower court are in accordance with
the facts, law and jurisprudence. The court further observed that defendant-appellant is
still fortunate, considering that the unearned income was reckoned with only up to 1968 and
not up to the present as plaintiff-appellee is still living. Whatever mathematical error
defendant-appellant could show by abstract argumentation, the same must be compensated
by such deficiency of the damages awarded to plaintiff-appellee.
As awarded by the trial court, private respondent was entitled to P198,000.00 as unearned
income or compensatory damages; P50,000.00 for moral damages, P20,000.00 as
attorneys fees and P5,000.00 as expenses of litigation, or a total of P273,000.00.
The trial court arrived at the sum of P198,000.00 as unearned income or damages by
considering that respondent Samson could have continued to work as airline pilot for fifteen
more years, he being only 38 years at the time the services were terminated by the
defendant (PAL) and he would have earned P120,000.00 from 1954 to 1963 or a period of
ten (10) years at the rate of one thousand per month (P750.00 basic salary plus P300.00
extra pay for extra flying time and bonuses; and considering further that in 1964 the basic
pay of defendants pilot was increased to P12,000.00 annually, the plaintiff could have
earned from 1964 to 1968 the sum of P60,000.00 in the form of salaries and another
P18,000.00 as bonuses and extra pay for extra flying time at the same rate of P300 a
month, or a grand total of P198,000.00 for the entire period. This claim of the plaintiff for
loss or impairment of earning capacity is based on the provision of Article 2205 of the New
Civil Code of the Philippines which provides that damages may be recovered for loss or
impairment of earning capacity in cases of temporary or permanent personal injury. This
provision of law has been construed and interpreted in the case of Aureliano Ropato, et al.
vs. La Mallorca General Partnership, 56 O.G., 7812, which rules that law allows the recovery
of damages for loss or impairment of earning capacity in cases of temporary or permanent
personal injury.
(Decision, CFI, pp. 98-99, Record on Appeal)
cranad

cranad

cranad

chanroblesvirtualawlibrary

The respondent appellate court modified the above award by ordering payment of legal
interest on the P198,000.00 unearned income from the filing of the claim, citing Sec. 8, Rule
51 of the Rules of Court.

Petitioner assails the award of the total sum of P198,000.00 as unearned income up to 1968
as being tenuous because firstly, the trial courts finding affirmed by the respondent court is
allegedly based on pure speculation and conjecture and secondly, the award of P300.00 a
month as extra pay for extra flying time from 1954 to 1968 is likewise speculative. PAL
likewise rejects the award of moral damages in the amount of P50,000.00 on the ground
that private respondents action before the trial court does not fall under any of the cases
enumerated in the law (Art. 2219 of the New Civil Code) for which moral damages are
recoverable and that although private respondents action gives the appearance that it is
covered under quasi-delict as provided in Art. 21 of the New Civil Code, the definition of
quasi-delict in Art. 2176 of the New Civil Code expressly excludes cases where there is a
pre-existing contractual relation between the parties, as in the case under consideration,
where an employer-employee relationship existed between PAL and private respondent. It is
further argued that private respondents action cannot be deemed to be covered by Art. 21,
inasmuch as there is no evidence on record to show that PAL wilfully cause(d) loss or injury
to (private respondent) in a manner that is contrary to morals, good customs or public
policy . . Nor can private respondents action be considered analogous to either of the
foregoing, for the reasons are obvious that it is not.
(Memorandum of petitioner, pp.
418-421, Records)
cranad

cranad

cra

chanroble svirtualawlibrary

Having affirmed the gross negligence of PAL in allowing Capt. Delfin Bustamante to fly the
plane to Daet on January 8, 1951 whose slow reaction and poor judgment was the cause of
the crash-landing of the plane which resulted in private respondent Samson hitting his head
against the windshield and causing him injuries for which reason PAL terminated his services
and employment as pilot after refusing to provide him with the necessary medical treatment
of respondents periodic spells, headache and general debility produced from said injuries,
We must necessarily affirm likewise the award of damages or compensation under the
provisions of Art. 1711 and Art. 1712 of the New Civil Code which provide:
Art. 1711. Owners of enterprises and other employers are obliged to pay compensation for
the death or injuries to their laborers, workmen, mechanics or other employees, even
though the event may have been purely accidental or entirely due to a fortuitous cause, if
the death or personal injury arose out of and in the course of the employment. The
employer is also liable for compensation if the employee contracts any illness or disease
caused by such employment or as the result of the nature of the employment. If the mishap
was due to the employees own notorious negligence, or voluntary act, or drunkenness, the
employer shall not be liable for compensation. When the employees lack of due care
contributed to his death or injury, the compensation shall be equitably reduced.
Art. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and
the employer shall be solidarily liable for compensation. If a fellow-workers intentional or
malicious act is the only cause of the death or injury, the employer shall not be answerable,
unless it should be shown that the latter did not exercise due diligence in the selection or
supervision of the plaintiffs fellow-worker.
The grant of compensatory damages to the private respondent made by the trial court and
affirmed by the appellate court by computing his basic salary per annum at P750.00 a
month as basic salary and P300.00 a month for extra pay for extra flying time including
bonus given in December every year is justified. The correct computation however should
be P750 plus P300 x 12 months = P12,600 per annum x 10 years = P126,000.00 (not
P120,000.00 as computed by the court a quo). The further grant of increase in the basic pay
of the pilots to P12,000 annually for 1964 to 1968 totalling P60,000.00 and another
P18,000.00 as bonuses and extra pay for extra flying time at the same rate of P300.00 a
month totals P78,000.00. Adding P126,000.00 (1964 to 1968 compensation) makes a
grand total of P204,000.00 (not P198,000.00 as originally computed).
cranad

cranad

cranad

As to the grant of moral damages in the sum of P50,000.00 We also approve the same. We
have noted and considered the holding of the appellate court in the matter of bad faith on
the part of PAL, stated hereunder, this wise:
None of the essential facts material to the determination of the case have been
seriously assailed: the overshooting of runway and crash-landing into the
mangroves; the hitting of plaintiffs head to the front windshield of the plane; the
oozing of blood out of his ears, nose and mouth; the intermittent dizzy spells,
headaches and general debility thereafter for which he was discharged from his
employment; the condition of not to attribute the cause of the ailment to the crashlanding imposed in bad faith for a demanded special medical service abroad; and the
resultant brain injury which defendants doctors could not understand nor diagnose.
xxx
The act of defendant-appellant in unjustly refusing plaintiff-appellees demand for
special medical service abroad for the reason that plaintiff-appellees deteriorating
physical condition was not due to the accident violates the provisions of Article 19 of
the Civil Code on human relations to act with justice, give everyone his due, and
observe honesty and good faith.
(CA Resolution, pp. 151-152, Records)
chanroblesvirtualawlibrary

We reject the theory of petitioner that private respondent is not entitled to moral damages.
Under the facts found by the trial court and affirmed by the appellate court and under the
law and jurisprudence cited and applied, the grant of moral damages in the amount of
P50,000.00 is proper and justified.
The fact that private respondent suffered physical injuries in the head when the plane crashlanded due to the negligence of Capt. Bustamante is undeniable. The negligence of the
latter is clearly a quasi-delict and therefore Article 2219, (2) New Civil Code is applicable,
justifying the recovery of moral damages.
cranad

Even from the standpoint of the petitioner that there is an employer-employee relationship
between it and private respondent arising from the contract of employment, private
respondent is still entitled to moral damages in view of the finding of bad faith or malice by
the appellate court, which finding We hereby affirm, applying the provisions of Art. 2220,
New Civil Code which provides that willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith.
The justification in the award of moral damages under Art. 19 of the New Civil Code on
Human Relations which requires that every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith, as applied by respondent court is also well-taken and We hereby give Our
affirmance thereto.
With respect to the award of attorneys fees in the sum of P20,000.00 the same is likewise
correct. As pointed out in the decision of the Court of Appeals, the plaintiff is entitled to
attorneys fees because he was forced to litigate in order to enforce his valid
claim (Ganaban vs. Bayle, 30 SCRA 365; De la Cruz vs. De la Cruz, 22 SCRA 33; and many
others); defendant acted in bad faith in refusing plaintiffs valid claim (Filipino Pipe Foundry
Corporation vs. Central Bank, 23 SCRA 1044); and plaintiff was dismissed and was forced to
go to court to vindicate his right (Nadura vs. Benguet Consolidated, Inc., 5 SCRA 879).
cranad

cranad

cranad

We also agree with the modification made by the appellate court in ordering payment of
legal interest from the date judicial demand was made by Pilot Samson against PAL with the

filing of the complaint in the lower court. We affirm the ruling of the respondent court which
reads:
Lastly, the defendant-appellant claims that the legal rate of interest on the unearned
compensation should be computed from the date of the judgment in the lower court,
not from the filing of the complaint, citing a case where the issue raised in the
Supreme Court was limited to when the judgment was rendered in the lower court or
in the appellate court, which does not mean that it should not be computed from the
filing of the complaint.
Articles 1169, 2209 and 2212 of the Civil Code govern when interest shall be
computed. Thereunder interest begins to accrue upon demand, extrajudicial or
judicial. A complaint is a judicial demand (Cabarroguis vs. Vicente, 107 Phil. 340).
Under Article 2212 of the Civil Code, interest due shall earn legal interest from the
time it is judicially demanded, although the obligation may be silent upon this
point.
(CA Resolution, pp. 153-154, Records).
cranad

chanroble svirtualawlibrary

The correct amount of compensatory damages upon which legal interest shall accrue from
the filing of the complaint is P204,000.00 as herein computed and not P198,000.00.
WHEREFORE, in view of all the foregoing, the judgment of the appellate court is hereby
affirmed with slight modification in that the correct amount of compensatory damages is
P204,000.00. With costs against petitioner.
SO ORDERED.

FIRST DIVISION
[G.R. No. 153563. February 07, 2005]

NATIONAL TRUCKING AND FORWARDING CORPORATION, petitioner,

vs. LORENZO SHIPPING CORPORATION, respondent.
DECISION
QUISUMBING, J.:

For review on certiorari are the Decision dated January 16, 2002, of the
Court of Appeals, in CA-G.R. CV No. 48349, and its Resolution, of May 13,
2002, denying the motion for reconsideration of herein petitioner National
Trucking and Forwarding Corporation (NTFC). The impugned decision
affirmed in toto the judgment dated November 14, 1994 of the Regional Trial
Court (RTC) of Manila, Branch 53, in Civil Case No. 90-52102.
[1]

[2]

[3]

The undisputed facts, as summarized by the appellate court, are as

follows:

On June 5, 1987, the Republic of the Philippines, through the Department

of Health (DOH), and the Cooperative for American Relief Everywhere, Inc.
(CARE) signed an agreement wherein CARE would acquire from the United
States government donations of non-fat dried milk and other food products
from January 1, 1987 to December 31, 1989. In turn, the Philippines would
transport and distribute the donated commodities to the intended beneficiaries
in the country.
The government entered into a contract of carriage of goods with herein
petitioner National Trucking and Forwarding Corporation (NTFC). Thus, the
latter shipped 4,868 bags of non-fat dried milk through herein respondent
Lorenzo Shipping Corporation (LSC) from September to December 1988. The
consignee named in the bills of lading issued by the respondent was
Abdurahman Jama, petitioners branch supervisor in Zamboanga City.
On reaching the port of Zamboanga City, respondents agent, Efren
Ruste Shipping Agency, unloaded the 4,868 bags of non-fat dried milk and
delivered the goods to petitioners warehouse. Before each delivery, Rogelio
Rizada and Ismael Zamora, both delivery checkers of Efren Ruste Shipping
Agency, requested Abdurahman to surrender the original bills of lading, but
the latter merely presented certified true copies thereof. Upon completion of
each delivery, Rogelio and Ismael asked Abdurahman to sign the delivery
receipts. However, at times when Abdurahman had to attend to other
business before a delivery was completed, he instructed his subordinates to
sign the delivery receipts for him.
[4]

Notwithstanding the precautions taken, the petitioner allegedly did not

receive the subject goods. Thus, in a letter dated March 11, 1989, petitioner
NTFC filed a formal claim for non-delivery of the goods shipped through
respondent.
In its letter of April 26, 1989, the respondent explained that the cargo had
already been delivered to Abdurahman Jama. The petitioner then decided to
investigate the loss of the goods. But before the investigation was over,
Abdurahman Jama resigned as branch supervisor of petitioner.

Noting but disbelieving respondents insistence that the goods were

delivered, the government through the DOH, CARE, and NTFC as plaintiffs
filed an action for breach of contract of carriage, against respondent as
defendant, with the RTC of Manila.
After trial, the RTC resolved the case as follows:
WHEREFORE, judgment is hereby rendered in favor of the defendant and against the
plaintiffs, dismissing the latters complaint, and ordering the plaintiffs, pursuant to the
defendants counterclaim, to pay, jointly and solidarily, to the defendant, actual
damages in the amount of P50,000.00, and attorneys fees in the amount
of P70,000.00, plus the costs of suit.
SO ORDERED.

[5]

Dissatisfied with the foregoing ruling, herein petitioner appealed to the

Court of Appeals. It faulted the lower court for not holding that respondent
failed to deliver the cargo, and that respondent failed to exercise the
extraordinary diligence required of common carriers. Petitioner also assailed
the lower court for denying its claims for actual, moral, and exemplary
damages, and for awarding actual damages and attorneys fees to the
respondent.
[6]

The Court of Appeals found that the trial court did not commit any
reversible error. It dismissed the appeal, and affirmed the assailed decision in
toto.
Undaunted, petitioner now comes to us, assigning the following errors:
I
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO
APPRECIATE AND APPLY THE LEGAL STANDARD OF EXTRAORDINARY
DILIGENCE IN THE SHIPMENT AND DELIVERY OF GOODS TO THE
RESPONDENT AS A COMMON CARRIER, AS WELL AS THE
ACCOMPANYING LEGAL PRESUMPTION OF FAULT OR NEGLIGENCE ON
THE PART OF THE COMMON CARRIER, IF THE GOODS ARE LOST,
DESTROYED OR DETERIORATED, AS REQUIRED UNDER THE CIVIL CODE.

II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT SUSTAINED THE
BASELESS AND ARBITRARY AWARD OF ACTUAL DAMAGES AND
ATTORNEYS FEES INASMUCH AS THE ORIGINAL COMPLAINT WAS FILED
IN GOOD FAITH, WITHOUT MALICE AND WITH THE BEST INTENTION OF
PROTECTING THE INTEREST AND INTEGRITY OF THE GOVERNMENT AND
ITS CREDIBILITY AND RELATIONSHIP WITH INTERNATIONAL RELIEF
AGENCIES AND DONOR STATES AND ORGANIZATION.
[7]

The issues for our resolution are: (1) Is respondent presumed at fault or
negligent as common carrier for the loss or deterioration of the goods? and (2)
Are damages and attorneys fees due respondent?
Anent the first issue, petitioner contends that the respondent is presumed
negligent and liable for failure to abide by the terms and conditions of the bills
of lading; that Abdurahman Jamas failure to testify should not be held against
petitioner; and that the testimonies of Rogelio Rizada and Ismael Zamora, as
employees of respondents agent, Efren Ruste Shipping Agency, were biased
and could not overturn the legal presumption of respondents fault or
negligence.
For its part, the respondent avers that it observed extraordinary diligence
in the delivery of the goods. Prior to releasing the goods to Abdurahman,
Rogelio and Ismael required the surrender of the original bills of lading, and in
their absence, the certified true copies showing that Abdurahman was indeed
the consignee of the goods. In addition, they required Abdurahman or his
designated subordinates to sign the delivery receipts upon completion of each
delivery.
We rule for respondent.
Article 1733 of the Civil Code demands that a common carrier observe
extraordinary diligence over the goods transported by it. Extraordinary
diligence is that extreme measure of care and caution which persons of
unusual prudence and circumspection use for securing and preserving their
own property or rights. This exacting standard imposed on common carriers
[8]

[9]

in a contract of carriage of goods is intended to tilt the scales in favor of the

shipper who is at the mercy of the common carrier once the goods have been
lodged for shipment. Hence, in case of loss of goods in transit, the common
carrier is presumed under the law to have been at fault or negligent.
However, the presumption of fault or negligence, may be overturned by
competent evidence showing that the common carrier has observed
extraordinary diligence over the goods.
[10]

In the instant case, we agree with the court a quo that the respondent
adequately proved that it exercised extraordinary diligence. Although the
original bills of lading remained with petitioner, respondents agents
demanded from Abdurahman the certified true copies of the bills of lading.
They also asked the latter and in his absence, his designated subordinates, to
sign the cargo delivery receipts.
This practice, which respondents agents testified to be their standard
operating procedure, finds support in Article 353 of the Code of Commerce:
ART. 353. . . .
After the contract has been complied with, the bill of lading which the carrier has
issued shall be returned to him, and by virtue of the exchange of this title with the
thing transported, the respective obligations and actions shall be considered cancelled,
.
In case the consignee, upon receiving the goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or of any other cause, he must give
the latter a receipt for the goods delivered, this receipt producing the same effects
as the return of the bill of lading. (Emphasis supplied)
Conformably with the aforecited provision, the surrender of the original bill
of lading is not a condition precedent for a common carrier to be discharged of
its contractual obligation. If surrender of the original bill of lading is not
possible, acknowledgment of the delivery by signing the delivery receipt
suffices. This is what respondent did.

We also note that some delivery receipts were signed by Abdurahmans

subordinates and not by Abdurahman himself as consignee. Further, delivery
checkers Rogelio and Ismael testified that Abdurahman was always present at
the initial phase of each delivery, although on the few occasions when
Abdurahman could not stay to witness the complete delivery of the shipment,
he authorized his subordinates to sign the delivery receipts for him. This, to
our mind, is sufficient and substantial compliance with the requirements.
We further note that, strangely, petitioner made no effort to disapprove
Abdurahmans resignation until after the investigation and after he was
cleared of any responsibility for the loss of the goods. With Abdurahman
outside of its reach, petitioner cannot now pass to respondent what could be
Abdurahmans negligence, if indeed he were responsible.
On the second issue, petitioner submits there is no basis for the award of
actual damages and attorneys fees. It maintains that its original complaint for
sum of money with damages for breach of contract of carriage was not
fraudulent, in bad faith, nor malicious. Neither was the institution of the action
rash nor precipitate. Petitioner avers the filing of the action was intended to
protect the integrity and interest of the government and its relationship and
credibility with international relief agencies and donor states.
On the other hand, respondent maintains that petitioners suit was
baseless and malicious because instead of going after its absconding
employee, petitioner wanted to recoup its losses from respondent. The trial
court and the Court of Appeals were justified in granting actual damages and
reasonable attorneys fees to respondent.
On this point, we agree with petitioner.
The right to litigate should bear no premium. An adverse decision does
not ipso facto justify an award of attorneys fees to the winning party. When,
as in the instant case, petitioner was compelled to sue to protect the credibility
of the government with international organizations, we are not inclined to grant
attorneys fees. We find no ill motive on petitioners part, only an erroneous
belief in the righteousness of its claim.
[11]

Moreover, an award of attorneys fees, in the concept of damages under

Article 2208 of the Civil Code, requires factual and legal justifications. While
the law allows some degree of discretion on the part of the courts in awarding
attorneys fees and expenses of litigation, the discretion must be exercised
with great care approximating as closely as possible, the instances
exemplified by the law. We have searched but found nothing in petitioners
suit that justifies the award of attorneys fees.
[12]

[13]

Respondent failed to show proof of actual pecuniary loss, hence, no actual

damages are due in favor of respondent.
[14]

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed

decision and resolution of the Court of Appeals in CA-G.R. CV No. 48349
dated January 16, 2002 and May 13, 2002 respectively, denying petitioners
claim for actual, moral and exemplary damages are AFFIRMED. The award
of actual damages and attorneys fees to respondent pursuant to the latters
counterclaim in the trial court is DELETED.
SO ORDERED.
THIRD DIVISION
G.R. No. 155550

January 31, 2008

NORTHWEST AIRLINES, INC., petitioner,

vs.
STEVEN P. CHIONG, respondent.
DECISION
NACHURA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the
reversal of the Court of Appeals (CA) Decision1 in CA-G.R. CV No. 503082 which affirmed in
toto the Regional Trial Court (RTC) Decision3 holding petitioner Northwest Airlines, Inc.
(Northwest) liable for breach of contract of carriage.
On March 14, 1989, Philimare Shipping and Seagull Maritime Corporation (Philimare), as the
authorized Philippine agent of TransOcean Lines (TransOcean), hired respondent Steven
Chiong as Third Engineer of TransOceans vessel M/V Elbia at the San Diego, California Port.
Under the service crew agreement, Chiong was guaranteed compensation at a monthly salary

of US$440.00 and a monthly overtime pay of US$220.00, or a total of US$7,920.00 for one
year.
Subsequently, on March 27, 1989, Philimare dispatched a Letter of Guarantee to CL Hutchins &
Co., Inc., TransOceans agent at the San Diego Port, confirming Chiongs arrival thereat in time
to board the M/V Elbiawhich was set to sail on April 1, 1989 (California, United States time). For
this purpose, Philimare purchased for Chiong a Northwest plane ticket for San Diego, California
with a departure date of April 1, 1989 from Manila. Ten (10) days before his scheduled
departure, Chiong fetched his entire family from Samar and brought them to Manila to see him
off at the airport.
On April 1, 1989, Chiong arrived at the Manila International Airport4 (MIA), at about 6:30 a.m.,
three (3) hours before the scheduled time of departure. Marilyn Calvo, Philimares Liaison
Officer, met Chiong at the departure gate, and the two proceeded to the Philippine Coast Guard
(PCG) Counter to present Chiongs seaman service record book for clearance. Thereafter,
Chiongs passport was duly stamped, after complying with government requirements for
departing seafarers.
Calvo remained at the PCG Counter while Chiong proceeded to queue at the Northwest checkin counter. When it was Chiongs turn, the Northwest personnel5 informed him that his name did
not appear in the computers list of confirmed departing passengers. Chiong was then directed
to speak to a "man in barong" standing outside Northwests counters from whom Chiong could
allegedly obtain a boarding pass. Posthaste, Chiong approached the "man in barong" who
demanded US$100.00 in exchange therefor. Without the said amount, and anxious to board the
plane, Chiong queued a number of times at Northwests Check-in Counter and presented his
ticket. However, the Northwest personnel at the counter told him to simply wait and that he was
being a pest.
Frustrated, Chiong went to Calvo at the PCG counter and inquired if she had money so he could
obtain a boarding pass from the "man in barong." Calvo, who already saw that something was
amiss, insisted that Chiongs plane ticket was confirmed and as such, he could check-in
smoothly and board the plane without shelling out US$100.00 for a boarding pass. Ultimately,
Chiong was not allowed to board Northwest Flight No. 24 bound for San Diego that day and,
consequently, was unable to work at the M/V Elbia by April 1, 1989 (California, U.S.A. time).
It appears that Chiongs name was crossed out and substituted with "W. Costine" in Northwests
Air Passenger Manifest.6
In a letter dated April 3, 1989, Chiongs counsel demanded as recompense: (1) the amount
equivalent to Chiongs salary under the latters Crew Agreement7 with TransOcean;
(2) P15,000.00 for Chiongs expenses in fetching and bringing his family from Samar to Manila;
(3) P500,000.00 as moral damages; and (4) P500,000.00 as legal fees.8
Northwest demurred. Thus, on May 24, 1989, Chiong filed a Complaint for breach of contract of
carriage before the RTC. Northwest filed a Motion to Dismiss9 the complaint citing the trial

courts lack of jurisdiction over the subject matter of the case, but the trial court denied the
same.10
In its Answer,11 Northwest contradicted the claim that it breached its contract of carriage with
Chiong, reiterating that Chiong had no cause of action against it because per its records,
Chiong was a "no-show" passenger for Northwest Flight No. 24 on April 1, 1989.
In the RTCs Pre-trial Order12 based on the parties respective Pre-trial Briefs,13 the triable issues
were limited to the following:
(a) Whether [Chiong] was bumped-off by [Northwest] from Flight NW 24 or whether [Chiong]
"no-showed" for said flight.
(b) If defendant is found guilty of having breached its contract of carriage with plaintiff, what
damages are awardable to plaintiff and how much.

In the course of proceedings, Northwest, on September 14, 1990, filed a separate criminal
complaint for False Testimony14 against Chiong based on the latters testimony that he did not
leave the Philippines after April 1, 1989 contrary to the notations in his seaman service record
book that he had left the country on April 17, 1989, and returned on October 5 of the same year.
Chiong did not participate in the preliminary investigation; thus, on December 14, 1990, the City
Prosecutor of Manila filed an Information against Chiong with the RTC Manila, Branch 54,
docketed as Criminal Case No. 90-89722.
In the meantime, after a flurry of motions filed by Northwest in the civil case were denied by the
RTC, Northwest filed a Petition for Certiorari before the CA imputing grave abuse of discretion to
the RTC.15 Correlatively, Northwest moved for a suspension of the proceedings before the trial
court. However, both the Petition forCertiorari and Motion for Suspension of the proceedings
were denied by the CA and RTC, respectively.16
After trial, the RTC rendered a Decision finding preponderance of evidence in favor of Chiong,
and holding Northwest liable for breach of contract of carriage. The RTC ruled that the evidence
adduced by the parties supported the conclusion that Chiong was deliberately prevented from
checking-in and his boarding pass unjustifiably withheld to accommodate an American
passenger by the name of W. Costine.
The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, in consideration of all the foregoing, judgment is
hereby rendered, ordering the defendant liable to plaintiff in damages by reason of the
latters inability to take defendants NW Flight No. 24 on April 1, 1989, for the following
amounts:
1) U.S.$8,447.0017 or its peso equivalent at the time of finality of this judgment with
legal interests until fully paid, representing compensatory damages due to plaintiffs

loss of income for one (1) year as a direct result of defendants breach of contract of
carriage;
2) P15,000.00, Philippine Currency, representing plaintiffs actual incurred damages
as a consequence of his failure to avail of defendants Flight No. 24 on April 1, 1989;
3) P200,000.00, Philippine Currency, representing moral damages suffered and
sustained by the plaintiff as a result of defendants breach of contract of carriage;
4) P200,000.00, Philippine Currency, representing exemplary or punitive damages
due to plaintiff from defendant, owing to the latters breach of contract of carriage
with malice and fraud; and
5) P200,000.00, Philippine Currency, for and as attorneys fees, plus costs of suit.
SO ORDERED.

On appeal, the CA affirmed in toto the ruling of the RTC. Identical to the RTCs findings, those of
the CA were as follows: on April 1, 1989, Chiong was at the MIA three hours before the 10:15
a.m. departure time for Northwest Flight No. 24. Contrary to Northwests claim that Chiong was
a "no-show" passenger, the CA likewise concluded, as the RTC did, that Chiong was not
allowed to check-in and was not issued a boarding pass at the Northwest check-in counter to
accommodate a certain W. Costine. As for Northwests defense that Chiong had left the country
after April 1, 1989 and worked for M/V Elbia, the CA ruled that Northwests failure to raise this
defense in its Answer or Motion to Dismiss is equivalent to a waiver thereof. The CA declared
that, in any event, Northwest failed to present any evidence to prove that Chiong had worked
under the original crew agreement.
Hence, this recourse.
Northwest ascribes grievous errors to the CA when the appellate court ruled that: (1) Northwest
breached the contract of carriage with Chiong who was present at the MIA on April 1, 1989 to
board Northwests Flight No. 24; (2) As a result of the breach, Northwest is liable to Chiong for
compensatory, actual, moral and exemplary damages, attorneys fees, and costs of suit; and (3)
Northwests Exhibits "2" and "3," the Flight Manifest and the Passenger Name Record,
respectively, were hearsay evidence and ought to be excluded from the records.
The petition must fail.
We are in complete accord with the common ruling of the lower courts that Northwest breached
the contract of carriage with Chiong, and as such, he is entitled to compensatory, actual, moral
and exemplary damages, attorneys fees and costs of suit.
Northwest contends that Chiong, as a "no-show" passenger on April 1, 1989, already defaulted
in his obligation to abide by the terms and conditions of the contract of carriage;18 and thus,

Northwest could not have been in breach of its reciprocal obligation to transport Chiong. In sum,
Northwest insists that Chiongs testimony is a complete fabrication, supposedly demonstrated
by the following: (1) Chiongs seaman service record book reflects that he left the Philippines
after April 1, 1989, specifically on April 17, 1989, to board the M/V Elbia, and was discharged
therefrom upon his personal request; (2) the Information filed against Chiong for False
Testimony; and (3) the Flight Manifest and the Passenger Name Record both indicate that he
was a "no-show" passenger.
We are not convinced.
The records reveal that Chiong, as plaintiff in the trial court, satisfied the burden of proof
required in civil cases, i.e., preponderance of evidence. Section 1 of Rule 133 provides:
SECTION 1. Preponderance of evidence, how determined. In civil cases, the party having
the burden of proof must establish his case by a preponderance of evidence. In determining
where the preponderance or superior weight of evidence on the issues involved lies, the
court may consider all the facts and circumstance of the case, the witnesses manner of
testifying, their intelligence, their means and opportunity of knowing the facts to which they
are testifying, the nature of the facts to which they testify, the probability or improbability of
their testimony, their interest or want of interest, and also their personal credibility so far as
the same may legitimately appear upon the trial. The court may also consider the number of
witnesses, though preponderance is not necessarily with the greater number.

In this regard, the Court notes that, in addition to his testimony, Chiongs evidence consisted of
a Northwest ticket for the April 1, 1989 Flight No. 24, Chiongs passport and seaman service
record book duly stamped at the PCG counter, and the testimonies of Calvo, Florencio
Gomez,19 and Philippine Overseas Employment and Administration (POEA) personnel who all
identified the signature and stamp of the PCG on Chiongs passport.
We have scoured the records, and found no reason to depart from the well-settled rule that
factual findings of the lower courts deserve the utmost respect and are not to be disturbed on
appeal.20 Indeed, Chiongs Northwest ticket for Flight No. 24 on April 1, 1989, coupled with the
PCG stamps on his passport showing the same date, is direct evidence that he was present at
MIA on said date as he intended to fly to the United States on board that flight. As testified to by
POEA personnel and officers, the PCG stamp indicates that a departing seaman has passed
through the PCG counter at the airport, surrendered the exit pass, and complied with
government requirements for departing seafarers. Calvo, Philimares liaison officer tasked to
assist Chiong at the airport, corroborated Chiongs testimony on the latters presence at the MIA
and his check-in at the PCG counter without a hitch. Calvo further testified that she purposely
stayed at the PCG counter to confirm that Chiong was able to board the plane, as it was part of
her duties as Philimares liaison officer, to confirm with their principal, TransOcean in this case,
that the seafarer had left the country and commenced travel to the designated port where the
vessel is docked.21 Thus, she had observed that Chiong was unable to check-in and board
Northwest Flight No. 24, and was actually being given the run-around by Northwest personnel.

It is of no moment that Chiongs witnesses who all corroborated his testimony on his presence
at the airport on, and flight details for, April 1, 1989, and that he was subsequently bumped-off
are, likewise, employees of Philimare which may have an interest in the outcome of this case.
We intoned in Philippine Airlines, Inc. v. Court of Appeals,22 thus:
(T)his Court has repeatedly held that a witness relationship to the victim does not
automatically affect the veracity of his or her testimony. While this principle is often
applied in criminal cases, we deem that the same principle may apply in this case, albeit civil
in nature. If a witness relationship with a party does not ipso facto render him a biased
witness in criminal cases where the quantum of evidence required is proof beyond
reasonable doubt, there is no reason why the same principle should not apply in civil
cases where the quantum of evidence is only preponderance of evidence.

The foregoing documentary and testimonial evidence, taken together, amply establish the fact
that Chiong was present at MIA on April 1, 1989, passed through the PCG counter without
delay, proceeded to the Northwest check-in counter, but when he presented his confirmed ticket
thereat, he was not issued a boarding pass, and ultimately barred from boarding Northwest
Flight No. 24 on that day.
In stark contrast is Northwests bare-faced claim that Chiong was a "no-show" passenger, and
was scheduled to leave the country only on April 17, 1989. As previously discussed, the records
belie this assertion. It is also noteworthy that Northwest did not present any evidence to support
its belated defense that Chiong departed from the Philippines on April 17, 1989 to work as Third
Engineer on board M/V Elbia under the original crew agreement.
It is true that Chiongs passport and seaman service record book indicate that he had left the
country on April 17, 1989 and come back on October 5 of the same year. However, this
evidence fails to debunk the facts established to have transpired on April 1, 1989, more
particularly, Chiongs presence at the airport and his subsequent bumping-off by Northwest
despite a confirmed ticket. Although initially, the burden of proof was with Chiong to prove that
there was a breach of contract of carriage, the burden of evidence shifted to Northwest when
Chiong adduced sufficient evidence to prove the facts he had alleged. At that point, Northwest
had the burden of going forward23 to controvert Chiongs prima facie case. As the party asserting
that Chiong was a "no-show" passenger, Northwest then had the burden of evidence to
establish its claim. Regrettably, Northwest failed to do so.
Furthermore, it has not escaped our attention that Northwest, despite the declaration in its PreTrial Brief, did not present as a witness their check-in agent on that contentious date.24 This
omission was detrimental to Northwests case considering its claim that Chiong did not check-in
at their counters on said date. It simply insisted that Chiong was a "no-show" passenger and
totally relied on the Flight Manifest, which, curiously, showed a horizontal line drawn across
Chiongs name, and the name W. Costine written above it. The reason for the insertion, or for
Chiongs allegedly being a "no-show" passenger, is not even recorded on the remarks column of
the Flight Manifest beside the Passenger Name column. Clearly, the categorical declaration of
Chiong and his other witnesses, coupled with the PCG stamp on his passport and seaman

service record book, prevails over Northwests evidence, particularly the Flight Manifest. Thus,
we are perplexed why, despite the evidence presented by Chiong, and the RTCs specific order
to Northwests counsel to present the person(s) who prepared the Flight Manifest and
Passenger Name Record for a proper identification of, and to testify on, those documents,
Northwest still insisted on presenting Gonofredo Mendoza and Amelia Meris who were,
admittedly, not competent to testify thereon.25
In its desperate attempt to evade liability for the breach, Northwest claims that Chiong worked
at M/V Elbia when he left the Philippines on April 17, 1989. The argument was not only belatedly
raised, as we have repeatedly stated, but is off-tangent.
On this point, we uphold the RTCs and CAs ruling that the failure of Northwest to raise the
foregoing defense in its Motion to Dismiss or Answer constituted a waiver thereof. Section 1,
Rule 9 of the Rules of Court provides:
SECTION 1. Defenses and objections not pleaded. Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived. However,
when it appears from the pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action pending between the same
parties for the same cause, or that the action is barred by a prior judgment or by statute of
limitations, the court shall dismiss the claim. (Emphasis supplied)

Similarly, Section 8, Rule 15 of the Rules of Court reads:

SECTION 8. Omnibus Motion. Subject to the provisions of section 1 of Rule 9, a motion
attacking a pleading, order, judgment, or proceeding shall include all objections then
available, and all objections not so included shall be deemed waived.

Moreover, Northwest paints a scenario that ostensibly transpired on a different date. Even if
Chiong left the Philippines on April 17, 1989, it would not necessarily prove that Chiong was a
"no-show" on April 1, 1989. Neither does it negate the already established fact that Chiong had
a confirmed ticket for April 1, 1989, and first passed through the PCG counter without delay,
then reached and was at the Northwest check-in counters on time for the scheduled flight.
Essentially, Northwest argues that Chiong was a "no-show" passenger on two (2) separate
occasions, March 28 and April 1, 1989 because he was actually scheduled to depart for the US
on April 17, 1989 as ostensibly evidenced by his passport and seaman record book. Had this
new matter alleged been proven by Northwest, it would prevent or bar recovery by Chiong.
Unfortunately, Northwest was unsuccessful in proving not only the "no-show" claim, but that
Chiong, likewise, worked under the original crew agreement.
Northwest likewise insists now that there is a pending criminal case for False Testimony
against Chiong that a falsified part of Chiongs testimony would indicate the falsity of his entire
testimony, consistent with the "falsus in uno, falsus in omnibus"26 doctrine. Following Northwests

flawed logic, this would invariably lead to the conclusion that the corroborating testimonies of
Chiongs witnesses are also false.
The legal maxim falsus in uno, falsus in omnibus, cited by Northwest, is not a positive rule of
law and is not strictly applied in this jurisdiction. Before this maxim can be applied, the witness
must be shown to have willfully falsified the truth on one or more material points. The principle
presupposes the existence of a positive testimony on a material point contrary to subsequent
declarations in the testimony. However, the records show that Chiongs testimony did not
contain inconsistencies on what occurred on April 1, 1989. Yet, Northwest never even attempted
to explain or impugn the evidence that Chiong passed through the PCG counter on April 1,
1989, and that his passport was accordingly stamped, obviously for purposes of his departure
on that day.
As to the criminal case, it is well to note that there is no final determination, as yet, of Chiongs
guilt by the courts. But even if Chiong is adjudged guilty, it will have little effect on the outcome
of this case. As we held in Leyson v. Lawa:27
The testimony of a witness must be considered in its entirety instead of in truncated parts.
The technique in deciphering a testimony is not to consider only its isolated parts and anchor
a conclusion on the basis of said parts. In ascertaining the facts established by a witness,
everything stated by him on direct, cross and redirect examinations must be calibrated and
considered.
It must be stressed that facts imperfectly or erroneously stated in answer to one question
may be supplied or explained as qualified by his answer to other question. The
principle falsus in uno, falsus in omnibus is not strictly applied in this jurisdiction. The
doctrine deals only with the weight of evidence and is not a positive rule of law, and the
same is not an inflexible one of universal application. The testimony of a witness can be
believed as to some facts and disbelieved as to others:
xxxx
Professor Wigmore gives the following enlightening commentary:
It may be said, once for all, that the maxim is in itself worthless first, in point of
validity, because in one form it merely contains in loose fashion a kernel of truth
which no one needs to be told, and in the others, it is absolutely false as a maxim of
life; and secondly, in point of utility, because it merely tells the jury what they may do
in any event, not what they must do or must not do, and therefore it is a superfluous
form of words. It is also in practice pernicious, first, because there is frequently a
misunderstanding of its proper force, and secondly, because it has become in the
hands of many counsel a mere instrument for obtaining new trials upon points wholly
unimportant in themselves.

From the foregoing disquisition, the ineluctable conclusion is that Northwest breached its
contract of carriage with Chiong.

Time and again, we have declared that a contract of carriage, in this case, air transport, is
primarily intended to serve the traveling public and thus, imbued with public interest. The law
governing common carriers consequently imposes an exacting standard of conduct. As the
aggrieved party, Chiong only had to prove the existence of the contract and the fact of its nonperformance by Northwest, as carrier, in order to be awarded compensatory and actual
damages.
We reiterate that Northwest failed to prove its claim that Chiong worked on M/V Elbia from April
17 to October 5, 1989 under the original crew agreement. Accordingly, we affirm the lower
courts finding on Chiongs entitlement to actual and compensatory damages.
We, likewise, uphold the findings of both courts on Northwests liability for moral and exemplary
damages, and attorneys fees.
Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in breaches
of contract, is in order upon a showing that the defendant acted fraudulently or in bad faith. Bad
faith does not simply connote bad judgment or negligence.28 It imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong.29 It means breach of a known duty
through some motive, interest or ill will that partakes of the nature of fraud.30 Bad faith is in
essence a question of intention.31
In the case at bench, the courts carefully examined the evidence as to the conduct and outward
acts of Northwest indicative of its inward motive. It is borne out by the records that Chiong was
given the run-around at the Northwest check-in counter, instructed to deal with a "man
in barong" to obtain a boarding pass, and eventually barred from boarding Northwest Flight No.
24 to accommodate an American, W. Costine, whose name was merely inserted in the Flight
Manifest, and did not even personally check-in at the counter.32
Under the foregoing circumstances, the award of exemplary damages is also correct given the
evidence that Northwest acted in an oppressive manner towards Chiong.33
As for the award of attorneys fees, while we recognize that it is sound policy not to set a
premium on the right to litigate,34 we sustain the lower courts award thereof.
Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to
protect his interest,35 or where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiffs plainly valid, just and demandable claim.36 In the case at bench, Northwest
deliberately breached its contract of carriage with Chiong and then repeatedly refused to satisfy
Chiongs valid, just and demandable claim. This unjustified refusal constrained Chiong to not
only lose income under the crew agreement, but to further incur expenses and exert effort for
almost two (2) decades in order to protect his interests and vindicate his right. Therefore, this
Court deems it just and equitable to grant Chiong P200,000.00 as attorneys fees. The award is
reasonable in view of the time it has taken for this case to be resolved.37

Finally, the issue of the exclusion of Northwests Exhibits "2" and "3" need not detain us long.
Suffice it to state that the RTC and CA correctly excluded these documents as hearsay
evidence. We quote with favor the CAs holding thereon, thus:
As a rule, "entries made at, or near the time of the transactions to which they refer, by a
person deceased, or unable to testify, who was in a position to know the facts therein stated,
may be received as prima facie evidence, if such person made the entries in his professional
capacity or in the performance of a duty and in the ordinary or regular course of business or
duty". [Rule 130, Section 43, Revised Rules of Court]
Otherwise stated, in order to be admissible as entries in the course of business, it is
necessary that: (a) the person who made the entry must be dead or unable to testify; (b) the
entries were made at or near the time of the transactions to which they refer; (c) the entrant
was in a position to know the facts stated in the entries; (d) the entries were made in his
professional capacity or in the performance of a duty; and (e) the entries were made in the
ordinary or regular course of business or duty.
Tested by these requirements, we find the manifest and passenger name record to be mere
hearsay evidence. While there is no necessity to bring into court all the employees who
individually made the entries, it is sufficient that the person who supervised them while they
were making the entries testify that the account was prepared under his supervision and that
the entries were regularly entered in the ordinary course of business. In the case at bench,
while MENDOZA was the supervisor on-duty on April 1, 1989, he has no personal
knowledge of the entries in the manifest since he did not supervise the preparation
thereof. More importantly, no evidence was presented to prove that the employee who
made the entries was dead nor did the defendant-appellant set forth the
circumstances that would show the employees inability to testify.38

WHEREFORE, premises considered, the petition is hereby DENIED. The ruling of the Court of
Appeals in CA-G.R. CV No. 50308 is hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.

THIRD DIVISION
ABOITIZ SHIPPING
CORPORATION,
Petitioner,

- versus -

G.R. No. 168402

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,

NACHURA, and
REYES, JJ.
INSURANCE COMPANY OF
NORTH AMERICA,
Respondent.

Promulgated:
August 6, 2008

x--------------------------------------------------x
DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the
insurance claims by the assured. As subrogee, the insurer steps into the shoes of
the assured and may exercise only those rights that the assured may have against
the wrongdoer who caused the damage.
Before Us is a petition for review on certiorari of the Decision[1] of the
Court of Appeals (CA) which reversed the Decision [2] of the Regional Trial Court
(RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum
of P280,176.92 plus interest and attorneys fees in favor of respondent Insurance
Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated
and/or Subsidiary Companies (MSAS) procured a marine insurance policy from
respondent ICNA UK Limited of London. The insurance was for a transshipment
of certain wooden work tools and workbenches purchased for the consignee
Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon
Lahug, Cebu City, Philippines.[3] ICNA issued an all-risk open marine policy,
[4]
stating:

This Company, in consideration of a premium as agreed and

subject to the terms and conditions printed hereon, does insure for
MSAS Cargo International Limited &/or Associated &/or Subsidiary
Companies on behalf of the title holder: Loss, if any, payable to the
Assured or order.[5]

The cargo, packed inside one container van, was shipped freight prepaid
from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading[6] was
issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center,
Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on
board M/S Vigour Singapore. On July 18, 1993, the ship arrived and docked at the
Manila International Container Port where the container van was again offloaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping
Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz
Transport System. The bill of lading[7] issued by Aboitiz contained the notation
grounded outside warehouse.
The container van was stripped and transferred to another crate/container
van without any notation on the condition of the cargo on the Stuffing/Stripping
Report.[8] OnAugust 1, 1993, the container van was loaded on board petitioners
vessel,
MV
Super
Concarrier
I. The
vessel
left Manila en
route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a
receiving apron of the Cebu International Port. It was then brought to the Cebu
Bonded Warehousing Corporation pending clearance from the Customs authorities.
In the Stripping Report[9] dated August 5, 1993, petitioners checker noted that the
crates were slightly broken or cracked at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the
consignee, Science Teaching Improvement Project (STIP) and delivered
to Don Bosco TechnicalHigh School, Punta Princesa, Cebu City. It was received
by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head

of petitioner, received a telephone call from Willig informing him that the cargo
sustained water damage. Perez, upon receiving the call, immediately went to the
bonded warehouse and checked the condition of the container and other cargoes
stuffed in the same container. He found that the container van and other cargoes
stuffed there were completely dry and showed no sign of wetness.[10]

Perez found that except for the bottom of the crate which was slightly
broken, the crate itself appeared to be completely dry and had no water marks. But
he confirmed that the tools which were stored inside the crate were already
corroded. He further explained that the grounded outside warehouse notation in
the bill of lading referred only to the container van bearing the cargo.[11]
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage
noticed upon opening of the cargo.[12] The letter stated that the crate was broken at
its bottom part such that the contents were exposed. The work tools and
workbenches were found to have been completely soaked in water with most of the
packing cartons already disintegrating. The crate was properly sealed off from the
inside with tarpaper sheets. On the outside, galvanized metal bands were nailed
onto all the edges. The letter concluded that apparently, the damage was caused by
water entering through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance
claims. On August 21, 1993, the Claimsmen Adjustment Corporation (CAC)
conducted an ocular inspection and survey of the damage. CAC reported to ICNA
that the goods sustained water damage, molds, and corrosion which were
discovered upon delivery to consignee.[13]
On September 21, 1993, the consignee filed a formal claim[14] with Aboitiz in
the amount of P276,540.00 for the damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander

In a Supplemental Report dated October 20, 1993,[15] CAC reported to ICNA

that based on official weather report from the Philippine Atmospheric, Geophysical
and Astronomical Services Administration, it would appear that heavy rains on
July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the

shipment
was
placed
outside
the
warehouse
of
Pier
No.
4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment
was placed outside the warehouse as can be gleaned from the bill of lading issued
by Aboitiz which contained the notation grounded outside warehouse. It was
only on July 31, 1993 when the shipment was stuffed inside another container van
for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the
amount of P280,176.92 to consignee. A subrogation receipt was duly signed by
Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt
executed in its favor. Despite follow-ups, however, no reply was received from
Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages
in the sum of P280,176.92, plus interest and attorneys fees.[16] ICNA alleged that
the damage sustained by the shipment was exclusively and solely brought about by
the fault and negligence of Aboitiz when the shipment was left grounded outside its
warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual
and legal bases. It countered that the complaint stated no cause of action, plaintiff
ICNA had no personality to institute the suit, the cause of action was barred, and
the suit was premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The
dispositive portion of the decision[17] states:
WHEREFORE, premises considered, the court holds that plaintiff
is not entitled to the relief claimed in the complaint for being baseless
and without merit. The complaint is hereby DISMISSED. The
defendants counterclaims are, likewise, DISMISSED for lack of basis. [18]

The RTC ruled that ICNA failed to prove that it is the real party-in-interest
to pursue the claim against Aboitiz. The trial court noted that Marine Policy No.

87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime
Street, London EC3M 7NA. However, complainant ICNA Phils. did not present
any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA
UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils. claim
that it had been subrogated to the rights of the consignee must fail because the
subrogation receipt had no probative value for being hearsay
evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by
Insurance Company of North America (U.K.) Limited (ICNA UK) with
address at Cigna House, 8 Lime Street, London EC3M 7NA, no
evidence has been adduced which would show that ICNA UK is the same
as or the predecessor-in-interest of plaintiff Insurance Company of
North America ICNA with office address at Cigna-Monarch Bldg., dela
Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that
ICNA UK assigned the Marine Policy to ICNA. Second, the assured in
the Marine Policy appears to be MSAS Cargo International Limited &/or
Associated &/or Subsidiary Companies. Plaintiffs witness, Francisco
B. Francisco, claims that the signature below the name MSAS Cargo
International is an endorsement of the marine policy in favor of Science
Teaching Improvement Project. Plaintiffs witness, however, failed to
identify whose signature it was and plaintiff did not present on the
witness stand or took (sic) the deposition of the person who made that
signature. Hence, the claim that there was an endorsement of the
marine policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights
and interest of Science Teaching Improvement Project as shown by the
Subrogation Form (Exhibit K) allegedly signed by a representative of
Science Teaching Improvement Project. Such representative, however,
was not presented on the witness stand. Hence, the Subrogation Form is
self-serving and has no probative value.[19] (Emphasis supplied)

The trial court also found that ICNA failed to produce evidence that it was a
foreign corporation duly licensed to do business in the Philippines. Thus, it lacked
the capacity to sue before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint
that it is a foreign insurance company duly authorized to do business

in the Philippines. This allegation was, however, denied by the

defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the
issues defined by the court is whether or not the plaintiff has legal
capacity to sue and be sued. Under Philippine law, the condition is that
a foreign insurance company must obtain licenses/authority to do
business in the Philippines. These licenses/authority are obtained
from the Securities and Exchange Commission, the Board of
Investments and the Insurance Commission. If it fails to obtain these
licenses/authority, such foreign corporation doing business in
the Philippines cannot sue before Philippine courts. Mentholatum Co.,
Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)

CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider
that its cause of action is anchored on the right of subrogation under Article 2207
of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as
made known in the dorsal portion of the Open Policy.[20]
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It
argued that the formal claim was not filed within the period required under Article
366 of the Code of Commerce; that ICNA had no right of subrogation because the
subrogation receipt should have been signed by MSAS, the assured in the open
policy, and not Willig, who is merely the representative of the consignee.

On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing
as follows:
WHEREFORE, premises considered, the present appeal is hereby
GRANTED. The appealed decision of the Regional Trial Court of
Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET
ASIDE. A new judgment is hereby rendered ordering defendantappellee Aboitiz Shipping Corporation to pay the plaintiff-appellant
Insurance Company of North America the sum of P280,176.92 with
interest thereon at the legal rate from the date of the institution of this
case until fully paid, and attorneys fees in the sum of P50,000, plus the
costs of suit.[21]

The CA opined that the right of subrogation accrues simply upon payment
by the insurance company of the insurance claim. As subrogee, ICNA is entitled to
reimbursement from Aboitiz, even assuming that it is an unlicensed foreign
corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the
complaint as legally untenable. Even assuming arguendo that the
plaintiff-insurer in this case is an unlicensed foreign corporation, such
circumstance will not bar it from claiming reimbursement from the
defendant carrier by virtue of subrogation under the contract of insurance
and as recognized by Philippine courts. x x x
xxxx
Plaintiff insurer, whether the foreign company or its duly authorized
Agent/Representative in the country, as subrogee of the claim of the
insured under the subject marine policy, is therefore the real party in
interest to bring this suit and recover the full amount of loss of the
subject cargo shipped by it from Manila to the consignee in Cebu City. x
x x[22]

The CA ruled that the presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. Hence, the trial
court erred in dismissing the complaint and in not finding that based on the
evidence on record and relevant provisions of law, Aboitiz is liable for the loss or
damage sustained by the subject cargo.

Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE
OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT
OF SUBROGATION BUT WITHOUT CONSIDERING THE

ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE

FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE
PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF
COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE
BY A WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY
FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED
AGENT OF THE INSURANCE COMPANY OF NORTH
AMERICA (U.K.) (ICNA UK).
(3) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR
IN
RULING
THAT
THERE
WAS PROPER INDORSEMENT OF THE INSURANCE
POLICYFROM THE ORIGINAL ASSURED MSAS CARGO
INTERNATIONAL LIMITED (MSAS) IN FAVOR OF THE
CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT
ISSUED BY STIP IN FAVOR OF ICNA IS VALID
NOTWITHSTANDING
THE FACT THAT
IT HAS NO
PROBATIVE VALUE AND IS MERELY HEARSAY AND A
SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO
PRESENT
A
REPRESENTATIVE
OF
STIP
TO
IDENTIFY AND AUTHENTICATE THE SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR
IN
RULING
THAT
THE
EXTENT AND KIND OF DAMAGE SUSTAINED BY THE
SUBJECT CARGO WAS CAUSED BY THE FAULT OR
NEGLIGENCE OF ABOITIZ.[23] (Underscoring supplied)

Elsewise stated, the controversy rotates on three (3) central questions: (a) Is
respondent ICNA the real party-in-interest that possesses the right of subrogation
to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of
the notice of claim as required under Article 366 of the Code of Commerce? (c) If
so, can petitioner be held liable on the claim for damages?
Our Ruling

We answer the triple questions in the affirmative.

A foreign corporation not licensed to do business in the Philippines is
not absolutely incapacitated from filing a suit in local courts. Only when that
foreign corporation is transacting or doing business in the country will a
license be necessary before it can institute suits. [24] It may, however, bring suits on
isolated business transactions, which is not prohibited under Philippine law.
[25]
Thus, this Court has held that a foreign insurance company may sue in
Philippine courts upon the marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even if it has no
license to do business in this country. It is the act of engaging in business without
the prescribed license, and not the lack of license per se, which bars a foreign
corporation from access to our courts.[26]
In any case, We uphold the CA observation that while it was the ICNA UK
Limited which issued the subject marine policy, the present suit was filed by the
said companys authorized agent in Manila. It was the domestic corporation that
brought the suit and not the foreign company. Its authority is expressly provided
for in the open policy which includes the ICNA office in the Philippines as one of
the foreign companys agents.
As found by the CA, the RTC erred when it ruled that there was no proper
indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of
Don Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured
goods, to be brought against ICNA UK, the company who issued the insurance, or
against any of its listed agents worldwide. [27] MSAS accepted said provision when
it signed and accepted the policy. The acceptance operated as an acceptance of the
authority of the agents. Hence, a formal indorsement of the policy to the agent in
the Philippines was unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and
subject to the terms and conditions printed hereon, does insure MSAS

Cargo International Limited &/or Associates &/or Subsidiary Companies

in behalf of the title holder: Loss, if any, payable to the Assured or
Order.

The policy benefits any subsequent assignee, or holder, including the

consignee, who may file claims on behalf of the assured. This is in keeping with
Section 57 of the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of
whosoever, during the continuance of the risk, may become the owner of
the interest insured. (Emphasis added)

Respondents cause of action is founded on it being subrogated to the

rights of the consignee of the damaged shipment. The right of subrogation
springs from Article 2207 of the Civil Code, which states:
Article 2207. If the plaintiffs property has been insured, and he
has received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury. (Emphasis
added)

As this Court held in the case of Pan Malayan Insurance Corporation v.

Court of Appeals,[28] payment by the insurer to the assured operates as an equitable
assignment of all remedies the assured may have against the third party who
caused the damage. Subrogation is not dependent upon, nor does it grow out of,
any privity of contract or upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer.[29]
Upon payment to the consignee of indemnity for damage to the insured
goods, ICNAs entitlement to subrogation equipped it with a cause of action against
petitioner in case of a contractual breach or negligence. [30] This right of
subrogation, however, has its limitations. First, both the insurer and the consignee

are bound by the contractual stipulations under the bill of lading. [31] Second, the
insurer can be subrogated only to the rights as the insured may have against the
wrongdoer. If by its own acts after receiving payment from the insurer, the insured
releases the wrongdoer who caused the loss from liability, the insurer loses its
claim against the latter.[32]
The giving of notice of loss or injury is a condition precedent to the
action for loss or injury or the right to enforce the carriers
liability. Circumstances peculiar to this case lead Us to conclude that the
notice requirement was complied with. As held in the case of Philippine
American General Insurance Co., Inc. v. Sweet Lines, Inc.,[33] this notice
requirement protects the carrier by affording it an opportunity to make an
investigation of the claim while the matter is still fresh and easily investigated. It
is meant to safeguard the carrier from false and fraudulent claims.

Under the Code of Commerce, the notice of claim must be made within
twenty four (24) hours from receipt of the cargo if the damage is not apparent from
the outside of the package. For damages that are visible from the outside of the
package, the claim must be made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the
merchandise, the claim against the carrier for damages or average which
may be found therein upon opening the packages, may be
made, provided that the indications of the damage or average which give
rise to the claim cannot be ascertained from the outside part of such
packages, in which case the claim shall be admitted only at the time of
receipt.
After the periods mentioned have elapsed, or the transportation
charges have been paid, no claim shall be admitted against the carrier
with regard to the condition in which the goods transported were
delivered. (Emphasis supplied)

The periods above, as well as the manner of giving notice may be modified
in the terms of the bill of lading, which is the contract between the

parties. Notably, neither of the parties in this case presented the terms for giving
notices of claim under the bill of lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter
informing the carrier of the damage was dated August 15, 1993, that letter, together
with the notice of claim, was received by petitioner only on September 21,
1993. But petitioner admits that even before it received the written notice of claim,
Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone
sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse
and to the delivery site to inspect the goods in behalf of petitioner.[34]

In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil

Lighterage Corporation,[35] the notice was allegedly made by the consignee
through telephone. The claim for damages was denied. This Court ruled that such
a notice did not comply with the notice requirement under the law. There was no
evidence presented that the notice was timely given. Neither was there evidence
presented that the notice was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case
that constrain Us to rule differently from the PCIC case, albeit this ruling is being
made pro hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition
precedent to the right of recovery from a carrier must be given a reasonable and
practical construction, adapted to the circumstances of the case under adjudication,
and their application is limited to cases falling fairly within their object and
purpose.[36]
Bernhard Willig, the representative of consignee who received the shipment,
relayed the information that the delivered goods were discovered to have sustained
water damage to no less than the Claims Head of petitioner, Mayo B.
Perez. Immediately, Perez was able to investigate the claims himself and he
confirmed that the goods were, indeed, already corroded.

Provisions specifying a time to give notice of damage to common carriers

are ordinarily to be given a reasonable and practical, rather than a strict
construction.[37] We give due consideration to the fact that the final destination of
the damaged cargo was a school institution where authorities are bound by rules
and regulations governing their actions. Understandably, when the goods were
delivered, the necessary clearance had to be made before the package was
opened. Upon opening and discovery of the damaged condition of the goods, a
report to this effect had to pass through the proper channels before it could be
finalized and endorsed by the institution to the claims department of the shipping
company.
The call to petitioner was made two days from delivery, a reasonable period
considering that the goods could not have corroded instantly overnight such that it
could only have sustained the damage during transit. Moreover, petitioner was
able to immediately inspect the damage while the matter was still fresh. In so
doing, the main objective of the prescribed time period was fulfilled. Thus, there
was substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the
consignee, is the real party in interest to institute the claim for damages against
petitioner; and pro hac vice, that a valid notice of claim was made by respondent.
We now discuss petitioners liability for the damages sustained by the
shipment. The rule as stated in Article 1735 of the Civil Code is that in cases
where 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 required by law.[38] Extraordinary
diligence is that extreme measure of care and caution which persons of unusual
prudence and circumspection use for securing and preserving their own property
rights.[39] This standard is intended to grant favor to the shipper who is at the
mercy of the common carrier once the goods have been entrusted to the latter for
shipment.[40]

Here, the shipment delivered to the consignee sustained water damage. We

agree with the findings of the CA that petitioner failed to overturn this
presumption:
x x x upon delivery of the cargo to the consignee Don Bosco
Technical High School by a representative from Trabajo Arrastre, and the
crates opened, it was discovered that the workbenches and work tools
suffered damage due to wettage although by then they were already
physically dry. Appellee carrier having failed to discharge the burden of
proving that it exercised extraordinary diligence in the vigilance over
such goods it contracted for carriage, the presumption of fault or
negligence on its part from the time the goods were unconditionally
placed in its possession (July 26, 1993) up to the time the same were
delivered to the consignee (August 11, 1993), therefore stands. The
presumption that the carrier was at fault or that it acted negligently was
not overcome by any countervailing evidence. x x x[41] (Emphasis
added)

The shipment arrived in the port of Manila and was received by petitioner
for carriage on July 26, 1993. On the same day, it was stripped from the container
van. Five days later, on July 31, 1993, it was re-stuffed inside another container
van. On August 1, 1993, it was loaded onto another vessel bound
for Cebu. During the period betweenJuly 26 to 31, 1993, the shipment was outside
a container van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation
grounded outside warehouse, suggesting that from July 26 to 31, the goods were
kept outside the warehouse. And since evidence showed that rain fell
over Manila during the same period, We can conclude that this was when the
shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more
than merely show the possibility that some other party could be responsible for the
damage. It must prove that it used all reasonable means to ascertain the nature
and characteristic of the goods tendered for transport and that it exercised due care
in handling them.[42] Extraordinary diligence must include safeguarding the
shipment from damage coming from natural elements such as rainfall.

Aside from denying that the grounded outside warehouse notation referred
not to the crate for shipment but only to the carrier van, petitioner failed to mention
where exactly the goods were stored during the period in question. It failed to
show that the crate was properly stored indoors during the time when it exercised
custody before shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the
surveyor has confirmed that it was rainwater that seeped into the cargo
based on official data from the PAGASA that there was, indeed, rainfall
in the Port Area of Manila from July 26 to 31, 1993. The Surveyor
specifically noted that the subject cargo was under the custody of
appellee carrier from the time it was delivered by the shipper on July 26,
1993 until it was stuffed inside Container No. ACCU-213798-4 on July
31, 1993. No other inevitable conclusion can be deduced from the
foregoing established facts that damage from wettage suffered by the
subject cargo was caused by the negligence of appellee carrier in
grounding the shipment outside causing rainwater to seep into the
cargoes.
Appellees witness, Mr. Mayo tried to disavow any responsibility
for causing wettage to the subject goods by claiming that the notation
GROUNDED OUTSIDE WHSE. actually refers to the container and
not the contents thereof or the cargoes. And yet it presented no evidence
to explain where did they place or store the subject goods from the time
it accepted the same for shipment on July 26, 1993 up to the time the
goods were stripped or transferred from the container van to another
container and loaded into the vessel M/V Supercon Carrier I on August
1, 1993 and left Manila for Cebu City on August 2, 1993. x x x If the
subject cargo was not grounded outside prior to shipment to Cebu City,
appellee provided no explanation as to where said cargo was stored
from July 26, 1993 to July 31, 1993. What the records showed is that
the subject cargo was stripped from the container van of the shipper and
transferred to the container onAugust 1, 1993 and finally loaded into the
appellees vessel bound for Cebu City on August 2, 1993. The
Stuffing/Stripping Report (Exhibit D) at the Manila port did not
indicate any such defect or damage, but when the container was stripped
upon arrival in Cebu City port after being discharged from appellees
vessel, it was noted that only one (1) slab was slightly broken at the

bottom allegedly hit by a forklift blade (Exhibit F). [43] (Emphasis

added)

Petitioner is thus liable for the water damage sustained by the goods due to
its failure to satisfactorily prove that it exercised the extraordinary diligence
required of common carriers.
WHEREFORE,
Decision AFFIRMED.

the

petition

is DENIED and

the

appealed

SO ORDERED.
THIRD DIVISION
G.R. No. 70876 July 19, 1990
MA. LUISA BENEDICTO, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and GREENHILLS WOOD INDUSTRIES COMPANY,
INC.respondents.
Britanico, Panganiban, Benitez, Africa, Linsangan and Barinaga for petitioner.
Abelardo V. Viray for private respondent.

FELICIANO, J.:
This Petition for Review asks us to set aside the Decision of the then Intermediate Appellate Court
dated 30 January 1985 in A.C.-G.R. CV No. 01454, which affirmed in toto the decision of the
Regional Trial Court ("RTC") of Dagupan City in Civil Case No. 5206. There, the RTC held petitioner
Ma. Luisa Benedicto liable to pay private respondent Greenhills Wood Industries Company, Inc.
("Greenhills") the amounts of P16,016.00 and P2,000.00 representing the cost of Greenhills' lost
sawn lumber and attorney's fees, respectively.
Private respondent Greenhills, a lumber manufacturing firm with business address at Dagupan City,
operates sawmill in Maddela, Quirino.
Sometime in May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany,
Inc., ("Blue Star") a company with business operations in Valenzuela, Bulacan 100,000 board feet of
sawn lumber with the understanding that an initial delivery would be made on 15 May 1980. 1 To
effect its first delivery, private respondent's resident manager in Maddela, Dominador Cruz, contracted

Virgilio Licuden, the driver of a cargo truck bearing Plate No. 225 GA TH to transport its sawn lumber to
the consignee Blue Star in Valenzuela, Bulacan. This cargo truck was registered in the name of petitioner
Ma. Luisa Benedicto, the proprietor of Macoven Trucking, a business enterprise engaged in hauling
freight, with main office in B.F. Homes, Paraaque.

On 15 May 1980, Cruz in the presence and with the consent of driver Licuden, supervised the
loading of 7,690 board feet of sawn lumber with invoice value of P16,918.00 aboard the cargo truck.
Before the cargo truck left Maddela for Valenzuela, Bulacan, Cruz issued to Licuden Charge Invoices
Nos. 3259 and 3260 both of which were initialed by the latter at the bottom left corner. 2 The first
invoice was for the amount of P11,822.80 representing the value of 5,374 board feet of sawn lumber,
while the other set out the amount of P5,095.20 as the value of 2,316 board feet. Cruz instructed Licuden
to give the original copies of the two (2) invoices to the consignee upon arrival in Valenzuela,
Bulacan 3 and to retain the duplicate copies in order that he could afterwards claim the freightage from
private respondent's Manila office. 4
On 16 May 1980, the Manager of Blue Star called up by long distance telephone Greenhills'
president, Henry Lee Chuy, informing him that the sawn lumber on board the subject cargo truck had
not yet arrived in Valenzuela, Bulacan. The latter in turn informed Greenhills' resident manager in its
Maddela saw-mill of what had happened. In a letter 5 dated 18 May 1980, Blue Star's administrative
and personnel manager, Manuel R. Bautista, formally informed Greenhills' president and general
manager that Blue Star still had not received the sawn lumber which was supposed to arrive on 15 May
1980 and because of this delay, "they were constrained to look for other suppliers."
On 25 June 1980, after confirming the above with Blue Star and after trying vainly to persuade it to
continue with their contract, private respondent Greenhill's filed Criminal Case No. 668 against driver
Licuden for estafa. Greenhills also filed against petitioner Benedicto Civil Case No. D-5206 for
recovery of the value of the lost sawn lumber plus damages before the RTC of Dagupan City.
In her answer, 6 petitioner Benedicto denied liability alleging that she was a complete stranger to the
contract of carriage, the subject truck having been earlier sold by her to Benjamin Tee, on 28 February
1980 as evidenced by a deed of sale. 7 She claimed that the truck had remained registered in her name
notwithstanding its earlier sale to Tee because the latter had paid her only P50,000.00 out of the total
agreed price of P68,000.00 However, she averred that Tee had been operating the said truck in Central
Luzon from that date (28 February 1980) onwards, and that, therefore, Licuden was Tee's employee and
not hers.
On 20 June 1983, based on the finding that petitioner Benedicto was still the registered owner of the
subject truck, and holding that Licuden was her employee, the trial court adjudged as follows:
WHEREFORE, in the light of the foregoing considerations, this Court hereby renders
judgment against defendant Maria Luisa Benedicto, ordering her to pay the
Greenhills Wood Industries Co. Inc., thru its President and General Manager, the
amount of P16,016 cost of the sawn lumber loaded on the cargo truck, with legal rate
of interest from the filing of the complaint to pay attorney's fees in the amount of
P2,000.00; and to pay the costs of this suit.
SO ORDERED. 8

On 30 January 1985, upon appeal by petitioner, the Intermediate Appellate Court affirmed 9 the
decision of the trial court in toto. Like the trial court, the appellate court held that since petitioner was the
registered owner of the subject vehicle, Licuden the driver of the truck, was her employee, and that
accordingly petitioner should be responsible for the negligence of said driver and bear the loss of the
sawn lumber plus damages. Petitioner moved for reconsideration, without success. 10
In the present Petition for Review, the sole issue raised is whether or not under the facts and
applicable law, the appellate court was correct in finding that petitioner, being the registered owner of
the carrier, should be held liable for the value of the undelivered or lost sawn lumber.
Petitioner urges that she could not be held answerable for the loss of the cargo, because the
doctrine which makes the registered owner of a common carrier vehicle answerable to the public for
the negligence of the driver despite the sale of the vehicle to another person, applies only to cases
involving death of or injury to passengers. What applies in the present case, according to petitioner,
is the rule that a contract of carriage requires proper delivery of the goods to and acceptance by the
carrier. Thus, petitioner contends that the delivery to a person falsely representing himself to be an
agent of the carrier prevents liability from attaching to the registered owner.
The Court considers that petitioner has failed to show that appellate court committed reversible error
in affirming the trial court's holding that petitioner was liable for the cost of the sawn lumber plus
damages.
There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged
in the business of hauling or transporting goods for hire or compensation. Petitioner Benedicto is, in
brief, a common carrier.
The prevailing doctrine on common carriers makes the registered owner liable for consequences
flowing from the operations of the carrier, even though the specific vehicle involved may already
have been transferred to another person. This doctrine rests upon the principle that in dealing with
vehicles registered under the Public Service Law, the public has the right to assume that the
registered owner is the actual or lawful owner thereof It would be very difficult and often impossible
as a practical matter, for members of the general public to enforce the rights of action that they may
have for injuries inflicted by the vehicles being negligently operated if they should be required to
prove who the actual owner is. 11 The registered owner is not allowed to deny liability by proving the
identity of the alleged transferee. Thus, contrary to petitioner's claim, private respondent is not required to
go beyond the vehicle's certificate of registration to ascertain the owner of the carrier. In this regard, the
letter presented by petitioner allegedly written by Benjamin Tee admitting that Licuden was his driver, had
no evidentiary value not only because Benjamin Tee was not presented in court to testify on this matter
but also because of the aforementioned doctrine. To permit the ostensible or registered owner to prove
who the actual owner is, would be to set at naught the purpose or public policy which infuses that
doctrine.
In fact, private respondent had no reason at all to doubt the authority of Licuden to enter into a
contract of carriage on behalf of the registered owner. It appears that, earlier, in the first week of May
1980, private respondent Greenhills had contracted Licuden who was then driving the same cargo
truck to transport and carry a load of sawn lumber from the Maddela sawmill to Dagupan City. 12 No

one came forward to question that contract or the authority of Licuden to represent the owner of the
carrier truck.

Moreover, assuming the truth of her story, petitioner Benedicto retained registered ownership of the
freight truck for her own benefit and convenience, that is, to secure the payment of the balance of
the selling price of the truck. She may have been unaware of the legal security device of chattel
mortgage; or she, or her buyer, may have been unwilling to absorb the expenses of registering a
chattel mortgage over the truck. In either case, considerations both of public policy and of equity
require that she bear the consequences flowing from registered ownership of the subject vehicle.
Petitioner Benedicto, however, insists that the said principle should apply only to cases involving
negligence and resulting injury to or death of passengers, and not to cases involving merely carriage
of goods. We believe otherwise.
A common carrier, both from the nature of its business and for insistent reasons of public policy, is
burdened by the law with the duty of exercising extraordinary diligence not only in ensuring the
safety of passengers but also in caring for goods transported by it. 13 The loss or destruction or
deterioration of goods turned over to the common carrier for conveyance to a designated destination,
raises instantly a presumption of fault or negligence on the part of the carrier, save only where such loss,
destruction or damage arises from extreme circumstances such as a natural disaster or calamity or act of
the public enemy in time of war, or from an act or omission of the shipper himself or from the character of
the goods or their packaging or container. 14
This presumption may be overcome only by proof of extraordinary diligence on the part of the
carrier. 15 Clearly, to permit a common carrier to escape its responsibility for the passengers or goods
transported by it by proving a prior sale of the vehicle or means of transportation to an alleged vendee
would be to attenuate drastically the carrier's duty of extraordinary diligence. It would also open wide the
door to collusion between the carrier and the supposed vendee and to shifting liability from the carrier to
one without financial capability to respond for the resulting damages. In other words, the thrust of the
public policy here involved is as sharp and real in the case of carriage of goods as it is in the transporting
of human beings. Thus, to sustain petitioner Benedicto's contention, that is, to require the shipper to go
behind a certificate of registration of a public utility vehicle, would be utterly subversive of the purpose of
the law and doctrine.
Petitioner further insists that there was no perfected contract of carriage for the reason that there
was no proof that her consent or that of Tee had been obtained; no proof that the driver, Licuden was
authorized to bind the registered owner; and no proof that the parties had agreed on the freightage
to be paid.
Once more, we are not persuaded by petitioner's arguments which appear to be a transparent
attempt to evade statutory responsibilities. Driver Licuden was entrusted with possession and control
of the freight truck by the registered owner (and by the alleged secret owner, for that matter). Driver
Licuden, under the circumstances, was clothed with at least implied authority to contract to carry
goods and to accept delivery of such goods for carriage to a specified destination. That the freight to
be paid may-not have been fixed before loading and carriage, did not prevent the contract of
carriage from arising, since the freight was at least determinable if not fixed by the tariff schedules in
petitioner's main business office. Put in somewhat different terms, driver Licuden is in law regarded
itc-asl

as the employee and agent of the petitioner, for whose acts petitioner must respond. A contract of
carriage of goods was shown; the sawn lumber was loaded on board the freight truck; loss or nondelivery of the lumber at Blue Star's premises in Valenzuela, Bulacan was also proven; and
petitioner has not proven either that she had exercised extraordinary diligence to prevent such loss
or non-delivery or that the loss or non-delivery was due to some casualty or force
majeure inconsistent with her liability. 16 Petitioner's liability to private respondent Greenhills was thus
fixed and complete, without prejudice to petitioner's right to proceed against her putative transferee
Benjamin Tee and driver Licuden for reimbursement or contribution. 17
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the former
Intermediate Appellate Court dated 30 January 1985 is hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

THIRD DIVISION

G.R. No. 98275 November 13, 1992

BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, REGIONAL TRIAL COURT OF ANGELES CITY, BRANCH LVI,
CARLOS OCAMPO, INOCENCIO TURLA, SPOUSES MOISES AGAPITO and SOCORRO M.
AGAPITO and NICOLAS CRUZ, respondents.

MELO, J.:
The question of petitioner's responsibility for damages when on March 6, 1983, an accident occurred
involving petitioner's Isuzu ten-wheeler truck then driven by an employee of Lino Castro is the thrust
of the petition for review on certiorari now before Us considering that neither the driver nor Lino
Castro appears to be connected with petitioner.
On October 13, 1988, the disputed decision in the suit below was rendered by the court of origin in
this manner:
1. Ordering Rock B.A. and Rogelio Villar y Amare jointly and severally to pay the
plaintiffs as follows:
a) To the plaintiff Carlos Ocampo P121,650.00;
b) To the plaintiff Moises Ocampo P298,500.00
c) To the plaintiff Nicolas Cruz P154,740.00

d) To the plaintiff Inocencio Turla, Sr. 48,000.00

2. Dismissing the case against Lino Castro
3. Dismissing the third-party complaint against STRONGHOLD
4. Dismissing all the counterclaim of the defendants and third-party defendants.
5. Ordering ROCK to reimburse B.A. the total amount of P622,890.00 which the latter
is adjudged to pay to the plaintiffs. (p. 46, Rollo)
Respondent Court of Appeals affirmed the appealed disposition in toto through Justice Rasul, with
Justices De Pano, Jr. and Imperial concurring, on practically the same grounds arrived at by the
court a quo (p. 28, Rollo). Efforts exerted towards re-evaluation of the adverse were futile (p.
37, Rollo). Hence, the instant petition.
The lower court ascertained after due trial that Rogelio Villar y Amare, the driver of the Isuzu truck,
was at fault when the mishap occurred in as much as he was found guilty beyond reasonable doubt
of reckless imprudence resulting in triple homicide with multiple physical injuries with damage to
property in a decision rendered on February 16, 1984 by the Presiding Judge of Branch 6 of the
Regional Trial Court stationed at Malolos, Bulacan. Petitioner was adjudged liable for damages in as
much as the truck was registered in its name during the incident in question, following the doctrine
laid down by this Court in Perez vs. Gutierrez (53 SCRA 149 [1973]) and Erezo, et al. vs. Jepte (102
Phil. 103 [1957]). In the same breadth, Rock Component Philippines, Inc. was ordered to reimburse
petitioner for any amount that the latter may be adjudged liable to pay herein private respondents as
expressly stipulated in the contract of lease between petitioner and Rock Component Philippines,
Inc. Moreover, the trial court applied Article 2194 of the new Civil Code on solidary accountability of
join tortfeasors insofar as the liability of the driver, herein petitioner and Rock Component Philippines
was concerned (pp. 6-7, Decision; pp. 44-45, Rollo).
To the question of whether petitioner can be held responsible to the victim albeit the truck was
leased to Rock Component Philippines when the incident occurred, the appellate court answered in
the affirmative on the basis of the jurisprudential dogmas which, as aforesaid, were relied upon by
the trial court although respondent court was quick to add the caveat embodied in the lease
covenant between petitioner and Rock Component Philippines relative to the latter's duty to
reimburse any amount which may be adjudged against petitioner (pp. 32-33, Rollo).
Petitioner asseverates that it should not have been haled to court and ordered to respond for the
damage in the manner arrived at by both the trial and appellate courts since paragraph 5 of the
complaint lodged by the plaintiffs below would indicate that petitioner was not the employer of the
negligent driver who was under the control an supervision of Lino Castro at the time of the accident,
apart from the fact that the Isuzu truck was in the physical possession of Rock Component
Philippines by virtue of the lease agreement.
Aside from casting clouds of doubt on the propriety of invoking the Perez and Erezo doctrines,
petitioner continue to persist with the idea that the pronouncements of this Court in Duavit vs. Court

of Appeals (173 SCRA 490 [1989]) and Duquillo vs. Bayot (67 Phil 131 [1939]) dovetail with the
factual and legal scenario of the case at hand. Furthermore, petitioner assumes, given the socalled hiatus on the basis for the award of damages as decreed by the lower and appellate courts,
that Article 2180 of the new Civil Code on vicarious liability will divest petitioner of any responsibility
absent as there is any employer-employee relationship between petitioner and the driver.
Contrary to petitioner's expectations, the recourse instituted from the rebuffs it encountered may not
constitute a sufficient foundation for reversal of the impugned judgment of respondent court.
Petitioner is of the impression that the Perez and Erezo cases are inapplicable due to the variance of
the generative facts in said cases as against those obtaining in the controversy at bar. A contrario,
the lesson imparted by Justice Labrador in Erezo is still good law, thus:
. . . In previous decisions, We already have held that the registered owner of a
certificate of public convenience is liable to the public for the injuries or damages
suffered by passengers or third persons caused by the operation of said vehicle,
even though the same had been transferred to a third person. (Montoya vs. Ignacio,
94 Phil., 182 50 Off. Gaz., 108; Roque vs. Malibay Transit, Inc., G.R. No. L-8561,
November 18, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10],
4606.) The principle upon which this doctrine is based is that in dealing with vehicles
registered under the Public Service Law, the public has the right to assume or
presumed that the registered owner is the actual owner thereof, for it would be
difficult with the public to enforce the actions that they may have for injuries caused
to them by the vehicles being negligently operated if the public should be required to
prove who actual the owner is. How would the public or third persons know against
whom to enforce their rights in case of subsequent transfer of the vehicles? We do
not imply by this doctrine, however, that the registered owner may not recover
whatever amount he had paid by virtue of his liability to third persons from the person
to whom he had actually sold, assigned or conveyed the vehicle.
Under the same principle the registered owner of any vehicle, even if not used for a
public service, should primarily responsible to the public or to the third persons for
injuries caused the latter while the vehicle is being driven on the highways or streets.
The members of the Court are in agreement that the defendant-appellant should be
held liable to plaintiff-appellee for the injuries occasioned to the latter because of the
negligence of the driver, even if the defendant-appellant was no longer an owner of
the vehicle at the time of the damage because he had previously sold it to another.
What is the legal basis for his (defendants-appellant's) liability?
There is a presumption that the owner of the guilty vehicle is the defendant-appellant
as he is the registered owner in the Motor Vehicle Office. Should he not be allowed to
prove the truth, that he had sold it to another and thus shift the responsibility for the
injury to the real and the actual owner? The defendants hold the affirmative of this
proposition; the trial court hold the negative.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that the
vehicle may be used or operated upon any public highway unless the same is

properly registered. It has been stated that the system of licensing and the
requirement that each machine must carry a registration number, conspicuously
displayed, is one of the precautions taken to reduce the danger of injury of
pedestrians and other travelers from the careless management of automobiles, and
to furnish a means of ascertaining the identity of persons violating the laws and
ordinances, regulating the speed and operation of machines upon the highways (2 R.
C. L. 1176). Not only are vehicles to be registered and that no motor vehicles are to
be used or operated without being properly registered from the current year, furnish
the Motor Vehicle Office a report showing the name and address of each purchaser
of motor vehicle during the previous month and the manufacturer's serial number and
motor number. (Section 5[c], Act No. 3992, as amended.)
Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration cases, because the
administrative proceeding of registration does not bear any essential relation to the
contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil.
888), but to permit the use and operation of the vehicle upon any public highway
(section 5[a], Act No. 3992, as amended). the main aim of motor vehicle registration
is to identify the owner so that if any accident happens, or that any damage or injury
is caused by the vehicle on the public highways, responsibility therefor can be fixed
on a definite individual, the registered owner. Instances are numerous where vehicles
running on public highways caused accidents or injuries to pedestrians or other
vehicles without positive identification of the owner or drivers, or with very scant
means of identification. It is to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle registration is primarily obtained, in the
interest of the determinations of persons responsible for damages or injuries caused
on public highways.
One of the principle purposes of motor vehicles legislation is
identification of the vehicle and of the operator, in case of accident;
and another is that the knowledge that means of detection are always
available my act as a deterrent from lax observance of the law and of
the rules of conservative and safe operation. Whatever purpose there
may be in these statutes, it is subordinate at the last to the primary
purpose of rendering it certain that the violator of the law or of the
rules of safety shall not escape because of lack of means to discover
him. The purpose of the statute is thwarted, and the displayed
number becomes a "share and delusion," if courts would entertain
such defenses as that put forward by appellee in this case. No
responsible person or corporation could be held liable for the most
outrageous acts of negligence, if they should be allowed to pace a
"middleman" between them and the public, and escape liability by the
manner in which they recompense their servants. (King vs. Breham
Automobile Co., Inc. 145 S. W. 278, 279.)

With the above policy in mind, the question that defendant-appellant poses is: should
not the registered owner be allowed at the trial to prove who the actual and real
owner is, and in accordance with such proof escape or evade responsibility and lay
the same on the person actually owning the vehicle? We hold with the trial court that
the law does not allow him to do so; the law, with its aim and policy in mind, does not
relieve him directly of the responsibility that the law fixes and places upon him as an
incident or consequence of registration. Were a registered owner allowed to evade
responsibility by proving who the supposed transferee or owner is, it would be easy
for him, by collusion with others or otherwise, to escape said responsibility and
transfer the same to an indefinite person, or to one who possesses no property with
which to respond financially for the damage or injury done. A victim of recklessness
on the public highways is usually without means to discover or Identify the person
actually causing the injury or damage. He has no means other then by a recourse to
the registration in the Motor Vehicles Office to determine who is the owner. The
protection that the law aims to extend to him would become illusory were the
registered owner given the opportunity to escape liability by disproving his
ownership. If the policy of the law is to be enforced and carried out, the registered
owner should not be allowed to prove the contrary to the prejudice of the person
injured, that is, to prove that a third person or another has become the owner, so that
he may thereby be relieved of the responsibility to the injured person.
The above policy and application of the law may appear quite harsh and would seem
to conflict with truth and justice. We do not think it is so. A registered owner who has
already sold or transferred a vehicle has the recourse to a third-party complaint, in
the same action brought against him to recover for the damage or injury done,
against the vendee or transferee of the vehicle. The inconvenience of the suit is no
justification for relieving him of liability; said inconvenience is the price he pays for
failure to comply with the registration that the law demands and requires.
In synthesis, we hold that the registered owner, the defendant-appellant herein, is
primarily responsible for the damage caused to the vehicle of the plaintiff-appellee,
but he (defendant-appellant) has a right to be indemnified by the real or actual owner
of the amount that he may be required to pay as damage for the injury caused to the
plaintiff-appellant.
If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had
been alienated or sold to another, there certainly can be no serious exception against utilizing the
same rationale to the antecedents of this case where the subject vehicle was merely leased by
petitioner to Rock Component Philippines, Inc., with petitioner retaining ownership over the vehicle.
Petitioner's reliance on the ruling of this Court in Duavit vs. Court of Appeals and in Duquillo vs.
Bayot (supra) is legally unpalatable for the purpose of the present discourse. The vehicles adverted
to in the two cases shared a common thread, so to speak, in that the jeep and the truck were driven
in reckless fashion without the consent or knowledge of the respective owners. Cognizant of the
inculpatory testimony spewed by defendant Sabiniano when he admitted that he took the jeep from

the garage of defendant Dauvit without the consent or authority of the latter, Justice Gutierrez, Jr.
in Duavit remarked;
. . . Herein petitioner does not deny ownership of the vehicle involved in the mishap
but completely denies having employed the driver Sabiniano or even having
authorized the latter to drive his jeep. The jeep was virtually stolen from the
petitioner's garage. To hold, therefore, the petitioner liable for the accident caused by
the negligence of Sabiniano who was neither his driver nor employee would be
absurd as it would be like holding liable the owner of a stolen vehicle for an accident
caused by the person who stole such vehicle. In this regard, we cannot ignore the
many cases of vehicles forcibly taken from their owners at gunpoint or stolen from
garages and parking areas and the instances of service station attendants or
mechanics of auto repair shops using, without the owner's consent, vehicles
entrusted to them for servicing or repair.(at p. 496.)
In the Duquillo case, the defendant therein cannot, according to Justice Diaz, be held liable for
anything because of circumstances which indicated that the truck was driven without the consent or
knowledge of the owner thereof.
Consequently, there is no need for Us to discuss the matter of imputed negligence because
petitioner merely presumed, erroneously, however, that judgment was rendered against it on the
basis of such doctrine embodied under Article 2180 of the new Civil Code.
WHEREFORE, the petition is hereby DISMISSED and decision under review AFFIRMED without
special pronouncement as to costs.
SO ORDERED.

EN BANC
G.R. No. L-8095

March 31, 1915

F.C. FISHER, plaintiff,

vs.
YANGCO STEAMSHIP COMPANY, J.S. STANLEY, as Acting Collector of Customs of the
Philippine Islands, IGNACIO VILLAMOR, as Attorney-General of the Philippine Islands,
and W.H. BISHOP, as prosecuting attorney of the city of Manila, respondents.
Haussermann, Cohn and Fisher for plaintiff.
Office of the Solicitor-General Harvey for respondents.
CARSON, J.:
The real question involved in these proceedings is whether the refusal of the owners and
officers of a steam vessel, duly licensed to engage in the coastwise trade of the Philippine
Islands and engaged in that trade as a common carrier, to accept for carriage "dynamite,
powder or other explosives" from any and all shippers who may offer such explosives for

carriage can be held to be a lawful act without regard to any question as to the conditions under
which such explosives are offered to carriage, or as to the suitableness of the vessel for the
transportation of such explosives, or as to the possibility that the refusal to accept such articles
of commerce in a particular case may have the effect of subjecting any person or locality or the
traffic in such explosives to an undue, unreasonable or unnecessary prejudice or discrimination.
Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco Steamship
Company, the owner of a large number of steam vessels, duly licensed to engage in the
coastwise trade of the Philippine Islands; that on or about June 10, 1912, the directors of the
company adopted a resolution which was thereafter ratified and affirmed by the shareholders of
the company, "expressly declaring and providing that the classes of merchandise to be carried
by the company in its business as a common carrier do not include dynamite, powder or other
explosives, and expressly prohibiting the officers, agents and servants of the company from
offering to carry, accepting for carriage said dynamite, powder or other explosives;" that
thereafter the respondent Acting Collector of Customs demanded and required of the company
the acceptance and carriage of such explosives; that he has refused and suspended the
issuance of the necessary clearance documents of the vessels of the company unless and until
the company consents to accept such explosives for carriage; that plaintiff is advised and
believes that should the company decline to accept such explosives for carriage, the respondent
Attorney-General of the Philippine Islands and the respondent prosecuting attorney of the city of
Manila intend to institute proceedings under the penal provisions of sections 4, 5, and 6 of Act
No. 98 of the Philippine Commission against the company, its managers, agents and servants,
to enforce the requirements of the Acting Collector of Customs as to the acceptance of such
explosives for carriage; that notwithstanding the demands of the plaintiff stockholder, the
manager, agents and servants of the company decline and refuse to cease the carriage of such
explosives, on the ground that by reason of the severity of the penalties with which they are
threatened upon failure to carry such explosives, they cannot subject themselves to "the ruinous
consequences which would inevitably result" from failure on their part to obey the demands and
requirements of the Acting Collector of Customs as to the acceptance for carriage of explosives;
that plaintiff believes that the Acting Collector of Customs erroneously construes the provisions
of Act No. 98 in holding that they require the company to accept such explosives for carriage
notwithstanding the above mentioned resolution of the directors and stockholders of the
company, and that if the Act does in fact require the company to carry such explosives it is to
that extent unconstitutional and void; that notwithstanding this belief of complainant as to the
true meaning of the Act, the questions involved cannot be raised by the refusal of the company
or its agents to comply with the demands of the Acting Collector of Customs, without the risk of
irreparable loss and damage resulting from his refusal to facilitate the documentation of the
company's vessels, and without assuming the company to test the questions involved by
refusing to accept such explosives for carriage.
The prayer of the complaint is as follows:
Wherefore your petitioner prays to this honorable court as follows:
First. That to the due hearing of the above entitled action be issued a writ of prohibition
perpetually restraining the respondent Yangco Steamship Company, its appraisers, agents,
servants or other representatives from accepting to carry and from carrying, in steamers of
said company dynamite, powder or other explosive substance, in accordance with the
resolution of the board of directors and of the shareholders of said company.

Second. That a writ of prohibition be issued perpetually enjoining the respondent J.S.
Stanley as Acting Collector of Customs of the Philippine Islands, his successors, deputies,
servants or other representatives, from obligating the said Yangco Steamship Company, by
any means whatever, to carry dynamite, powder or other explosive substance.
Third. That a writ of prohibition be issued perpetually enjoining the respondent Ignacio
Villamor as Attorney-General of the Philippine Islands, and W.H. Bishop as prosecuting
attorney of the city of Manila, their deputies representatives or employees, from accusing the
said Yangco Steamship Company, its officers, agents or servants, of the violation of Act No.
98 by reason of the failure or omission of the said company to accept for carriage out to
carry dynamite powder or other explosive.
Fourth. That the petitioner be granted such other remedy as may be meet and proper.

To this complaint the respondents demurred, and we are of opinion that the demurrer must be
sustained, on the ground that the complaint does not set forth facts sufficient to constitute a
cause of action.
It will readily be seen that plaintiff seeks in these proceedings to enjoin the steamship company
from accepting for carriage on any of its vessels, dynamite, powder or other explosives, under
any conditions whatsoever; to prohibit the Collector of Customs and the prosecuting officers of
the government from all attempts to compel the company to accept such explosives for carriage
on any of its vessels under any conditions whatsoever; and to prohibit these officials from any
attempt to invoke the penal provisions of Act No. 98, in any case of a refusal by the company or
its officers so to do; and this without regard to the conditions as to safety and so forth under
which such explosives are offered for carriage, and without regard also to any question as to the
suitableness for the transportation of such explosives of the particular vessel upon which the
shipper offers them for carriage; and further without regard to any question as to whether such
conduct on the part of the steamship company and its officers involves in any instance an
undue, unnecessary or unreasonable discrimination to the prejudice of any person, locality or
particular kind of traffic.
There are no allegations in the complaint that for some special and sufficient reasons all or
indeed any of the company's vessels are unsuitable for the business of transporting explosives;
or that shippers have declined or will in future decline to comply with such reasonable
regulations and to take such reasonable precautions as may be necessary and proper to secure
the safety of the vessels of the company in transporting such explosives. Indeed the contention
of petitioner is that a common carrier in the Philippine Islands may decline to accept for carriage
any shipment of merchandise of a class which it expressly or impliedly declines to accept from
all shippers alike, because as he contends "the duty of a common carrier to carry for all who
offer arises from the public profession he has made, and limited by it."
In support of this contention counsel cites for a number of English and American authorities,
discussing and applying the doctrine of the common law with reference to common carriers. But
it is unnecessary now to decide whether, in the absence of statute, the principles on which the
American and English cases were decided would be applicable in this jurisdiction. The duties
and liabilities of common carriers in this jurisdiction are defined and fully set forth in Act No. 98
of the Philippine Commission, and until and unless that statute be declared invalid or
unconstitutional, we are bound by its provisions.

Sections 2, 3 and 4 of the Act are as follows:

SEC. 2. It shall be unlawful for any common carrier engaged in the transportation of
passengers or property as above set forth to make or give any unnecessary or unreasonable
preference or advantage to any particular person, company, firm, corporation or locality, or
any particular kind of traffic in any respect whatsoever, or to subject any particular person,
company, firm, corporation or locality, or any particular kind of traffic, to undue or
unreasonable prejudice or discrimination whatsoever, and such unjust preference or
discrimination is also hereby prohibited and declared to be unlawful.
SEC. 3. No common carrier engaged in the carriage of passengers or property as aforesaid
shall, under any pretense whatsoever, fail or refuse to receive for carriage, and as promptly
as it is able to do so without discrimination, to carry any person or property offering for
carriage, and in the order in which such persons or property are offered for carriage, nor
shall any such common carrier enter into any arrangement, contract or agreement with any
other person or corporation whereby the latter is given an exclusive or preferential or
monopolize the carriage any class or kind of property to the exclusion or partial exclusion of
any other person or persons, and the entering into any such arrangement, contract or
agreement, under any form or pretense whatsoever, is hereby prohibited and declared to be
unlawful.
SEC. 4. Any willful violation of the provisions of this Act by any common carrier engaged in
the transportation of passengers or property as hereinbefore set forth is hereby declared to
be punishable by a fine not exceeding five thousand dollars money of the United States, or
by imprisonment not exceeding two years, or both, within the discretion of the court.

The validity of this Act has been questioned on various grounds, and it is vigorously contended
that in so far as it imposes any obligation on a common carrier to accept for carriage
merchandise of a class which he makes no public profession to carry, or which he has expressly
or impliedly announced his intention to decline to accept for carriage from all shippers alike, it
is ultra vires, unconstitutional and void.
We may dismiss without extended discussion any argument or contention as to the invalidity of
the statute based on alleged absurdities inherent in its provisions or on alleged unreasonable or
impossible requirements which may be read into it by a strained construction of its terms.
We agree with counsel for petitioner that the provision of the Act which prescribes that, "No
common carrier ... shall, under any pretense whatsoever, fail or refuse to receive for carriage ...
to carry any person or property offering for carriage," is not to be construed in its literal sense
and without regard to the context, so as to impose an imperative duty on all common carriers to
accept for carriage, and to carry all and any kind of freight which may be offered for carriage
without regard to the facilities which they may have at their disposal. The legislator could not
have intended and did not intend to prescribe that a common carrier running passenger
automobiles for hire must transport coal in his machines; nor that the owner of a tank steamer,
expressly constructed in small watertight compartments for the carriage of crude oil must accept
common carrier must accept and carry contraband articles, such as opium, morphine, cocaine,
or the like, the mere possession of which is declared to be a criminal offense; nor that common
carriers must accept eggs offered for transportation in paper parcels or any merchandise
whatever do defectively packed as to entail upon the company unreasonable and unnecessary
care or risks.

Read in connection with its context this, as well as all the other mandatory and prohibitory
provisions of the statute, was clearly intended merely to forbid failures or refusals to receive
persons or property for carriage involving any "unnecessary or unreasonable preference or
advantage to any particular person, company, firm, corporation, or locality, or any particular kind
of traffic in any respect whatsoever," or which would "subject any particular person, company,
firm, corporation or locality, or any particular kind of traffic to any undue or unreasonable
prejudice or discrimination whatsoever."
The question, then, of construing and applying the statute, in cases of alleged violations of its
provisions, always involves a consideration as to whether the acts complained of had the effect
of making or giving an "unreasonable or unnecessary preference or advantage" to any person,
locality or particular kind of traffic, or of subjecting any person, locality, or particular kind of traffic
to any undue or unreasonable prejudice or discrimination. It is very clear therefore that the
language of the statute itself refutes any contention as to its invalidity based on the alleged
unreasonableness of its mandatory or prohibitory provisions.
So also we may dismiss without much discussion the contentions as to the invalidity of the
statute, which are based on the alleged excessive severity of the penalties prescribed for
violation of its provisions. Upon general principles it is peculiarly and exclusively within the
province of the legislator to prescribe the pains and penalties which may be imposed upon
persons convicted of violations of the laws in force within his territorial jurisdiction. With the
exercise of his discretion in this regard where it is alleged that excessive fines or cruel and
unusual punishments have been prescribed, and even in such cases the courts will not presume
to interfere in the absence of the clearest and most convincing argument and proof in support of
such contentions. (Weems vs. United States, 217 U.S., 349; U.S. vs. Pico, 18 Phil. Rep., 386.)
We need hardly add that there is no ground upon which to rest a contention that the penalties
prescribed in the statute under consideration are either excessive or cruel and unusual, in the
sense in which these terms are used in the organic legislation in force in the Philippine Islands.
But it is contended that on account of the penalties prescribed the statute should be held invalid
upon the principles announced in Ex parte Young (209 U.S., 123, 147, 148);
Cotting vs. Goddard (183 U.S., 79, 102); Mercantile Trust Co. vs. Texas Co. (51 Fed., 529);
Louisville Ry. vs. McCord (103 Fed., 216); Cons. Gas Co. vs.Mayer (416 Fed., 150). We are
satisfied however that the reasoning of those cases is not applicable to the statute under
consideration. The principles announced in those decisions are fairly indicated in the following
citations found in petitioner's brief:
But when the legislature, in an effort to prevent any inquiry of the validity of a particular statute,
so burdens any challenge thereof in the courts that the party affected is necessarily constrained
to submit rather than take the chances of the penalties imposed, then it becomes a serious
question whether the party is not deprived of the equal protection of the laws.
(Cotting vs. Goddard, 183 U. S., 79, 102.)
It may therefore be said that when the penalties for disobedience are by fines so enormous
and imprisonment so severe as to intimidate the company and its officers from resorting to
the courts to test the validity of the legislation, the result is the same as if the law in terms
prohibited the company from seeking judicial construction of laws which deeply affect its
rights.

It is urged that there is no principle upon which to base the claim that a person is entitled to
disobey a statute at least once, for the purpose of testing its validity, without subjecting
himself to the penalties for disobedience provided by the statute in case it is valid. This is not
an accurate statement of the case. Ordinarily a law creating offenses in the nature of
misdemeanors or felonies relates to a subject over which the jurisdiction of the legislature is
complete in any event. In the case, however, of the establishment of certain rates without
any hearing, the validity of such rates necessarily depends upon whether they are high
enough to permit at least some return upon the investment (how much it is not now
necessary to state), and an inquiry as to that fact is a proper subject of judicial investigation.
If it turns out that the rates are too low for that purpose, then they are illegal. Now, to impose
upon a party interested the burden of obtaining a judicial decision of such a question (no
prior hearing having been given) only upon the condition that, if unsuccessful, he must suffer
imprisonment and pay fines, as provided in these acts, is, in effect, to close up all
approaches to the courts, and thus prevent any hearing upon the question whether the rates
as provided by the acts are not too low, and therefore invalid. The distinction is obvious
between a case where the validity of the act depends upon the existence of a fact which can
be determined only after investigation of a very complicated and technical character, and the
ordinary case of a statute upon a subject requiring no such investigation, and over which the
jurisdiction of the legislature is complete in any event.
We hold, therefore, that the provisions of the acts relating to the enforcement of the rates,
either for freight or passengers, by imposing such enormous fines and possible
imprisonment as a result of an unsuccessful effort to test the validity of the laws themselves,
are unconstitutional on their face, without regard to the question of the insufficiency of those
rates. (Ex parte Young, 209 U.S., 123 147, 148.)

An examination of the general provisions of our statute, of the circumstances under which it was
enacted, the mischief which it sought to remedy and of the nature of the penalties prescribed for
violations of its terms convinces us that, unlike the statutes under consideration in the above
cited cases, its enactment involved no attempt to prevent common carriers "from resorting to the
courts to test the validity of the legislation;" no "effort to prevent any inquiry" as to its validity. It
imposes no arbitrary obligation upon the company to do or to refrain from doing anything. It
makes no attempt to compel such carriers to do business at a fixed or arbitrarily designated
rate, at the risk of separate criminal prosecutions for every demand of a higher or a different
rate. Its penalties can be imposed only upon proof of "unreasonable," "unnecessary" and
"unjust" discriminations, and range from a maximum which is certainly not excessive for willful,
deliberate and contumacious violations of its provisions by a great and powerful corporation, to
a minimum which may be a merely nominal fine. With so wide a range of discretion for a
contention on the part of any common carrier that it or its officers are "intimidated from resorting
to the courts to test the validity" of the provisions of the statute prohibiting such "unreasonable,"
"unnecessary" and "unjust" discriminations, or to test in any particular case whether a given
course of conduct does in fact involve such discrimination. We will presume, for the purpose of
declaring the statute invalid, that there is so real a danger that the Courts of First Instance and
this court on appeal will abuse the discretion thus conferred upon us, as to intimidate any
common carrier, acting in good faith, from resorting to the courts to test the validity of the
statute. Legislative enactments, penalizing unreasonable discriminations, unreasonable
restraints of trade, and unreasonable conduct in various forms of human activity are so familiar
and have been so frequently sustained in the courts, as to render extended discussion
unnecessary to refute any contention as to the invalidity of the statute under consideration,
merely it imposes upon the carrier the obligation of adopting one of various courses of conduct
open to it, at the risk of incurring a prescribed penalty in the event that the course of conduct
actually adopted by it should be held to have involved an unreasonable, unnecessary or unjust

discrimination. Applying the test announced in Ex parte Young, supra, it will be seen that the
validity of the Act does not depend upon "the existence of a fact which can be determined only
after investigation of a very complicated and technical character," and that "the jurisdiction of the
legislature" over the subject with which the statute deals "is complete in any event." There can
be no real question as to the plenary power of the legislature to prohibit and to penalize the
making of undue, unreasonable and unjust discriminations by common carriers to the prejudice
of any person, locality or particular kind of traffic. (See Munn vs. Illinois, 94 U.S., 113, and other
cases hereinafter cited in support of this proposition.)
Counsel for petitioner contends also that the statute, if construed so as to deny the right of the
steamship company to elect at will whether or not it will engage in a particular business, such as
that of carrying explosives, is unconstitutional "because it is a confiscation of property, a taking
of the carrier's property without due process of law," and because it deprives him of his liberty
by compelling him to engage in business against his will. The argument continues as follows:
To require of a carrier, as a condition to his continuing in said business, that he must carry
anything and every thing is to render useless the facilities he may have for the carriage of
certain lines of freight. It would be almost as complete a confiscation of such facilities as if
the same were destroyed. Their value as a means of livelihood would be utterly taken away.
The law is a prohibition to him to continue in business; the alternative is to get out or to go
into some other business the same alternative as was offered in the case of the Chicago
& N.W. Ry. vs. Dey (35 Fed. Rep., 866, 880), and which was there commented on as follows:
"Whatever of force there may be in such arguments, as applied to mere personal
property capable of removal and use elsewhere, or in other business, it is wholly
without force as against railroad corporations, so large a proportion of whose
investment is in the soil and fixtures appertaining thereto, which cannot be removed.
For a government, whether that government be a single sovereign or one of the
majority, to say to an individual who has invested his means in so laudable an
enterprise as the construction of a railroad, one which tends so much to the wealth
and prosperity of the community, that, if he finds that the rates imposed will cause
him to do business at a loss, he may quit business, and abandon that road, is the
very irony of despotism. Apples of Sodom were fruit of joy in comparison. Reading,
as I do, in the preamble of the Federal Constitution, that it was ordained to "establish
justice," I can never believe that it is within the property of an individual invested in
and used for a purpose in which even the Argus eyes of the police power can see
nothing injurious to public morals, public health, or the general welfare. I read also in
the first section of the bill of rights of this state that "all men are by nature free and
equal, and have certain inalienable rights, among which are those of enjoying and
defending life and liberty, acquiring, possessing, and protecting property, and
pursuing and obtaining safety and happiness;" and I know that, while that remains as
the supreme law of the state, no legislature can directly or indirectly lay its withering
or destroying hand on a single dollar invested in the legitimate business of
transportation." (Chicago & N.W. Ry. vs. Dey, 35 Fed. Rep., 866, 880.)

It is manifest, however, that this contention is directed against a construction of the statute,
which, as we have said, is not warranted by its terms. As we have already indicated, the statute
does not "require of a carrier, as a condition to his continuing in said business, that he must
carry anything and everything," and thereby "render useless the facilities he may have for the
carriage of certain lines of freight." It merely forbids failures or refusals to receive persons or
property for carriage which have the effect of giving an "unreasonable or unnecessary
preference or advantage" to any person, locality or particular kind of traffic, or of subjecting any

person, locality or particular kind of traffic to any undue or unreasonable prejudice or

discrimination.
Counsel expressly admits that the statute, "as a prohibition against discrimination is a fair,
reasonable and valid exercise of government," and that "it is necessary and proper that such
discrimination be prohibited and prevented," but he contends that "on the other hand there is no
reasonable warrant nor valid excuse for depriving a person of his liberty by requiring him to
engage in business against his will. If he has a rolling boat, unsuitable and unprofitable for
passenger trade, he may devote it to lumber carrying. To prohibit him from using it unless it is
fitted out with doctors and stewards and staterooms to carry passengers would be an invalid
confiscation of this property. A carrier may limit his business to the branches thereof that suit his
convenience. If his wagon be old, or the route dangerous, he may avoid liability for loss of
passengers' lives and limbs by carrying freight only. If his vehicles require expensive pneumatic
tires, unsuitable for freight transportation, ha may nevertheless carry passengers. The only
limitation upon his action that it is competent for the governing authority to impose is to require
him to treat all alike. His limitations must apply to all, and they must be established limitations.
He cannot refuse to carry a case of red jusi on the ground that he has carried for others
only jusi that he was green, or blue, or black. But he can refuse to carry red jusi, if he has
publicly professed such a limitation upon his business and held himself out as unwilling to carry
the same for anyone."
To this it is sufficient answer to say that there is nothing in the statute which would deprive any
person of his liberty "by requiring him to engage in business against his will." The prohibitions of
the statute against undue, unnecessary or unreasonable regulations which the legislator has
seen fit to prescribe for the conduct of the business in which the carrier is engaged of his own
free will and accord. In so far as the self-imposed limitations by the carrier upon the business
conducted by him, in the various examples given by counsel, do not involve an unreasonable or
unnecessary discrimination the statute would not control his action in any wise whatever. It
operates only in cases involving such unreasonable or unnecessary preferences or
discriminations. Thus in the hypothetical case suggested by the petitioner, a carrier engaged in
the carriage of green, blue or black jusi, and duly equipped therefor would manifestly be guilty of
"giving an unnecessary and unreasonable preference to a particular kind of traffic" and of
subjecting to "an undue and reasonable prejudice a particular kind of traffic," should he decline
to carry red jusi, to the prejudice of a particular shipper or of those engaged in the manufacture
of that kind of jusi, basing his refusal on the ground of "mere whim or caprice" or of mere
personal convenience. So a public carrier of passengers would not be permitted under this
statute to absolve himself from liability for a refusal to carry a Chinaman, a Spaniard, an
American, a Filipino, or a mestizo by proof that from "mere whim or caprice or personal scruple,"
or to suit his own convenience, or in the hope of increasing his business and thus making larger
profits, he had publicly announced his intention not to carry one or other of these classes of
passengers.
The nature of the business of a common carrier as a public employment is such that it is clearly
within the power of the state to impose such just and reasonable regulations thereon in the
interest of the public as the legislator may deem proper. Of course such regulations must not
have the effect of depriving an owner of his property without due process of law, nor of
confiscating or appropriating private property without just compensation, nor of limiting or
prescribing irrevocably vested rights or privileges lawfully acquired under a charter or franchise.
But aside from such constitutional limitations, the determination of the nature and extent of the
regulations which should be prescribed rests in the hands of the legislator.

Common carriers exercise a sort of public office, and have duties to perform in which the public
is interested. Their business is, therefore, affected with a public interest, and is subject of public
regulation. (New Jersey Steam Nav. Co. vs. Merchants Bank, 6 How., 344, 382;
Munn vs. Illinois, 94 U.S., 113, 130.) Indeed, this right of regulation is so far beyond question
that it is well settled that the power of the state to exercise legislative control over railroad
companies and other carriers "in all respects necessary to protect the public against danger,
injustice and oppression" may be exercised through boards of commissioners. (New York etc. R.
Co. vs. Bristol, 151 U.S., 556, 571; Connecticut etc. R. Co. vs. Woodruff, 153 U.S., 689.)
Regulations limiting of passengers the number of passengers that may be carried in a particular
vehicle or steam vessel, or forbidding the loading of a vessel beyond a certain point, or
prescribing the number and qualifications of the personnel in the employ of a common carrier, or
forbidding unjust discrimination as to rates, all tend to limit and restrict his liberty and to control
to some degree the free exercise of his discretion in the conduct of his business. But since the
Granger cases were decided by the Supreme Court of the United States no one questions the
power of the legislator to prescribe such reasonable regulations upon property clothed with a
public interest as he may deem expedient or necessary to protect the public against danger,
injustice or oppression. (Munn vs.Illinois, 94 U.S., 113, 130; Chicago etc. R. Co. vs. Cutts, 94
U.S., 155; Budd vs. New York, 143 U.S., 517; Cotting vs. Goddard, 183 U.S., 79.) The right to
enter the public employment as a common carrier and to offer one's services to the public for
hire does not carry with it the right to conduct that business as one pleases, without regard to
the interest of the public and free from such reasonable and just regulations as may be
prescribed for the protection of the public from the reckless or careless indifference of the carrier
as to the public welfare and for the prevention of unjust and unreasonable discrimination of any
kind whatsoever in the performance of the carrier's duties as a servant of the public.
Business of certain kinds, including the business of a common carrier, holds such a peculiar
relation to the public interest that there is superinduced upon it the right of public regulation.
(Budd vs. New York, 143 U.S., 517, 533.) When private property is "affected with a public
interest it ceases to be juris privati only." Property becomes clothed with a public interest when
used in a manner to make it of public consequence and affect the community at large. "When,
therefore, one devotes his property to a use in which the public has an interest, he, in effect,
grants to the public an interest in that use, and must submit to be controlled by the public for the
common good, to the extent of the interest he has thus created. He may withdraw his grant by
discontinuing the use, but so long as he maintains the use he must submit to control."
(Munn vs. Illinois, 94 U.S., 113; Georgia R. & Bkg. Co. vs.Smith, 128 U.S., 174; Budd vs. New
York, 143 U.S., 517; Louisville etc. Ry. Co. vs. Kentucky, 161 U.S., 677, 695.)
Of course this power to regulate is not a power to destroy, and limitation is not the equivalent of
confiscation. Under pretense of regulating fares and freight the state can not require a railroad
corporation to carry persons or property without reward. Nor can it do that which in law amounts
to a taking of private property for public use without just compensation, or without due process
of law. (Chicago etc. R. Co. vs. Minnesota, 134 U.S., 418; Minneapolis Eastern R.
Co. vs. Minnesota, 134 U.S., 467.) But the judiciary ought not to interfere with regulations
established and palpably unreasonable as to make their enforcement equivalent to the taking of
property for public use without such compensation as under all the circumstances is just both to
the owner and to the public, that is, judicial interference should never occur unless the case
presents, clearly and beyond all doubt, such a flagrant attack upon the rights of property under
the guise of regulations as to compel the court to say that the regulation in question will have
the effect to deny just compensation for private property taken for the public use. (Chicago etc.

R. Co. vs. Wellman, 143 U.S., 339; Smyth vs. Ames, 169 U.S., 466, 524; Henderson Bridge
Co. vs.Henderson City, 173 U.S., 592, 614.)
Under the common law of England it was early recognized that common carriers owe to the
public the duty of carrying indifferently for all who may employ them, and in the order in which
application is made, and without discrimination as to terms. True, they were allowed to restrict
their business so as to exclude particular classes of goods, but as to the kinds of property which
the carrier was in the habit of carrying in the prosecution of his business he was bound to serve
all customers alike (State vs. Cincinnati etc. R. Co., 47 Ohio St., 130, 134, 138; Louisville etc.
Ry. Co. vs. Quezon City Coal Co., 13 Ky. L. Rep., 832); and it is to be observed in passing that
these common law rules are themselves regulations controlling, limiting and prescribing the
conditions under which common carriers were permitted to conduct their business.
(Munn vs. Illinois, 94 U. S., 113, 133.)
It was found, in the course of time, that the correction of abuses which had grown up with the
enormously increasing business of common carriers necessitated the adoption of statutory
regulations controlling the business of common carriers, and imposing severe and drastic
penalties for violations of their terms. In England, the Railway Clauses Consolidation Act was
enacted in 1845, the Railway and Canal Traffic Act in 1854, and since the passage of those Acts
much additional legislation has been adopted tending to limit and control the conduct of their
business by common carriers. In the United States, the business of common carriers has been
subjected to a great variety of statutory regulations. Among others Congress enacted "The
Interstate Commerce Act" (1887) and its amendments, and the Elkins Act as amended (1906);
and most if not all of the States of the Union have adopted similar legislation regulating the
business of common carriers within their respective jurisdictions. Unending litigation has arisen
under these statutes and their amendments, but nowhere has the right of the state to prescribe
just and reasonable regulations controlling and limiting the conduct of the business of common
carriers in the public interest and for the general welfare been successfully challenged, though
of course there has been wide divergence of opinion as to the reasonableness, the validity and
legality of many of the regulations actually adopted.
The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or
unreasonable discriminations by common carriers may be maintained upon the same reasoning
which justified the enactment by the Parliament of England and the Congress of the United
States of the above mentioned statutes prohibiting and penalizing the granting of certain
preferences and discriminations in those countries. As we have said before, we find nothing
confiscatory or unreasonable in the conditions imposed in the Philippine statute upon the
business of common carriers. Correctly construed they do not force him to engage in any
business his will or to make use of his facilities in a manner or for a purpose for which they are
not reasonably adapted. It is only when he offers his facilities as a common carrier to the public
for hire, that the statute steps in and prescribes that he must treat all alike, that he may not pick
and choose which customer he will serve, and, specifically, that he shall not make any undue or
unreasonable preferences or discriminations whatsoever to the prejudice not only of any person
or locality but also of any particular kind of traffic.
The legislator having enacted a regulation prohibiting common carriers from giving unnecessary
or unreasonable preferences or advantages to any particular kind of traffic or subjecting any
particular kind of traffic to any undue or unreasonable prejudice or discrimination whatsoever, it
is clear that whatever may have been the rule at the common law, common carriers in this
jurisdiction cannot lawfully decline to accept a particular class of goods for carriage, to the

prejudice of the traffic in those goods, unless it appears that for some sufficient reason the
discrimination against the traffic in such goods is reasonable and necessary. Mere whim or
prejudice will not suffice. The grounds for the discrimination must be substantial ones, such as
will justify the courts in holding the discrimination to have been reasonable and necessary under
all circumstances of the case.
The prayer of the petition in the case at bar cannot be granted unless we hold that the refusal of
the defendant steamship company to accept for carriage on any of its vessels "dynamite,
gunpowder or other explosives" would in no instance involve a violation of the provisions of this
statute. There can be little doubt, however, that cases may and will arise wherein the refusal of
a vessel "engaged in the coastwise trade of the Philippine Islands as a common carrier" to
accept such explosives for carriage would subject some person, company, firm or corporation,
or locality, or particular kind of traffic to a certain prejudice or discrimination. Indeed it cannot be
doubted that the refusal of a "steamship company, the owner of a large number of vessels"
engaged in that trade to receive for carriage any such explosives on any of its vessels would
subject the traffic in such explosives to a manifest prejudice and discrimination. The only
question to be determined therefore is whether such prejudice or discrimination might in any
case prove to be undue, unnecessary or unreasonable.
This of course is, in each case, a question of fact, and we are of the opinion that the facts
alleged in the complaint are not sufficient to sustain a finding in favor of the contentions of the
petitioner. It is not alleged in the complaint that "dynamite, gunpowder and other explosives" can
in no event be transported with reasonable safety on board steam vessels engaged in the
business of common carriers. It is not alleged that all, or indeed any of the defendant steamship
company's vessels are unsuited for the carriage of such explosives. It is not alleged that the
nature of the business in which the steamship company is engaged is such as to preclude a
finding that a refusal to accept such explosives on any of its vessels would subject the traffic in
such explosives to an undue and unreasonable prejudice and discrimination.
Plaintiff's contention in this regard is as follows:
In the present case, the respondent company has expressly and publicly renounced the
carriage of explosives, and expressly excluded the same terms from the business it
conducts. This in itself were sufficient, even though such exclusion of explosives were based
on no other ground than the mere whim, caprice or personal scruple of the carrier. It is
unnecessary, however, to indulge in academic discussion of a moot question, for the
decision not a carry explosives rests on substantial grounds which are self-evident.

We think however that the answer to the question whether such a refusal to carry explosives
involves an unnecessary or unreasonable preference or advantage to any person, locality or
particular kind of traffic or subjects any person, locality or particular to traffic to an undue or
unreasonable prejudice and discrimination is by no means "self-evident," and that it is a
question of fact to be determined by the particular circumstances of each case.
The words "dynamite, powder or other explosives" are broad enough to include matches, and
other articles of like nature, and may fairly be held to include also kerosene oil, gasoline and
similar products of a highly inflammable and explosive character. Many of these articles of
merchandise are in the nature of necessities in any country open to modern progress and
advancement. We are not fully advised as to the methods of transportation by which they are
made commercially available throughout the world, but certain it is that dynamite, gunpowder,

matches, kerosene oil and gasoline are transported on many vessels sailing the high seas.
Indeed it is a matter of common knowledge that common carriers throughout the world transport
enormous quantities of these explosives, on both land and sea, and there can be little doubt that
a general refusal of the common carriers in any country to accept such explosives for carriage
would involve many persons, firms and enterprises in utter ruin, and would disastrously affect
the interests of the public and the general welfare of the community.
It would be going to far to say that a refusal by a steam vessel engaged in the business of
transporting general merchandise as a common carrier to accept for carriage a shipment of
matches, solely on the ground of the dangers incident to the explosive quality of this class of
merchandise, would not subject the traffic in matches to an unnecessary, undue or
unreasonable prejudice and discrimination without proof that for some special reason the
particular vessel is not fitted to carry articles of that nature. There may be and doubtless are
some vessels engaged in business as common carriers of merchandise, which for lack of
suitable deck space or storage rooms might be justified in declining to carry kerosene oil,
gasoline, and similar products, even when offered for carriage securely packed in cases; and
few vessels are equipped to transport those products in bulk. But in any case of a refusal to
carry such products which would subject any person, locality or the traffic in such products
would be necessary to hear evidence before making an affirmative finding that such prejudice or
discrimination was or was not unnecessary, undue or unreasonable. The making of such a
finding would involve a consideration of the suitability of the vessel for the transportation of such
products ; the reasonable possibility of danger or disaster resulting from their transportation in
the form and under the conditions in which they are offered for carriage; the general nature of
the business done by the carrier and, in a word, all the attendant circumstances which might
affect the question of the reasonable necessity for the refusal by the carrier to undertake the
transportation of this class of merchandise.
But it is contended that whatever the rule may be as to other explosives, the exceptional power
and violence of dynamite and gunpowder in explosion will always furnish the owner of a vessel
with a reasonable excuse for his failure or refusal to accept them for carriage or to carry them
on board his boat. We think however that even as to dynamite and gunpowder we would not be
justified in making such a holding unaided by evidence sustaining the proposition that these
articles can never be carried with reasonable safety on any vessel engaged in the business of a
common carrier. It is said that dynamite is so erratic an uncontrollable in its action that it is
impossible to assert that it can be handled with safety in any given case. On the other hand it is
contended that while this may be true of some kinds of dynamite, it is a fact that dynamite can
be and is manufactured so as to eliminate any real danger from explosion during transportation.
These are of course questions of fact upon which we are not qualified to pass judgment without
the assistance of expert witnesses who have made special studies as to the chemical
composition and reactions of the different kinds of dynamite, or attained a thorough knowledge
of its properties as a result of wide experience in its manufacture and transportation.
As we construe the Philippine statute, the mere fact that violent and destructive explosions can
be obtained by the use of dynamite under certain conditions would not be sufficient in itself to
justify the refusal of a vessel, duly licensed as a common carrier of merchandise, to accept it for
carriage, if it can be proven that in the condition in which it is offered for carriage there is no real
danger to the carrier, nor reasonable ground to fear that his vessel or those on board his vessel
will be exposed to unnecessary and unreasonable risk in transporting it, having in mind the
nature of his business as a common carrier engaged in the coastwise trade in the Philippine
Islands, and his duty as a servant of the public engaged in a public employment. So also, if by

the exercise of due diligence and the taking of unreasonable precautions the danger of
explosions can be practically eliminated, the carrier would not be justified in subjecting the traffic
in this commodity to prejudice or discrimination by proof that there would be a possibility of
danger from explosion when no such precautions are taken.
The traffic in dynamite, gunpowder and other explosives is vitally essential to the material and
general welfare of the people of these Islands. If dynamite, gunpowder and other explosives are
to continue in general use throughout the Philippines, they must be transported by water from
port to port in the various islands which make up the Archipelago. We are satisfied therefore that
the refusal by a particular vessel, engaged as a common carrier of merchandise in the
coastwise trade of the Philippine Islands, to accept any or all of these explosives for carriage
would constitute a violation of the prohibitions against discriminations penalized under the
statute, unless it can be shown by affirmative evidence that there is so real and substantial a
danger of disaster necessarily involved in the carriage of any or all of these articles of
merchandise as to render such refusal a due or a necessary or a reasonable exercise of
prudence and discretion on the part of the shipowner.
The complaint in the case at bar lacking the necessary allegations under this ruling, the
demurrer must be sustained on the ground that the facts alleged do not constitute a cause of
action.
A number of interesting questions of procedure are raised and discussed in the briefs of
counsel. As to all of these questions we expressly reserve our opinion, believing as we do that
in sustaining the demurrer on the grounds indicated in this opinion we are able to dispose of the
real issue involved in the proceedings without entering upon the discussion of the nice
questions which it might have been necessary to pass upon had it appeared that the facts
alleged in the complaint constitute a cause of action.
We think, however, that we should not finally dispose of the case without indicating that since
the institution of these proceedings the enactment of Acts No. 2307 and No. 2362 (creating a
Board of Public Utility Commissioners and for other purposes) may have materially modified the
right to institute and maintain such proceedings in this jurisdiction. But the demurrer having
been formallly submitted for judgment before the enactment of these statutes, counsel have not
been heard in this connection. We therefore refrain from any comment upon any questions
which might be raised as to whether or not there may be another adequate and appropriate
remedy for the alleged wrong set forth in the complaint. Our disposition of the question raised by
the demurrer renders that unnecessary at this time, though it may not be improper to observe
that a careful examination of those acts confirms us in the holding upon which we base our
ruling on this demurrer, that is to say "That whatever may have been the rule at the common
law, common carriers in this jurisdiction cannot lawfully decline to accept a particular class of
goods for carriage, to the prejudice of the traffic in those goods, unless it appears that for some
sufficient reason the discrimination against the traffic in such goods is reasonable and
necessary. Mere prejudice or whim will not suffice. The grounds of the discrimination must be
substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all the circumstances of the case."
Unless an amended complaint be filed in the meantime, let judgment be entered ten days
hereafter sustaining the demurrer and dismissing the complaint with costs against the
complainant, and twenty days thereafter let the record be filed in the archives of original actions
in this court. So ordered.

Arellano, C.J., and Trent, J., concur.

Torres and Johnson, JJ., concur in the result.

Separate Opinions
MORELAND, J., concurring.
I may briefly say, although the nature of the action is stated at length in the foregoing opinion,
that it is an action by a shareholder of the Yangco Steamship Co. against the company itself and
certain officials of the Insular Government for an injunction against the company prohibiting it
from carrying dynamite on its ships and preventing the defendant officials from compelling the
company to do so under Act No. 98.
A demurrer was filed to the complaint raising the question not only of its sufficiency in general,
but putting in issue also the right of the plaintiff to maintain the action under the allegations of
his complaint.
It should be noted that all of the boats of the defendant company, under the allegations of the
complaint, are boats which carry passengers as well as freight, and that the holding of the
opinion which I am discussing compelspassenger ships to carry dynamite and all other high
explosives when offered for shipment. (See paragraph 3 of the complaint.)
I base my opinion for a dismissal of the complaint on the ground that the plaintiff has not alleged
in his complaint a single one of the grounds, apart from that of being a stockholder, necessary
for him to allege to maintain a shareholder's action.
In the case of Hawes vs. Oakland (104 U.S., 450) it was said relative to the right of a
stockholder to bring an action which should regularly be bought by the company of which he is a
stockholder:
We understand that doctrine to be that, to enable a stockholder in a corporation to sustain in
a court of equity in his own name, a suit founded on a right of action existing in the
corporation itself, and in which the corporation itself is the appropriate plaintiff, there must
exist as the foundation of the suit:
Some action or threatened action of the managing board of directors or trustees of the
corporation, which is beyond the authority conferred on them by their character or other
source of organization;
Or such a fraudulent transaction, completed or contemplated by the acting managers, in
connection with some other party, or among themselves, or with other shareholders as will in
serious injury to the corporation, or to the interest of the other shareholders;
Or where the board of directors, or a majority of them, are acting for their own interest, in a
manner destructive of the corporation itself, or of the rights of the other shareholders;

Or where the majority of shareholders themselves are oppressively and illegally pursuing a
course in the name of the corporation, which is in violation of the rights of the other
shareholders, and which can only be restrained by the aid of a court of equity.

It was also said: "In this country the cases outside of the Federal Courts are not numerous, and
while they admit the right of a stockholder to sue in cases where the corporation is the proper
party to bring the suit, they limit this right to cases where the directors are guilty of a fraud or a
breach of trust, or are proceeding ultra vires."
Further on in the same case we find: "Conceding appellant's construction of the company's
charter to be correct, there is nothing which forbids the corporation from dealing with the city in
the manner it has done. That city conferred on the company valuable rights by special
ordinance; namely, the use of the streets for the laying of its pipes, and the privilege of
furnishing water to the whole population.
It may be the exercise of the highest wisdom, to let the city use the water in the manner
complained of. The directors are better able to act understandingly on this subject than a
stockholder residing in New York. The great body of the stockholders residing in Oakland or
other places in California may take this view of it, and be content to abide by the action of their
directors."
This case is conclusive of the right of the plaintiff in the case at bar to maintain the action. The
complaint is devoid of allegations necessary to sustain a complaint by a shareholder.
The contention of the plaintiff based upon the case of Ex parte Young (209 U.S. 123) is not
sustained by that case. The decision there requires precisely the same allegations in the
complaint as does the case of Hawes vs.Oakland. Not one of those allegations appears in the
complaint in the case at bar except the allegation that the plaintiff is a stockholder.
Indeed, not only does the complaint lack allegations essential to its sufficiency, but it contains
allegations which affirmatively show the plaintiff is not entitled to maintain the action. I do not
stop to enumerate them all. I call attention to one only, namely the allegation that the company,
by its authorized officials, has acted in strict conformity with the plaintiff's wishes and has
refused to accept dynamite for carriage. This allegation shows that the plaintiff has been able to
obtain his remedy and accomplish his purpose within the corporation itself, and it is sufficient,
therefore, under the case of Hawes vs. Oakland and that of Ex parte Young, to require that the
demurrer be sustained.
I am opposed to a decision of this case on the merits.
In the first place, there has been no adequate discussion of the merits by the parties.
Substantially all of the brief of the government was devoted to what may be called the technical
defects of the complaint, such as I have referred to above. Indeed, it is doubtful if any portion of
the brief can be said to be directly a discussion of the merits.
In the second place, there is no real pending in this court. It is clear from the complaint that the
case is a collusive one (not in any improper sense) between the plaintiff and the defendant
company. There is no reason found in the complaint why the company should not have brought
the action itself, every member of the board of directors and every stockholder, according to the
allegations of the complaint, being in absolute accord with the contentions of the plaintiff on the

proposition that the company should not carry dynamite, and having passed unanimously
resolutions to that effect. Moreover, there has been no violation of Act No. 98. No shipper, or
any other person, has offered dynamite to the defendant company for shipment, and,
accordingly, the defendant company has not refused t o accept dynamite for carriage. Nor have
the defendant government officials begun proceedings, or threatened to bring proceedings,
against the defendant company in any given case. According to the allegations of the complaint,
the parties are straw parties and the case a straw case.
In the third place, Act No. 98, under which this proceeding is brought and under which, it is
alleged, the defendant public officers are threatening to enforce, has been repealed, in so far as
it affects public service corporations, by Act No. 2307, as amended by Act No. 2362. More than
that; not only has the law been repealed, but proceedings of this character have been placed, in
the first instance, under the exclusive jurisdiction of the Board of Public Utilities. I am unable to
see why this court should, under the facts of this case, undertake to render a decision on the
merits when the Act under which it is brought has been repealed and the jurisdiction to render a
decision on the subject matter involved has been turned over to another body. As I have said
before, it was unnecessary to a decision of this case to touch the merits in any way; and I am
opposed to an attempt to lay down a doctrine on a subject which is within the exclusive
jurisdiction of another body created by law expressly for the purpose of removing such cases as
this from the jurisdiction of the courts.
I am of the opinion that the complaint should be dismissed, but upon grounds apart from the
merits. If the merits of the case were alone to govern, I should be distinctly in favor of the
plaintiff's contention so far as it relates to the carriage of dynamite on ships carrying
passengers; and, while I am opposed to a decision on the merits of this case, nevertheless, the
merits having been brought into the case by the opinion of some of my brethren, I desire to refer
briefly to the jurisprudence of the subject.
So far as my researches go, the proposition that passenger boats must carry dynamite and
other high explosives is without support in the decisions of any English speaking country. I have
been unable to find a case anywhere which lays down such a doctrine. Indeed, I have been
unable to find a case which holds that freight boats mustcarry dynamite or other high
explosives. Every case that I have been able to find states a contrary doctrine; and neither in
courts nor in text books is there even a hint supporting the contention of my brethren. The
opinion cites no authorities to support it; and I am constrained to believe that, in any opinion so
elaborately written, cases to support its thesis would have been cited if any such existed.
On page 372, Vol. 6 of Cyc., will be found the following: "Common carriers owe to the public the
duty of carrying indifferently for all who may employ them, and in the order in which the
application is made, and without discrimination as to terms. They may, however, restrict their
business so as to exclude particular classes of goods, and they are not bound to receive
dangerous articles, such as nitro-glycerine, dynamite, gunpowder, oil of vitriol, matches, etc."
In the case of California Powder Works vs. Atlantic and Pacific R. R. Co. (113 Cal., 329), it was
said: "Nor are the exemptions contained in the contract of the shipping order void for lack of
consideration. The defendant was not obliged to received and transport the powder at all. A
common carrier is not bound to receive ... dangerous articles, as nitro-glycerine, dynamite,
gunpowder, aqua fortis, oil of vitriol, matches, etc."

This, so far as I can learn, is the universal doctrine. The California case is reproduced in 36
L.R.A., 648 and has appended to it a note. It is well known that the L.R.A. cites in its notes all of
the cases reasonably obtainable relative to the subject matter of the case which it annotates.
The note in L.R.A. with reference to the California case cites a considerable number of
authorities holding that a carrier of goods is not obliged to receive dynamite or other dangerous
explosives for carriage. It does not cite or refer to a case which holds the contrary.
The reporter of the L.R.A, at the beginning of the note with reference to the California case,
says: "The law upon this question is to be drawn from inference or from dicta rather than from
decided cases. California Powder Worksvs. Atlantic & Pacific R. R. Co. seems to be the first
case to have squarely decided that the carrier is not bound to transport dangerous articles,
although there has been what may be regarded as a general understanding that such is the
fact."
In Hutchinson on Carriers (sec. 145), it is said, relative to the necessity of a carrier receiving for
carriage dynamite or other dangerous explosives: "He may, for instance, lawfully refuse to
receive them (the goods) if they are improperly packed or if they are otherwise in an unfit
condition for carriage. Or he may show that the goods offered were of a dangerous character,
which might subject him or his vehicle, or strangers or his passengers, or his other freight, to the
risk of injury."
In a note to the text the author says: "Nor is he bound to accept such articles as nitro-glycerine,
dynamite, gunpowder, oil of vitriol and the like."
In Elliot on Railroads (vol. 4, p. 151), appears the following: "Again, goods may properly be
refused which are tendered in an unfit condition for transportation, or which are dangerous, or
which are reasonably believed to be dangerous."
In the case of Boston & Albany Railroad Co. vs. Shanly (107 Mass., 568), the court said at page
576: "Both the dualin and the exploders are thus alleged to be explosive and dangerous articles.
Each of them was sent without giving notice of its character to the plaintiffs, and they were
ignorant in respect to it. The rule of law on this subject is in conformity with the dictates of
common sense and justice, and is well established. One who has in his possession a
dangerous article, which he desires to send to another, am send it by a common carrier if he will
take it; but it is his duty to give him notice of its character, so that he may either refuse to take
it, or be enabled, if he takes it, to make suitable provision against the danger."
This case cites three English cases as follows, Williams vs. East India Co. (3 East, 192);
Brass vs. Maitland (6 El. & Bl. 470; Farrant vs. Barnes (11 C.B. [N.S.], 553).
In the case of Porcher vs. Northeastern R. Co. (14 Rich. L., 181), the court quoted with approval
the following from Story on Bailments: "If he (the carrier) refuses to take charge of the goods
because his coach is full or because they are of a nature which will at the time expose them
to extraordinary danger or to popular rage, or because he has no convenient means of carrying
such goods with security, etc., these will furnish reasonable grounds for his refusal, and will, if
true, be a sufficient legal defense to a suit for the non-carriage of the goods."
In the case of Fish vs. Chapman (2 Ga., 349), the court said: "A common carrier is bound to
convey the goods of any person offering to pay his hire, unless his carriage be already full, or

the risk sought to be imposed upon him extraordinary, or unless the goods be of a sort which he
cannot convey or is not in the habit of conveying."
In the case of Farrant vs. Barnes, above cited, the court said that the shipper "knowing the
dangerous character of the article and omitting to give notice of it to the carrier so that he might
exercise his discretion as to whether he would take it or not was guilty of a clear breach of duty."
To the same effect, generally, are Jackson vs. Rodgers (2 Show., 327); Riley vs. Horne (5 Bing.,
217); Lane vs.Cotton (1 Ld. Raym., 646); Edwards vs. Sheratt (1 East, 604); Elsee vs. Gatward
(5 T. R., 143); Dwight vs.Brewster (1 Pick., 50); Jencks vs. Coleman (2 Summ., 221); Story on
Bail., 322, 323; Patton vs. Magrath (31 Am. Dec., 552).
In Story on Bailments (sec. 508), is found the following: "If a carrier refuses to take charge of
goods because his coach is full; or because the goods are of a nature which will at the time
expose them to extraordinary danger; ... these will furnish reasonable grounds for his refusal;
and will, if true, be a sufficient legal defense to a suit for the non-carriage of the goods."
It will be noted that all of these cases holding that a common carrier is not obliged to receive a
dangerous substance, such as dynamite and other high explosives, refer exclusively to carriers
of merchandise and not to carriers of passengers. If the authorities are uniform in holding that
companies carrying freight are not obliged to accept dangerous explosives for carriage, there
can be no question as to what the rule would be with reference to a carrier of passengers.
Far from requiring passenger boats to accept dynamite and other high explosives for carriage,
the attitude of the people of the United States and of various States is shown by their statutes.
The laws of the United States and of many of the States prohibit passengers boats and
passenger trains from carrying dangerous explosives. Sections 232, 233, 234, 2345 and 236 of
the Criminal Code of the United States (Compiled Stat., 1901), read:
SEC. 232. It shall be unlawful to transport, carry, or convey, any dynamite, gunpowder, or
other explosive, between a place in a foreign country and a place within or subject to the
jurisdiction of the United States, or between a place in any State, Territory, or District of the
United States, or place non-contiguous to but subject to the jurisdiction thereof, and a place
in any other State, Territory, or District of the United States, or place non-contiguous to but
subject to the jurisdiction thereof, on any vessel or vehicle of any description operated by a
common carrier, which vessel or vehicle is carrying passengers for hire: . . ..
SEC. 233. The Interstate Commerce Commission shall formulate regulations for the safe
transportation of explosives, which shall be binding all common carriers engaged in
interstate or foreign commerce which transport explosives by land. Said commission, of its
own motion, or upon application made by any interested party, may make changes or
modifications in such regulations, made desirable by new information or altered conditions.
Such regulations shall be in accord with the best known practicable means for securing in
transit, covering the packing, marking, loading, handling while in transit, and the precautions
necessary to determine whether the material when offered is in proper condition to transport.
Such regulations, as well as all changes or modifications thereof, shall take effect after ninety
days after their formulation and publication commission and shall be in effect until reversed,
set aside, or modified.

SEC. 234. It shall be unlawful to transport, carry, or convey, liquid nitroglycerin, fulminate in
bulk "in dry condition, or other like explosive, between a place in a foreign country and a
place within or subject to the jurisdiction of the United States, or between a place in one
State, Territory, or District of the United States, or place non-contiguous to but subject to the
jurisdiction thereof, and a place in any other State, Territory, or District of the United States,
or place non-contiguous to but subject to the jurisdiction thereof, on any vessel or vehicle of
any description operated by a common carrier in the transportation of passengers or articles
of commerce by land or water.
SEC. 235. Every package containing explosives or other dangerous articles when presented
to a common carrier for shipment shall have plainly marked on the outside thereof the
contents thereof; and it shall be unlawful for any person to deliver, or cause to be delivered,
to any common carrier engaged in interstate or foreign commerce by land or water, for
interstate or foreign transportation, or to carry upon any vessel or vehicle engaged in
interstate or foreign transportation, any explosive, or other dangerous article, under any false
or deceptive marking, description, invoice, shipping order, or other declaration, or without
informing the agent of such carrier of the true character thereof, at or before the time such
delivery or carriage is made. Whoever shall knowingly violate, or cause to be violated any
provision of this section, or of the three sections last preceding, or any regulation made by
the Interstate Commerce Commission in pursuance thereof, shall be fined not more than two
thousand dollars, or imprisoned not more than eighteen months, or both.
SEC. 236. When the death or bodily injury of any person is caused by the explosion of any
article named in the four sections last preceding, while the same is being placed upon any
vessel or vehicle to be transported in violation thereof, or while the same is being so
transported, or while the same is being removed from such vessel or vehicle, the person
knowingly placing, or aiding or permitting the placing of such articles upon any such vessel
or vehicle, to be so transported, shall be imprisoned not more than ten years.

Human ingenuity has been continuously exercised for ages to make sea travel safe, that men
might sail the seas with as little risk as possible; that they might rely upon the quality of the ship
and the character and experiences of the sailors who manned her; that they might feel that the
dangers of the deep had been reduced to the minimum. Not only this; the abilities of legislators
have been taxed to the same end; to frame that would ensure seaworthy ships, safe appliances,
and reliable officers and crews; to curb the avarice of those who would subordinate the safety of
passengers to a desire for freight; and to so regulate travel by sea that all might safely confide
their property and their lives to the ships sailing under the flag of their country. Can a decision
which requires passenger ships to carry dynamite and all high explosives be made to harmonize
with this purpose? What is there in the Philippine Islands to justify the requirement that
passenger ships carry dynamite, while in the United States the carrying of dynamite by
passenger ships is a crime? Why should passengers in the Philippine Islands be subjected to
conditions which are abhorent in the United States? Why compel shipowners in the Philippine
Islands to perform acts which, if done in the United States, would send them to the penitentiary?
I do not believe that we should require passengers to travel on ships carrying, perhaps, many
tons of nitro-glycerine, dynamite or gunpowder in their holds; nor do I believe that any public
official should do anything calculated to add to the calamity of fire, collision, or shipwreck the
horrors of explosion.

ARAULLO, J., dissenting:

I do not agree with the decision of the majority of this court in this case, first, because one of the
grounds of the demurrer to the complaint the first one is that of lack of legal capacity to
sue on the part of the plaintiff and nothing is said in the decision regarding this very important
point. It is one which ought to have received special attention, even before the other alleged in
the demurrer that the complaint does not state facts sufficient to constitute a cause of action,
and the only one that received any consideration in the decision in question. Second, because
notwithstanding that in the decision no consideration was paid to the alleged lack of legal
capacity on the part of the plaintiff, he is, reason of the demurrer being sustained, authorized to
present an amended complaint within ten days, an authorization which could not and should not
have on the part of said plaintiff was not lacking.
DECISION OF MARCH 31, 1915.
CARSON, J.:
This case is again before us upon a demurrer interposed by the respondent officials of the
Philippine Government to an amended complaint filed after publication of our decision
sustaining the demurrer to the original complaint.
In our former opinion, entered November 5, 1914, we sustained the demurrer on the ground that
the original complaint did not set forth facts sufficient to constitute a cause of action. In that
decision we held that the statute (Act No. 98) the validity of which was attacked by counsel por
plaintiff was, when rightly construed, a valid and constitutional enactment, and ruled:
That whatever may have been the rule at the common law, common carriers in this jurisdiction
cannot lawfully decline to accept a particular class in those goods, unless it appears that for
some sufficient reason the discrimination against the traffic in such goods is reasonable and
necessary. Mere prejudice or whim will not suffice. The grounds of the discrimination must be
substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all the circumstances of the case.
xxx

xxx

xxx

The traffic in dynamite, gunpowder and other explosives is vitally essential to the material
and general welfare of the people of these Islands. If dynamite, gunpowder and other
explosives are to continue in general use throughout the Philippines, they must be
transported by water from port to port in the various islands which make up the Archipelago.
We are satisfied therefore that the refusal by a particular vessel, engaged as a common
carrier of merchandise in the coastwise trade of the Philippine Islands, to accept any or all of
these explosives for carriage would constitute a violation of the prohibitions against
discriminations penalized under the statue, unless it can be shown by affirmative evidence
that there is so real and substantial a danger of disaster necessarily involved in the carriage
of any or all of these articles of merchandise as to render such refusal a due or a necessary
or a reasonable exercise of prudence and discretion on the part of the ship owner.

Resting our judgment on these rulings we held that the allegations of the complaint, which in
substance alleged merely that the respondent officials were coercing the respondent steamship
company to carry explosives upon some of their vessels, under authority of, and in reliance

upon the provisions of the Act, did not set forth facts constituting a cause of action; or in other
words, that the allegations of the complaint even if true, would sustain a finding that the
respondent officials were acting "without or in excess of their jurisdiction" and lawful authority in
the premises.
The amended complaint filed on November 14, 1914, is substantially identical with the original
complaint, except that it charges the respondent officials, as of the date of the amended
complaint, with the unlawful exercise of the authority or intent to exercise unlawful authority
which should be restrained, and substitutes the names of the officers now holding the offices of
Collector of Customs, Attorney-General and prosecuting attorney for those of the officials
holding those offices at the date of the filing of the original complaint; and except further that it
adds the following allegations:
That each and every one of the vessels of the defendant company is dedicated and devoted
to the carriage of passengers between various ports in the Philippine Islands, and each of
said vessels, on all of said voyages between the said ports, usually and ordinarily does carry
a large number of such passengers.
That dynamite, powder, and other explosives are dangerous commodities that cannot be
handled and transported in the manner and from in which ordinary commodities are handled
and transported. That no degree of care, preparation and special arrangement in the
handling and transportation of dynamite, powder and other explosives will wholly eliminate
the risk and danger of grave peril and loss therefrom, and that the highest possible degree of
care, preparation of said commodities is only capable of reducing the degree of said danger
and peril. That each and every one of the vessels of the defendant company is wholly
without special means for the handling, carriage, or transportation of dynamite, powder and
other explosives and such special means therefor which would appreciably and materially
reduce the danger and peril therefrom cannot be installed in said vessels without a costs and
expense unto said company that is unreasonable and prohibitive.

As we read them, the allegations of the original complaint were intended to raise and did in fact
raise, upon demurrer, a single question which, if ruled upon favorably to the contention of
plaintiff, would, doubtless, have put an end to this litigation and to the dispute between the
plaintiff stockholder of the steamship company and the officials of the Philippine Government
out of which it has arisen.
In their brief, counsel for plaintiff, in discussing their right to maintain an action for a writ of
prohibition, relied upon the authority of Ex parte Young (209 U. S. [123] 163, 165), and asserted
that:
Upon the authority, therefore, of Ex parte Young, supra, the merits of the question pending
between petitioner and respondents in this action is duly presented to this court by the
complaint of petitioner and general demurrer of respondents thereto. That question, in plain
terms, is as follows:
Is the respondent Yangco Steamship Company legally required to accept for carriage and
carry "any person or property offering for carriage?"
"The petitioner contends that the respondent company is a common carrier of only such
articles of freight as they profess to carry and hold themselves out as carrying;" and in
discussing the legal capacity of plaintiff to maintain this action, counsel in their printed brief

asserted that "here we have no address to the court to determine whether a minority or a
majority shall prevail in the corporate affairs; here we ask plainly and unmistakably who shall
fix the limits of the corporate business the shareholders and directors of the corporation,
or certain officials of the government armed with an unconstitutional statute?

Counsel for plaintiff contended that under the guaranties of the Philippine Bill of Rights a
common carrier in the Philippine Islands may arbitrarily decline to accept for carriage any
shipment or merchandise of a class which it expressly or impliedly declines to accept from all
shippers alike; that "the duty of a common carrier to carry for all who offer arises from the public
profession he has made, and is limited by it;" that under this doctrine the respondent steamship
company might lawfully decline to accept for carriage "dynamite, powder or other explosives,"
without regard to any question as to the conditions under which such explosives are offered for
carriage, or as to the suitableness of its vessels for the transportation of such explosives, or as
to the possibility that the refusal to accept such articles of commerce in a particular case might
have the effect of subjecting any person, locality or the traffic in such explosives to an undue,
unreasonable or unnecessary prejudice or discrimination: and in line with these contentions
counsel boldly asserted that Act No. 98 of the Philippine Commission is invalid and
unconstitutional in so far as it announces a contrary doctrine or lays down a different rule. The
pleader who drew up the original complaint appears to have studiously avoided the inclusion in
that complaint of any allegation which might raise any other question. In doing so he was strictly
within his rights, and having in mind the object sought to be attained, the original complaint is a
model of skillful pleading, well calculated to secure the end in view, that is to say, a judgment on
the precise legal issue which the pleader desired to raise as to the construction and validity of
the statute, which would put an end to the controversy, if that issue were decided in his favor.
Had the contentions of plaintiff as to the unconstitutionality of the statute been well founded, a
writ of prohibition from this court would have furnished an effective and appropriate remedy for
the alleged wrong. The issue presented by the pleadings on the original complaint, involving a
question as to the validity of a statute and affecting, as it did, the shipping and public interests of
the whole Islands, and submitting be complicated question or series of questions of fact, was of
such a nature that this court could not properly deny the right of the plaintiff to invoke its
jurisdiction in original proceedings. We deemed it our duty therefore to resolve the real issue
raised by the demurrer, and since we are of opinion that the contentions of counsel for plaintiff
were not well founded, and since a ruling to that effect necessarily resulted in an order
sustaining the demurrer, we did not deem it necessary or profitable to consider questions of
practice or procedure which it might have been necessary to decide under a contrary ruling as
to the principal question raised by the pleadings; nor did we stop to consider whether the
"subject matter involved" in the controversy might properly be submitted to the Board of Public
Utility Commissioners, because upon the authority of Ex parte Young (supra) we are satisfied as
to the jurisdiction and competency of this court to deal with the real issues raised by the
pleadings on the original complaint, and because, furthermore, the Act of the Philippine
Legislature creating the Board of Public Utility Commissioners could not deprive this court of
jurisdiction already invoked in prohibition proceedings instituted for the purpose of restraining
the respondent official as of the Government from the alleged unlawful exercise of authority
under color of an invalid and without jurisdiction in the premises.
The amended complaint, however, presents for adjudication in original prohibition proceedings
in this court questions of a wholly different character from those submitted in the original
complaint.

In so far as it reiterates the allegation s of the former complaint to the effect that the respondent
officials are unlawfully coercing the steamship company by virtue and under color of the
provisions of an invalid or unconstitutional statute, it is manifest, of course, that the amended
complaint is no less subject to criticism than was the original complaint. If, therefore, the action
can be maintained upon its allegations that those officials are coercing the company to carry
explosives on vessels which, as a matter of fact, are not suitably equipped for that purpose, and
which from the nature of the business in which they are engaged should not be required to carry
explosives.
It will readily be seen, under our former opinion, that these allegations raise no question as to
the validity or constitutionality of any statute; that the real question which plaintiff seeks to
submit to this court in original prohibition proceedings is whether the respondent officials of the
Government are correctly exercising the discretion and authority with which they have been
clothed; and that his contention in the amended complaint is not, as it was in the original
complaint, that these officials are acting without authority and in reliance upon an invalid and
unconstitutional statute, but rather that they are exercising their authority improvidently, unwisely
or mistakenly.
Under the provisions of sections 226 and 516 of the Code of Civil Procedure jurisdiction in
prohibition proceedings is conferred upon the courts when the complaint alleges "the
proceedings of any inferior tribunal, corporation, board, or person, whether exercising functions
judicial or ministerial, were without or in excess of the jurisdiction of such tribunal, corporation,
board or person." It is manifest therefore that the allegations of the amended complaint, even if
true, will not sustain the issuance of a writ of prohibition without further amendment unless they
be construed to in effect a charge that the respondent officials are abusing the discretion
conferred upon them in the exercise of their authority in such manner that the acts complained
of should be held to be without or in excess of their jurisdiction.
It may well be doubted whether the doctrine of the case Ex parte Young (supra), relied upon by
the plaintiff in his argument be invoked in support of a right of action predicated upon such
premises; so also, since the acts complained of in the amended complaint are alleged to have
been done at a date subsequent to the enactment of the statutes creating the Board of Public
Utility Commissioners, it may well be doubted whether the courts should entertain prohibition
proceedings seeking to restrain alleged abuses of discretion on the part of officers and officials
of the Government, and of public service corporations with regard to the rules under which such
corporations are operated, until and unless redress for the alleged wrong has been sought at
the hands of the Board.
We do not deem it expedient or necessary, however, to consider or decide any of these
questions at this time, because we are of opinion that we should not permit our original
jurisdiction to be set in motion upon the allegations of the amended complaint.
It is true that this court is clothed with original jurisdiction in prohibition proceedings (sec. 516,
Act No. 190). But this jurisdiction is concurrent with the original jurisdiction of the various Courts
of First Instance throughout the Islands, except in cases where the writ runs to restrain those
courts themselves, when of course it is exclusive; and we are satisfied that it could have been
the intention of the legislator to require this court to assume original jurisdiction in all cases
wherein the plaintiff elects to invoke it. Such a practice might result in overwhelming this court
with the duty of entertaining and deciding original proceedings which from their nature could
much better be adjudicated in the trial courts; and in unnecessarily diverting the time and

attention of the court from its important appellate functions to the settlement of controversies of
no especial interest to the public at large, in the course of which it might become necessary to
take testimony and to make findings touching complicated and hotly contested issues of fact.
We are of opinion and so hold that unless special reasons appear therefor, this court should
decline to permit its original jurisdiction to be invoked in prohibition proceedings, and this
especially when the adjudication of the issues raised involves the taking of evidence and the
making of findings touching controverted facts, which, as a rule, can be done so much better in
the first instance by a trial court than an appellate court organized as is ours.
Spelling on Injunctions and Other Extraordinary Remedies (vol. 2, p. 1493), in discussing the
cases in which the appellate courts in the United States permit their original jurisdiction to be
invoked where that jurisdiction is concurrent with that of some inferior court, says:
Of the plan of concurrent jurisdiction West Virginia may be taken as an illustration. The
Supreme Court of Appeals of that State has concurrent original jurisdiction with the circuit
courts in cases of prohibition, but by a rule adopted by the former court it will not take such
original jurisdiction unless reasons appear therefor.

We deemed it proper to assume jurisdiction to adjudicate and decide the issues raised by the
rulings on the original complaint, involving as they did a question as to the validity of a public
statute of vital interest to shippers and shipowners generally as also to the public at large,
presenting for determination no difficult or complicated questions of fact: but we are satisfied
that we should decline to take jurisdiction of the matters relied upon in the amended complaint
in support of plaintiff's prayer for the writ.
The question of the construction and validity of the statute having been disposed of in our ruling
on the demurrer to the original complaint, it must be apparent that of the allegations of the
amended complaint are sufficient to maintain the plaintiff's action for a writ of prohibition, a
question as to which we expressly reserve our opinion, the action should be brought in one of
the Courts of First Instance.
Twenty days hereafter let the complaint de dismissed at the costs of the plaintiff, unless in the
meantime it is amended so as to disclose a right upon the part of the plaintiff to invoke the
original jurisdiction of this court without first proceeding in one of the Courts of First Instance. So
ordered.
Arellano, C.J., Torres, and Trent, JJ., concur.
EN BANC
G.R. No. 47065

June 26, 1940

PANGASINAN TRANSPORTATION CO., INC., petitioner,

vs.
THE PUBLIC SERVICE COMMISSION, respondent.
C. de G. Alvear for petitioner.
Evaristo R. Sandoval for respondent.

LAUREL, J.:
The petitioner has been engaged for the past twenty years in the business of transporting
passengers in the Province of Pangasinan and Tarlac and, to a certain extent, in the Province of
Nueva Ecija and Zambales, by means of motor vehicles commonly known as TPU buses, in
accordance with the terms and conditions of the certificates of public convenience issued in its favor
by the former Public Utility Commission in cases Nos. 24948, 30973, 36830, 32014 and 53090. On
August 26, 1939, the petitioner filed with the Public Service Commission an application for
authorization to operate ten additional new Brockway trucks (case No. 56641), on the ground that
they were needed to comply with the terms and conditions of its existing certificates and as a result
of the application of the Eight Hour Labor Law. In the decision of September 26, 1939, granting the
petitioner's application for increase of equipment, the Public Service Commission ordered:
Y de acuerdo con que se provee por el articulo 15 de la ley No. 146 del Commonwealth, tal
como ha sido enmendada por el articulo 1 de la Ley No. 454, por la presente se enmienda
las condiciones de los certificados de convenciencia publica expedidos en los expedientes
Nos. 24948, 30973, 36831, 32014 y la authorizacion el el expediente No. 53090, asi que se
consideran incorporadas en los mismos las dos siguientes condiciones:
Que los certificados de conveniencia publica y authorizacion arriba mencionados seran
validos y subsistentes solamente durante de veinticinco (25) anos, contados desde la fecha
de la promulgacion de esta decision.
Que la empresa de la solicitante porda ser adquirida por el Commonwealth de Filipinas o por
alguna dependencia del mismo en cualquier tiempo que lo deseare previo pago del precio d
costo de su equipo util, menos una depreciacion razonable que se ha fijar por la Comision al
tiempo de su adquisicion.
Not being agreeable to the two new conditions thus incorporated in its existing certificates, the
petitioner filed on October 9, 1939 a motion for reconsideration which was denied by the Public
Service Commission on November 14, 1939. Whereupon, on November 20, 1939, the present
petition for a writ of certiorari was instituted in this court praying that an order be issued directing the
secretary of the Public Service Commission to certify forthwith to this court the records of all
proceedings in case No. 56641; that this court, after hearing, render a decision declaring section 1 of
Commonwealth Act No. 454 unconstitutional and void; that, if this court should be of the opinion that
section 1 of Commonwealth Act No. 454 is constitutional, a decision be rendered declaring that the
provisions thereof are not applicable to valid and subsisting certificates issued prior to June 8, 1939.
Stated in the language of the petitioner, it is contended:
1. That the legislative powers granted to the Public Service Commission by section 1 of
Commonwealth Act No. 454, without limitation, guide or rule except the unfettered discretion
and judgment of the Commission, constitute a complete and total abdication by the
Legislature of its functions in the premises, and for that reason, the Act, in so far as those
powers are concerned, is unconstitutional and void.

2. That even if it be assumed that section 1 of Commonwealth Act No. 454, is valid
delegation of legislative powers, the Public Service Commission has exceeded its authority
because: (a) The Act applies only to future certificates and not to valid and subsisting
certificates issued prior to June 8, 1939, when said Act took effect, and (b) the Act, as
applied by the Commission, violates constitutional guarantees.
Section 15 of Commonwealth Act No. 146, as amended by section 1 of Commonwealth Act No. 454,
invoked by the respondent Public Service Commission in the decision complained of in the present
proceedings, reads as follows:
With the exception to those enumerated in the preceding section, no public service shall
operate in the Philippines without possessing a valid and subsisting certificate from the
Public Service Commission, known as "certificate of public convenience," or "certificate of
convenience and public necessity," as the case may be, to the effect that the operation of
said service and the authorization to do business will promote the public interests in a proper
and suitable manner.
The Commission may prescribed as a condition for the issuance of the certificate provided in
the preceding paragraph that the service can be acquired by the Commonwealth of the
Philippines or by any instrumentality thereof upon payment of the cost price of its useful
equipment, less reasonable depreciation; and likewise, that the certificate shall valid only for
a definite period of time; and that the violation of any of these conditions shall produce the
immediate cancellation of the certificate without the necessity of any express action on the
part of the Commission.
In estimating the depreciation, the effect of the use of the equipment, its actual condition, the
age of the model, or other circumstances affecting its value in the market shall be taken into
consideration.
The foregoing is likewise applicable to any extension or amendment of certificates actually
force and to those which may hereafter be issued, to permits to modify itineraries and time
schedules of public services and to authorization to renew and increase equipment and
properties.
Under the first paragraph of the aforequoted section 15 of Act No. 146, as amended, no public
service can operate without a certificate of public convenience or certificate of convenience and
public necessity to the effect that the operation of said service and the authorization to do business
will "public interests in a proper and suitable manner." Under the second paragraph, one of the
conditions which the Public Service Commission may prescribed the issuance of the certificate
provided for in the first paragraph is that "the service can be acquired by the Commonwealth of the
Philippines or by any instrumental thereof upon payment of the cost price of its useful equipment,
less reasonable depreciation," a condition which is virtually a restatement of the principle already
embodied in the Constitution, section 6 of Article XII, which provides that "the State may, in the
interest of national welfare and defense, establish and operate industries and means of
transportation and communication, and, upon payment of just compensation, transfer to public
ownership utilities and other private enterprises to be operated by the Government. "Another

condition which the Commission may prescribed, and which is assailed by the petitioner, is that the
certificate "shall be valid only for a definite period of time." As there is a relation between the first and
second paragraphs of said section 15, the two provisions must be read and interpreted together.
That is to say, in issuing a certificate, the Commission must necessarily be satisfied that the
operation of the service under said certificate during a definite period fixed therein "will promote the
public interests in a proper and suitable manner." Under section 16 (a) of Commonwealth Act. No.
146 which is a complement of section 15, the Commission is empowered to issue certificates of
public convenience whenever it "finds that the operation of the public service proposed and the
authorization to do business will promote the public interests in a proper and suitable manner."
Inasmuch as the period to be fixed by the Commission under section 15 is inseparable from the
certificate itself, said period cannot be disregarded by the Commission in determining the question
whether the issuance of the certificate will promote the public interests in a proper and suitable
manner. Conversely, in determining "a definite period of time," the Commission will be guided by
"public interests," the only limitation to its power being that said period shall not exceed fifty years
(sec. 16 (a), Commonwealth Act No. 146; Constitution, Art. XIII, sec. 8.) We have already ruled that
"public interest" furnishes a sufficient standard. (People vs.Fernandez and Trinidad, G. R. No.
45655, promulgated June 15, 1938; People vs. Rosenthal and Osmea, G. R. Nos. 46076 and
46077, promulgated June 12, 1939, citing New York Central Securities Corporation vs. U.S.A., 287
U.S. 12, 24, 25, 77 Law. ed. 138, 145, 146; Schenchter Poultry Corporation vs. I.S., 295, 540, 79
Law. ed. 1570, 1585; Ferrazzini vs. Gsell, 34 Phil., 697, 711-712.)
Section 8 of Article XIII of the Constitution provides, among other things, that no franchise,
certificate, or any other form of authorization for the operation of a public utility shall be "for a longer
period than fifty years," and when it was ordained, in section 15 of Commonwealth Act No. 146, as
amended by Commonwealth Act No. 454, that the Public Service Commission may prescribed as a
condition for the issuance of a certificate that it "shall be valid only for a definite period of time" and,
in section 16 (a) that "no such certificates shall be issued for a period of more than fifty years," the
National Assembly meant to give effect to the aforesaid constitutional mandate. More than this, it has
thereby also declared its will that the period to be fixed by the Public Service Commission shall not
be longer than fifty years. All that has been delegated to the Commission, therefore, is the
administrative function, involving the use discretion, to carry out the will of the National Assembly
having in view, in addition, the promotion of "public interests in a proper and suitable manner." The
fact that the National Assembly may itself exercise the function and authority thus conferred upon
the Public Service Commission does not make the provision in question constitutionally
objectionable.
The theory of the separation of powers is designed by its originators to secure action and at the
same time to forestall overaction which necessarily results from undue concentration of powers, and
thereby obtain efficiency and prevent deposition. Thereby, the "rule of law" was established which
narrows the range of governmental action and makes it subject to control by certain devices. As a
corollary, we find the rule prohibiting delegation of legislative authority, and from the earliest time
American legal authorities have proceeded on the theory that legislative power must be exercised by
the legislature alone. It is frankness, however, to confess that as one delves into the mass of judicial
pronouncement, he finds a great deal of confusion. One thing, however, is apparent in the
development of the principle of separation of powers and that is that the maxim of delegatus non
potest delegari or delegata potestas non potest delegari, attributed to Bracton (De Legius et

Consuetedinious Angliae, edited by G. E. Woodbine, Yale University Press, 1922, vol. 2, p. 167) but
which is also recognized in principle in the Roman Law (D. 17.18.3), has been made to adapt itself
to the complexities of modern governments, giving rise to the adoption, within certain limits, of the
principle of "subordinate legislation," not only in the United States and England but in practically all
modern governments. (People vs. Rosenthal and Osmea, G. R. Nos. 46076 and 46077,
promulgated June 12, 1939.) Accordingly, with the growing complexity of modern life, the
multiplication of the subjects of governmental regulation, and the increased difficulty of administering
the laws, there is a constantly growing tendency toward the delegation of greater powers by the
legislature, and toward the approval of the practice by the court. (Dillon Catfish Drainage Dist, v.
Bank of Dillon, 141 S. E. 274, 275, 143 S. Ct. 178; State vs. Knox County, 54 S. W. 2d. 973, 976,
165 Tenn. 319.) In harmony with such growing tendency, this Court, since the decision in the case
of Compaia General de Tabacos de Filipinas vs. Board of Public Utility Commissioner (34 Phil.,
136), relied upon by the petitioner, has, in instances, extended its seal of approval to the "delegation
of greater powers by the legislature." (Inchausti Steamship Co. vs. Public Utility Commissioner, 44
Phil., Autobus Co. vs. De Jesus, 56 Phil., 446; People vs. Fernandez & Trinidad, G. R. No. 45655,
promulgated June 15, 1938; People vs. Rosenthal & Osmea, G. R. Nos. 46076, 46077,
promulgated June 12, 1939; and Robb and Hilscher vs. People, G. R. No. 45866, promulgated June
12, 1939.).
Under the fourth paragraph of section 15 of Commonwealth Act No. 146, as amended by
Commonwealth Act No. 454, the power of the Public Service Commission to prescribed the
conditions "that the service can be acquired by the Commonwealth of the Philippines or by any
instrumentality thereof upon payment of the cost price of its useful equipment, less reasonable," and
"that the certificate shall be valid only for a definite period of time" is expressly made applicable "to
any extension or amendment of certificates actually in force" and "to authorizations to renew and
increase equipment and properties." We have examined the legislative proceedings on the subject
and have found that these conditions were purposely made applicable to existing certificates of
public convenience. The history of Commonwealth Act No. 454 reveals that there was an attempt to
suppress, by way of amendment, the sentence "and likewise, that the certificate shall be valid only
for a definite period of time," but the attempt failed:
xxx

xxx

xxx

Sr. CUENCO. Seor Presidente, para otra enmienda. En la misma pagina, lineas 23 y 24,
pido que se supriman las palabras 'and likewise, that the certificate shall be valid only for a
definite period time.' Esta disposicion del proyecto autoriza a la Comision de Servicios
Publicos a fijar un plazo de vigencia certificado de conveniencia publica. Todo el mundo
sabe que bo se puede determinar cuando los intereses del servicio publico requiren la
explotacion de un servicio publico y ha de saber la Comision de Servisios, si en un tiempo
determinado, la explotacion de algunos buses en cierta ruta ya no tiene de ser, sobre todo,
si tiene en cuenta; que la explotacion de los servicios publicos depende de condiciones
flutuantes, asi como del volumen como trafico y de otras condiciones. Ademas, el servicio
publico se concede por la Comision de Servicios Publicos el interes publico asi lo exige. El
interes publico no tiene duracion fija, no es permanente; es un proceso mas o menos
indefinido en cuanto al tiempo. Se ha acordado eso en el caucus de anoche.

EL PRESIDENTE PRO TEMPORE. Que dice el Comite?

Sr. ALANO. El Comite siente tener que rechazar esa enmienda, en vista de que esto
certificados de conveniencia publica es igual que la franquicia: sepuede extender. Si los
servicios presentados por la compaia durante el tiempo de su certificado lo require, puede
pedir la extension y se le extendera; pero no creo conveniente el que nosotros demos un
certificado de conveniencia publica de una manera que podria pasar de cincuenta anos,
porque seria anticonstitucional.
xxx

xxx

xxx

By a majority vote the proposed amendment was defeated. (Sesion de 17 de mayo de 1939,
Asamblea Nacional.)
The petitioner is mistaken in the suggestion that, simply because its existing certificates had been
granted before June 8, 1939, the date when Commonwealth Act No. 454, amendatory of section 15
of Commonwealth Act No. 146, was approved, it must be deemed to have the right of holding them
in perpetuity. Section 74 of the Philippine Bill provided that "no franchise, privilege, or concession
shall be granted to any corporation except under the conditions that it shall be subject to
amendment, alteration, or repeal by the Congress of the United States." The Jones Law,
incorporating a similar mandate, provided, in section 28, that "no franchise or right shall be granted
to any individual, firm, or corporation except under the conditions that it shall be subject to
amendment, alteration, or repeal by the Congress of the United States." Lastly, the Constitution of
the Philippines provided, in section 8 of Article XIII, that "no franchise or right shall be granted to any
individual, firm, or corporation, except under the condition that it shall be subject to amendment,
alteration, or repeal by the National Assembly when the public interest so requires." The National
Assembly, by virtue of the Constitution, logically succeeded to the Congress of the United States in
the power to amend, alter or repeal any franchise or right granted prior to or after the approval of the
Constitution; and when Commonwealth Acts Nos. 146 and 454 were enacted, the National
Assembly, to the extent therein provided, has declared its will and purpose to amend or alter existing
certificates of public convenience.
Upon the other hand, statutes enacted for the regulation of public utilities, being a proper exercise by
the state of its police power, are applicable not only to those public utilities coming into existence
after its passage, but likewise to those already established and in operation.
Nor is there any merit in petitioner's contention, that, because of the establishment of
petitioner's operations prior to May 1, 1917, they are not subject to the regulations of the
Commission. Statutes for the regulation of public utilities are a proper exercise by the state of
its police power. As soon as the power is exercised, all phases of operation of established
utilities, become at once subject to the police power thus called into operation. Procedures'
Transportation Co. v. Railroad Commission, 251 U. S. 228, 40 Sup. Ct. 131, 64 Law. ed. 239,
Law v. Railroad Commission, 184 Cal. 737, 195 Pac. 423, 14 A. L. R. 249. The statute is
applicable not only to those public utilities coming into existence after its passage, but
likewise to those already established and in operation. The 'Auto Stage and Truck
Transportation Act' (Stats. 1917, c. 213) is a statute passed in pursuance of the police power.

The only distinction recognized in the statute between those established before and those
established after the passage of the act is in the method of the creation of their operative
rights. A certificate of public convenience and necessity it required for any new operation, but
no such certificate is required of any transportation company for the operation which was
actually carried on in good faith on May 1, 1917, This distinction in the creation of their
operative rights in no way affects the power of the Commission to supervise and regulate
them. Obviously the power of the Commission to hear and dispose of complaints is as
effective against companies securing their operative rights prior to May 1, 1917, as against
those subsequently securing such right under a certificate of public convenience and
necessity. (Motor Transit Co. et al. v. Railroad Commission of California et al., 209 Pac. 586.)
Moreover, Commonwealth Acts Nos. 146 and 454 are not only the organic acts of the Public Service
Commission but are "a part of the charter of every utility company operating or seeking to operate a
franchise" in the Philippines. (Streator Aqueduct Co. v. et al., 295 Fed. 385.) The business of a
common carrier holds such a peculiar relation to the public interest that there is superinduced upon it
the right of public regulation. When private property is "affected with a public interest it ceased to
be juris privati only." When, therefore, one devotes his property to a use in which the public has an
interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by
the public for the common good, to the extent of the interest he has thus created. He may withdraw
his grant by discounting the use, but so long as he maintains the use he must submit to control.
Indeed, this right of regulation is so far beyond question that it is well settled that the power of the
state to exercise legislative control over public utilities may be exercised through boards of
commissioners. (Fisher vs.Yangco Steamship Company, 31 Phil., 1, citing Munn vs. Illinois, 94 U.S.
113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S. 174; Budd vs. New York, 143 U.S. 517; New York
etc. R. Co. vs. Bristol 151 U.S. 556, 571; Connecticut etc. R. Co. vs. Woodruff, 153 U.S. 689;
Louisville etc. Ry Co. vs. Kentucky, 161 U.S. 677, 695.) This right of the state to regulate public
utilities is founded upon the police power, and statutes for the control and regulation of utilities are a
legitimate exercise thereof, for the protection of the public as well as of the utilities themselves. Such
statutes are, therefore, not unconstitutional, either impairing the obligation of contracts, taking
property without due process, or denying the equal protection of the laws, especially inasmuch as
the question whether or not private property shall be devoted to a public and the consequent
burdens assumed is ordinarily for the owner to decide; and if he voluntarily places his property in
public service he cannot complain that it becomes subject to the regulatory powers of the state. (51
C. J., sec. 21, pp. 9-10.) in the light of authorities which hold that a certificate of public convenience
constitutes neither a franchise nor contract, confers no property right, and is mere license or
privilege. (Burgess vs. Mayor & Alderman of Brockton, 235 Mass. 95, 100, 126 N. E. 456;
Roberto vs.Commisioners of Department of Public Utilities, 262 Mass. 583, 160 N. E. 321;
Scheible vs. Hogan, 113 Ohio St. 83, 148 N. E. 581; Martz vs. Curtis [J. L.] Cartage Co. [1937], 132
Ohio St. 271, 7 N. E. [d] 220; Manila Yellow Taxicab Co. vs. Sabellano, 59 Phil., 773.)
Whilst the challenged provisions of Commonwealth Act No. 454 are valid and constitutional, we are,
however, of the opinion that the decision of the Public Service Commission should be reversed and
the case remanded thereto for further proceedings for the reason now to be stated. The Public
Service Commission has power, upon proper notice and hearing, "to amend, modify or revoke at any
time any certificate issued under the provisions of this Act, whenever the facts and circumstances on
the strength of which said certificate was issued have been misrepresented or materially changed."

(Section 16, par. [m], Commonwealth Act No. 146.) The petitioner's application here was for an
increase of its equipment to enable it to comply with the conditions of its certificates of public
convenience. On the matter of limitation to twenty five (25) years of the life of its certificates of public
convenience, there had been neither notice nor opportunity given the petitioner to be heard or
present evidence. The Commission appears to have taken advantage of the petitioner to augment
petitioner's equipment in imposing the limitation of twenty-five (25) years which might as well be
twenty or fifteen or any number of years. This is, to say the least, irregular and should not be
sanctioned. There are cardinal primary rights which must be respected even in proceedings of this
character. The first of these rights is the right to a hearing, which includes the right of the party
interested or affected to present his own case and submit evidence in support thereof. In the
language of Chief Justice Hughes, in Morgan v. U.S., (304 U.S. 1, 58 S. Ct. 773, 999, 82 Law. ed.
1129), "the liberty and property of the citizen shall be protected by the rudimentary requirements of
fair play." Not only must the party be given an opportunity to present his case and to adduce
evidence tending to establish the rights which he asserts but the tribunal must consider the evidence
presented. (Chief Justice Hughes in Morgan vs. U.S., 298 U.S. 468, 56 S. Ct. 906, 80 :Law. ed.
1288.) In the language of this Court in Edwards vs. McCoy (22 Phil., 598), "the right to adduce
evidence, without the corresponding duty on the part of the board to consider it, is vain. Such right is
conspicuously futile if the person or persons to whom the evidence is presented can thrust it aside
without or consideration." While the duty to deliberate does not impose the obligation to decide right,
it does imply a necessity which cannot be disregarded, namely, that of having something to support
its decision. A decision with absolutely nothing to support it is a nullity, at least when directly
attacked. (Edwards vs. McCoy, supra.) This principle emanates from the more fundamental principle
that the genius of constitutional government is contrary to the vesting of unlimited power anywhere.
Law is both a grant and a limitation upon power.
The decision appealed from is hereby reversed and the case remanded to the Public Service
Commission for further proceedings in accordance with law and this decision, without any
pronouncement regarding costs. So ordered.

SECOND DIVISION
[G.R. No. 119528. March 26, 1997]

PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS

BOARD
and
GRAND
INTERNATIONAL
AIRWAYS,
INC., respondents.
DECISION
TORRES, JR., J.:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the
Rules of Court seeks to prohibit respondent Civil Aeronautics Board from

exercising jurisdiction over private respondent's Application for the issuance of

a Certificate of Public Convenience and Necessity, and to annul and set aside
a temporary operating permit issued by the Civil Aeronautics Board in favor of
Grand International Airways (GrandAir, for brevity) allowing the same to
engage in scheduled domestic air transportation services, particularly the
Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to
support its petition is the fact that GrandAir does not possess a legislative
franchise authorizing it to engage in air transportation service within the
Philippines or elsewhere. Such franchise is, allegedly, a requisite for the
issuance of a Certificate of Public Convenience or Necessity by the
respondent Board, as mandated under Section 11, Article XII of the
Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise
is no longer a requirement for the issuance of a Certificate of Public
Convenience and Necessity or a Temporary Operating Permit, following the
Court's pronouncements in the case of Albano vs. Reyes, as restated by the
Court of Appeals in Avia Filipinas International vs. Civil Aeronautics
Board and Silangan Airways, Inc. vs. Grand International Airways, Inc., and
the Hon. Civil Aeronautics Board.
[1]

[2]

[3]

On November 24, 1994, private respondent GrandAir applied for a

Certificate of Public Convenience and Necessity with the Board, which
application was docketed as CAB Case No. EP-12711. Accordingly, the Chief
Hearing Officer of the CAB issued a Notice of Hearing setting the application
for initial hearing on December 16, 1994, and directing GrandAir to serve a
copy of the application and corresponding notice to all scheduled Philippine
Domestic operators. On December 14, 1994, GrandAir filed its Compliance,
and requested for the issuance of a Temporary Operating Permit. Petitioner,
itself the holder of a legislative franchise to operate air transport services, filed
an Opposition to the application for a Certificate of Public Convenience and
Necessity on December 16, 1995 on the following grounds:
[4]

"A. The CAB has no jurisdiction to hear the petitioner's application until the latter has
first obtained a franchise to operate from Congress.

B. The petitioner's application is deficient in form and substance in that:

1. The application does not indicate a route structure including a computation of
trunkline, secondary and rural available seat kilometers (ASK) which shall always be
maintained at a monthly level at least 5% and 20% of the ASK offered into and out of
the proposed base of operations for rural and secondary, respectively.
2. It does not contain a project/feasibility study, projected profit and loss statements,
projected balance sheet, insurance coverage, list of personnel, list of spare parts
inventory, tariff structure, documents supportive of financial capacity, route flight
schedule, contracts on facilities (hangars, maintenance, lot) etc.
C. Approval of petitioner's application would violate the equal protection clause of the
constitution.
D. There is no urgent need and demand for the services applied for.
E. To grant petitioner's application would only result in ruinous competition contrary
to Section 4(d) of R.A. 776."
[5]

At the initial hearing for the application, petitioner raised the issue of lack
of jurisdiction of the Board to hear the application because GrandAir did not
possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order
denying petitioner's Opposition. Pertinent portions of the Order read:
"PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until
the latter has first obtained a franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In
Avia Filipina vs. CAB, CA G.R. No. 23365, it has been ruled that under Section 10 (c)
(I) of R.A. 776, the Board possesses this specific power and duty.
In view thereof, the opposition of PAL on this ground is hereby denied.
SO ORDERED."

Meantime, on December 22, 1994, petitioner this time, opposed private

respondent's application for a temporary permit maintaining that:
"1. The applicant does not possess the required fitness and capability of operating the
services applied for under RA 776; and,
2. Applicant has failed to prove that there is clear and urgent public need for the
services applied for."
[6]

On December 23, 1994, the Board promulgated Resolution No. 119(92)

approving the issuance of a Temporary Operating Permit in favor of Grand
Air for a period of three months, i.e., from December 22, 1994 to March 22,
1994. Petitioner moved for the reconsideration of the issuance of the
Temporary Operating Permit on January 11, 1995, but the same was denied in
CAB Resolution No. 02 (95) on February 2, 1995. In the said Resolution, the
Board justified its assumption of jurisdiction over GrandAir's application.
[7]

[8]

"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic
Act No. 776 as follows:
'(c) The Board shall have the following specific powers and duties:
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend
revise, alter, modify, cancel, suspend or revoke, in whole or in part, upon petitionercomplaint, or upon its own initiative, any temporary operating permit or Certificate of
Public Convenience and Necessity; Provided, however; that in the case of foreign air
carriers, the permit shall be issued with the approval of the President of the Republic
of the Philippines."
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein
the Supreme Court held that the CAB can even on its own initiative, grant a TOP even
before the presentation of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365),
promulgated on October 30, 1991, held that in accordance with its mandate, the CAB
can issue not only a TOP but also a Certificate of Public Convenience and Necessity
(CPCN) to a qualified applicant therefor in the absence of a legislative franchise,

citing therein as basis the decision of Albano vs. Reyes (175 SCRA 264) which
provides (inter alia) that:
a) Franchises by Congress are not required before each and every public utility may
operate when the law has granted certain administrative agencies the power to grant
licenses for or to authorize the operation of certain public utilities;
b) The Constitutional provision in Article XII, Section 11 that the issuance of a
franchise, certificate or other form of authorization for the operation of a public utility
does not necessarily imply that only Congress has the power to grant such
authorization since our statute books are replete with laws granting specified agencies
in the Executive Branch the power to issue such authorization for certain classes of
public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides
in Section 2.1 that a minimum of two (2) operators in each route/link shall be
encouraged and that routes/links presently serviced by only one (1) operator shall be
open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by
Philippine Airlines on January 05, 1995 on the Grant by this Board of a Temporary
Operating Permit (TOP) to Grand International Airways, Inc. alleging among others
that the CAB has no such jurisdiction, is hereby DENIED, as it hereby denied, in view
of the foregoing and considering that the grounds relied upon by the movant are not
indubitable."
On March 21, 1995, upon motion by private respondent, the temporary
permit was extended for a period of six (6) months or up to September 22,
1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and
jurisdiction in taking cognizance of GrandAirs application for the issuance of a
Certificate of Public Convenience and Necessity, and in issuing a temporary
operating permit in the meantime, since GrandAir has not been granted and
does not possess a legislative franchise to engage in scheduled domestic air
transportation. A legislative franchise is necessary before anyone may engage

in air transport services, and a franchise may only be granted by Congress.

This is the meaning given by the petitioner upon a reading of Section
11, Article XII, and Section 1, Article VI, of the Constitution.
[9]

[10]

To support its theory, PAL submits Opinion No. 163, S. 1989 of the
Department of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a legislative
franchise before the Civil Aeronautics Board (CAB) may issue a Certificate of
Public Convenience and Necessity and/or permit to engage in air commerce or air
transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a congressional
franchise, the House Committee on Corporations and Franchises contended that under
the present Constitution, the CAB may not issue the abovestated certificate or permit,
unless the individual or entity concerned possesses a legislative franchise. You believe
otherwise, however, for the reason that under R.A. No. 776, as amended, the CAB is
explicitly empowered to issue operating permits or certificates of public convenience
and necessity and that this statutory provision is not inconsistent with the current
charter.
We concur with the view expressed by the House Committee on Corporations and
Franchises. In an opinion rendered in favor of your predecessor-in-office, this
Department observed that,-

xxx it is useful to note the distinction between the franchise to

operate and a permit to commence operation. The former is sovereign
and legislative in nature; it can be conferred only by the lawmaking
authority (17 W and P, pp. 691-697). The latter is administrative and
regulatory in character (In re Application of Fort Crook-Bellevue
Boulevard Line, 283 NW 223); it is granted by an administrative
agency, such as the Public Service Commission [now Board of
Transportation], in the case of land transportation, and the Civil
Aeronautics Board, in case of air services. While a legislative
franchise is a pre-requisite to a grant of a certificate of public
convenience and necessity to an airline company, such franchise
alone cannot constitute the authority to commence operations,
inasmuch as there are still matters relevant to such operations which
are not determined in the franchise, like rates, schedules and routes,
and which matters are resolved in the process of issuance of permit
by the administrative. (Secretary of Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and necessity is
an authorization issued by the appropriate governmental agency for the operation of
public services for which a franchise is required by law (Almario, Transportation and
Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4,
1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative authorization to
engage in a business activity or enterprise of a public nature, whereas a certificate of
public convenience and necessity is a regulatory measure which constitutes the
franchises authority to commence operations. It is thus logical that the grant of the
former should precede the latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDOEZ
Secretary of Justice"
Respondent GrandAir, on the other hand, relies on its interpretation of the
provisions of Republic Act 776, which follows the pronouncements of the

Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, and
Silangan Airways, Inc. vs. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics
Board can issue the Certificate of Public Convenience and Necessity or
Temporary Operating Permit to a prospective domestic air transport operator
who does not possess a legislative franchise to operate as such. Relying on
the Court's pronouncement in Albano vs. Reyes (supra), the Court of Appeals
upheld the authority of the Board to issue such authority, even in the absence
of a legislative franchise, which authority is derived from Section 10 of
Republic Act 776, as amended by P.D. 1462.
[11]

The Civil Aeronautics Board has jurisdiction over GrandAir's Application

for a Temporary Operating Permit. This rule has been established in the case
of Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June
13, 1968. The Board is expressly authorized by Republic Act 776 to issue a
temporary operating permit or Certificate of Public Convenience and
Necessity, and nothing contained in the said law negates the power to issue
said permit before the completion of the applicant's evidence and that of the
oppositor thereto on the main petition. Indeed, the CAB's authority to grant a
temporary permit "upon its own initiative" strongly suggests the power to
exercise said authority, even before the presentation of said evidence has
begun. Assuming arguendo that a legislative franchise is prerequisite to the
issuance of a permit, the absence of the same does not affect the jurisdiction
of the Board to hear the application, but tolls only upon the ultimate issuance
of the requested permit.
[12]

The power to authorize and control the operation of a public utility is

admittedly a prerogative of the legislature, since Congress is that branch of
government vested with plenary powers of legislation.
"The franchise is a legislative grant, whether made directly by the legislature itself, or
by any one of its properly constituted instrumentalities. The grant, when made, binds
the public, and is, directly or indirectly, the act of the state."
[13]

The issue in this petition is whether or not Congress, in enacting Republic

Act 776, has delegated the authority to authorize the operation of domestic air

transport services to the respondent Board, such that Congressional mandate

for the approval of such authority is no longer necessary.
Congress has granted certain administrative agencies the power to grant
licenses for, or to authorize the operation of certain public utilities. With the
growing complexity of modern life, the multiplication of the subjects of
governmental regulation, and the increased difficulty of administering the
laws, there is a constantly growing tendency towards the delegation of greater
powers by the legislature, and towards the approval of the practice by the
courts. It is generally recognized that a franchise may be derived indirectly
from the state through a duly designated agency, and to this extent, the power
to grant franchises has frequently been delegated, even to agencies other
than those of a legislative nature. In pursuance of this, it has been held that
privileges conferred by grant by local authorities as agents for the state
constitute as much a legislative franchise as though the grant had been made
by an act of the Legislature.
[14]

[15]

[16]

The trend of modern legislation is to vest the Public Service Commissioner

with the power to regulate and control the operation of public services under
reasonable rules and regulations, and as a general rule, courts will not
interfere with the exercise of that discretion when it is just and reasonable and
founded upon a legal right.
[17]

It is this policy which was pursued by the Court in Albano vs. Reyes. Thus,
a reading of the pertinent issuances governing the Philippine Ports Authority,
proves that the PPA is empowered to undertake by itself the operation and
management of the Manila International Container Terminal, or to authorize its
operation and management by another by contract or other means, at its
option. The latter power having been delegated to the PPA, a franchise from
Congress to authorize an entity other than the PPA to operate and manage
the MICP becomes unnecessary.
[18]

Given the foregoing postulates, we find that the Civil Aeronautics Board
has the authority to issue a Certificate of Public Convenience and Necessity,
or Temporary Operating Permit to a domestic air transport operator, who,
though not possessing a legislative franchise, meets all the other

requirements prescribed by the law. Such requirements were enumerated in

Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a
legislative franchise is an indispensable requirement for an entity to operate
as a domestic air transport operator. Although Section 11 of Article XII
recognizes Congress' control over any franchise, certificate or authority to
operate a public utility, it does not mean Congress has exclusive authority to
issue the same. Franchises issued by Congress are not required before each
and every public utility may operate. In many instances, Congress has seen
it fit to delegate this function to government agencies, specialized particularly
in their respective areas of public service.
[19]

A reading of Section 10 of the same reveals the clear intent of Congress to

delegate the authority to regulate the issuance of a license to operate
domestic air transport services:
SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided
herein, the Board shall have the power to regulate the economic aspect of air
transportation, and shall have general supervision and regulation of, the jurisdiction
and control over air carriers, general sales agents, cargo sales agents, and air freight
forwarders as well as their property rights, equipment, facilities and franchise, insofar
as may be necessary for the purpose of carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the following
specific powers and duties:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend,
revise, alter, modify, cancel, suspend or revoke in whole or in part upon petition or
complaint or upon its own initiative any Temporary Operating Permit or Certificate of
Public Convenience and Necessity: Provided however, That in the case of foreign air
carriers, the permit shall be issued with the approval of the President of the Republic
of the Philippines.

Petitioner argues that since R.A. 776 gives the Board the authority to issue
"Certificates of Public Convenience and Necessity", this, according to
petitioner, means that a legislative franchise is an absolute requirement. It
cites a number of authorities supporting the view that a Certificate of Public
Convenience and Necessity is issued to a public service for which a franchise
is required by law, as distinguished from a "Certificate of Public Convenience"
which is an authorization issued for the operation of public services for which
no franchise, either municipal or legislative, is required by law.
[20]

This submission relies on the premise that the authority to issue a

certificate of public convenience and necessity is a regulatory measure
separate and distinct from the authority to grant a franchise for the operation
of the public utility subject of this particular case, which is exclusively lodged
by petitioner in Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience
which courts and legal writers have drafted. Some statutes use the terms
"convenience and necessity" while others use only the words "public
convenience." The terms "convenience and necessity", if used together in a
statute, are usually held not to be separable, but are construed together. Both
words modify each other and must be construed together. The word
'necessity' is so connected, not as an additional requirement but to modify and
qualify what might otherwise be taken as the strict significance of the word
necessity. Public convenience and necessity exists when the proposed
facility will meet a reasonable want of the public and supply a need which the
existing facilities do not adequately afford. It does not mean or require an
actual physical necessity or an indispensable thing.
[21]

"The terms 'convenience' and 'necessity' are to be construed together, although they
are not synonymous, and effect must be given both. The convenience of the public
must not be circumscribed by according to the word 'necessity' its strict meaning or an
essential requisites."
[22]

The use of the word "necessity", in conjunction with "public convenience"

in a certificate of authorization to a public service entity to operate, does not in

any way modify the nature of such certification, or the requirements for the
issuance of the same. It is the law which determines the requisites for the
issuance of such certification, and not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for
the operation of domestic transport services, has delegated to the said body
the authority to determine the capability and competence of a prospective
domestic air transport operator to engage in such venture. This is not an
instance of transforming the respondent Board into a mini-legislative body,
with unbridled authority to choose who should be given authority to operate
domestic air transport services.
"To be valid, the delegation itself must be circumscribed by legislative restrictions, not
a "roving commission" that will give the delegate unlimited legislative authority. It
must not be a delegation "running riot" and "not canalized with banks that keep it
from overflowing." Otherwise, the delegation is in legal effect an abdication of
legislative authority, a total surrender by the legislature of its prerogatives in favor of
the delegate."
[23]

Congress, in this instance, has set specific limitations on how such

authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following
guidelines or policies:
"SECTION 4. Declaration of policies. In the exercise and performance of its powers
and duties under this Act, the Civil Aeronautics Board and the Civil Aeronautics
Administrator shall consider the following, among other things, as being in the public
interest, and in accordance with the public convenience and necessity:
(a) The development and utilization of the air potential of the Philippines;
(b) The encouragement and development of an air transportation system properly
adapted to the present and future of foreign and domestic commerce of the
Philippines, of the Postal Service and of the National Defense;
(c) The regulation of air transportation in such manner as to recognize and preserve
the inherent advantages of, assure the highest degree of safety in, and foster sound

economic condition in, such transportation, and to improve the relations between, and
coordinate transportation by, air carriers;
(d) The promotion of adequate, economical and efficient service by air carriers at
reasonable charges, without unjust discriminations, undue preferences or advantages,
or unfair or destructive competitive practices;
(e) Competition between air carriers to the extent necessary to assure the sound
development of an air transportation system properly adapted to the need of the
foreign and domestic commerce of the Philippines, of the Postal Service, and of the
National Defense;
(f) To promote safety of flight in air commerce in the Philippines; and,
(g) The encouragement and development of civil aeronautics.
More importantly, the said law has enumerated the requirements to
determine the competency of a prospective operator to engage in the public
service of air transportation.
SECTION 12. Citizenship requirement. Except as otherwise provided in the
Constitution and existing treaty or treaties, a permit authorizing a person to engage in
domestic air commerce and/or air transportation shall be issued only to citizens of the
Philippines.
[24]

SECTION 21. Issuance of permit. The Board shall issue a permit authorizing the
whole or any part of the service covered by the application, if it finds: (1) that the
applicant is fit, willing and able to perform such service properly in conformity with
the provisions of this Act and the rules, regulations, and requirements issued
thereunder; and (2) that such service is required by the public convenience and
necessity; otherwise the application shall be denied.
Furthermore, the procedure for the processing of the application of a
Certificate of Public Convenience and Necessity had been established to
ensure the weeding out of those entities that are not deserving of public
service.
[25]

In sum, respondent Board should now be allowed to continue hearing the

application of GrandAir for the issuance of a Certificate of Public Convenience
and Necessity, there being no legal obstacle to the exercise of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the Court
RESOLVED to DISMISS the instant petition for lack of merit. The respondent
Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the
application of respondent Grand International Airways, Inc. for the issuance of
a Certificate of Public Convenience and Necessity.
SO ORDERED.
EN BANC
G.R. No. L-25599

April 4, 1968

HOME INSURANCE COMPANY, plaintiff-appellee,

vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING
CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.
William H. Quasha and Associates for plaintiff-appellee.
Ross, Selph, Salcedo and Associates for defendant-appellant.
BENGZON, J.P., J.:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru,
21,740 jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of
lading Numbers 1 and 2, both dated January 17, 1963. The cargo, consigned to San Miguel
Brewery, Inc., now San Miguel Corporation, and insured by Home Insurance Company for
$202,505, arrived in Manila on March 7, 1963 and was discharged into the lighters of Luzon
Stevedoring Company. When the cargo was delivered to consignee San Miguel Brewery Inc.,
there were shortages amounting to P12,033.85, causing the latter to lay claims against Luzon
Stevedoring Corporation, Home Insurance Company and the American Steamship Agencies,
owner and operator of SS Crowborough.
Because the others denied liability, Home Insurance Company paid the consignee P14,870.71
the insurance value of the loss, as full settlement of the claim. Having been refused
reimbursement by both the Luzon Stevedoring Corporation and American Steamship Agencies,
Home Insurance Company, as subrogee to the consignee, filed against them on March 6, 1964
before the Court of First Instance of Manila a complaint for recovery of P14,870.71 with legal
interest, plus attorney's fees.

In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods
in the same quantity and quality that it had received the same from the carrier. It also claimed
that plaintiff's claim had prescribed under Article 366 of the Code of Commerce stating that the
claim must be made within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the provisions of the
Charter party referred to in the bills of lading, the charterer, not the shipowner, was responsible
for any loss or damage of the cargo. Furthermore, it claimed to have exercised due diligence in
stowing the goods and that as a mere forwarding agent, it was not responsible for losses or
damages to the cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring
Corporation, having found the latter to have merely delivered what it received from the carrier in
the same condition and quality, and ordered American Steamship Agencies to pay plaintiff
P14,870.71 with legal interest plus P1,000 attorney's fees. Said court cited the following
grounds:
(a) The non-liability claim of American Steamship Agencies under the charter party contract
is not tenable because Article 587 of the Code of Commerce makes the ship agent also
civilly liable for damages in favor of third persons due to the conduct of the captain of the
carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is against
public policy under Article 1744 of the Civil Code;
(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at
fault or negligent under Article 1735 of the Civil Code unless they prove extraordinary
diligence, and they cannot by contract exempt themselves from liability resulting from their
negligence or that of their servants; and
(d) When goods are delivered to the carrier in good order and the same are in bad order at
the place of destination, the carrier is prima facie liable.

Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The
appeal brings forth for determination this legal issue: Is the stipulation in the charter party of the
owner's non-liability valid so as to absolve the American Steamship Agencies from liability for
loss?
The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that
the bills of lading shall be governed by and subject to the terms and conditions of the charter
party, if any, otherwise, the bills of lading prevail over all the agreements.2 On the of the bills are
stamped "Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of
charter party dated London, Dec. 13, 1962."

A perusal of the charter party3 referred to shows that while the possession and control of the
ship were not entirely transferred to the charterer,4 the vessel was chartered to its full and
complete capacity (Exh. 3). Furthermore, the, charter had the option to go north or south
or vice-versa,5 loading, stowing and discharging at its risk and expense.6 Accordingly, the charter
party contract is one of affreightment over the whole vessel rather than a demise. As such, the
liability of the shipowner for acts or negligence of its captain and crew, would remain in the
absence of stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage
to the goods caused by personal want of due diligence on its part or its manager to make the
vessel in all respects seaworthy and to secure that she be properly manned, equipped and
supplied or by the personal act or default of the owner or its manager. Said paragraph, however,
exempts the owner of the vessel from any loss or damage or delay arising from any other
source, even from the neglect or fault of the captain or crew or some other person employed by
the owner on board, for whose acts the owner would ordinarily be liable except for said
paragraph..
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article
587 of the Code of Commerce making the ship agent civilly liable for indemnities suffered by
third persons arising from acts or omissions of the captain in the care of the goods and Article
1744 of the Civil Code under which a stipulation between the common carrier and the shipper or
owner limiting the liability of the former for loss or destruction of the goods to a degree less than
extraordinary diligence is valid provided it be reasonable, just and not contrary to public policy.
The release from liability in this case was held unreasonable and contrary to the public policy on
common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American
law.7 Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier.8 As a private carrier, a stipulation
exempting the owner from liability for the negligence of its agent is not against public policy,9 and
is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the
charter party absolving the owner from liability for loss due to the negligence of its agent would
be void only if the strict public policy governing common carriers is applied. Such policy has no
force where the public at large is not involved, as in the case of a ship totally chartered for the
use of a single party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the
charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title
not a contract, for the contract is the charter party.10 The consignee may not claim ignorance of
said charter party because the bills of lading expressly referred to the same. Accordingly, the
consignees under the bills of lading must likewise abide by the terms of the charter party. And

as stated, recovery cannot be had thereunder, for loss or damage to the cargo, against the
shipowners, unless the same is due to personal acts or negligence of said owner or its
manager, as distinguished from its other agents or employees. In this case, no such personal
act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from
liability to plaintiff. No costs. So ordered.
SECOND DIVISION

G.R. No. 98243 July 1, 1992

ALEJANDRO ARADA, doing business under the name and style "SOUTH NEGROS
ENTERPRISES", petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.

PARAS, J.:
This is a petition for review on certiorari which seeks to annul and set aside the decision

* of the Court of
Appeals dated April 8, 1991 in CA-G.R. CV No. 20597 entitled "San Miguel Corporation v. Alejandro Arada, doing business under the name
and style "South Negros Enterprises", reversing the decision of the RTC, Seventh Judicial Region, Branch XII, Cebu City, ordering petitioner
to pay the private respondent tho amount of P172,284.80 representing the value of the cargo lost on board the ill-fated, M/L Maya with
interest thereon at the legal rate from the date of the filing of the complaint on March 25, 1983 until fully paid, and the costs.

The undisputed facts of the case are as follows: Alejandro Arada, herein petitioner, is the proprietor
and operator of the firm South Negros Enterprises which has been organized and established for
more than ten (10) years. It is engaged in the business of small scale shipping as a common carrier,
servicing the hauling of cargoes of different corporations and companies with the five (5) vessels it
was operating (Rollo, p. 121).
On March 24, 1982. petitioner entered into a contract with private respondent to safely transport as a
common carrier, cargoes of the latter from San Carlos City, Negros Occidental to Mandaue City
using one of petitioner's vessels, M/L Maya. The cargoes of private respondent consisted of 9,824
cases of beer empties valued at P176,824.80, were itemized as follows:

NO.
OF
CAS
ES

CARGO

VALUE

7,5
15
CS

PPW
STENIE
MTS

P136.773
.00

1,5
42
CS

PLW
GRAND
E MTS

23,438.4
0

58
CS

G.E.
PLASTIC
MTS

1,276.00

24
CS

PLP
MTS

456.00

37
CS

CS
WOODE
N MTS

673.40

8
CS

LAGERL
ITE
PLASTIC
MTS

128.00

64
0
CS

STENEI
PLASTIC
MTS

14,080.0
0

9,8
24
CS

P176,824
.80

On March 24, 1982, petitioner thru its crew master, Mr. Vivencio Babao, applied for a clearance with
the Philippine Coast Guard for M/L Maya to leave the port of San Carlos City, but due to a typhoon, it

was denied clearance by SNI Antonio Prestado PN who was then assigned at San Carlos City Coast
Guard Detachment (Rollo, p. 122).
On March 25, 1982 M/L Maya was given clearance as there was no storm and the sea was calm.
Hence, said vessel left for Mandaue City. While it was navigating towards Cebu, a typhoon
developed and said vessel was buffeted on all its sides by big waves. Its rudder was destroyed and
it drifted for sixteen (16) hours although its engine was running.
On March 27, 1982 at about 4:00 a.m., the vessel sank with whatever was left of its cargoes. The
crew was rescued by a passing pump boat and was brought to Calanggaman Island. Later in the
afternoon, they were brought to Palompon, Leyte, where Vivencio Babao filed a marine protest
(Rollo, p. 10).
On the basis of such marine protest, the Board of Marine Inquiry conducted a hearing of the sinking
of M/L Maya wherein private respondent was duly represented. Said Board made its findings and
recommendation dated November 7, 1983, the dispositive portion of which reads as:
WHEREFORE, premises considered, this Board recommends as it is hereby
recommended that the owner/operator, officers and crew of M/L Maya be exonerated
or absolved from any administrative liability on account of this incident (Exh. 1).
The Board's report containing its findings and recommendation was then forwarded to the
headquarters of the Philippine Coast Guard for appropriate action. On the basis of such report, the
Commandant of the Philippine Coast Guard rendered a decision dated December 21, 1984 in SBMI
Adm. Case No. 88-82 exonerating the owner/operator officers and crew of the ill-fated M/L Maya
from any administrative liability on account of said incident (Exh. 2).
On March 25, 1983, Private respondent filed a complaint in the Regional Trial Court its first cause of
action being for the recovery of the value of the cargoes anchored on breach of contract of carriage.
After due hearing, said court rendered a decision dated July 18, 1988, the dispositive portion of
which reads
WHEREFORE, judgment is hereby rendered as follows:
(1) With respect to the first cause of action, claim of plaintiff is hereby dismissed;
(2) Under the second cause of action, defendant must pay plaintiff the sum of
P2,000.00;
(3) In the third cause of action, the defendant must pay plaintiff the sum of
P2,849.20;
(4) Since the plaintiff has withheld the payment of P12,997.47 due the defendynt, the
plaintiff should deduct the amount of P4,849.20 from the P12,997.47 and the balance
of P8,148.27 must be paid to the defendant; and
(5) Defendant's counterclaim not having been substantiated by evidence is likewise
dismissed. NO COSTS. (Orig. Record, pp. 193-195).
Thereafter, private respondent appealed said decision to the Court of Appeals claiming that the trial
court erred in

(1) holding that nothing was shown that the defendant, or any of his employees who
manned the M/L Maya was negligent in any way nor did they fail to observe
extraordinary diligence over the cargoes of the plaintiff; and
(2) holding that the sinking of said vessel was caused by the storm, consequently,
dismissing the claim of plaintiff in its first cause of action for breach of contract of
carriage of goods (Rollo, pp. 33-34; Decision, pp. 3-4).
In its decision Promulgated on April 8, 1991, the Court of Appeals reversed the decision of the
court a quo, the dispositive portion and the dispositive part of its decision reads as:
WHEREFORE, that part of the Judgment appeal6d from is REVERSED and the
appellee Aleiandro Arada, doing business by the name and style, "South Negros
Enterprises", ordered (sic) to pay unto the appellant San Miguel Corporation the
amount of P176,824.80 representing the value of the cargo lost on board the ill-fated
vessel, M/L Maya, with interest thereon at the legal rate from date of the filing of the
complaint on March 25, 1983, until fully paid, and the costs. (Rollo, p. 37)
The Court of Appeals ruled that "in view of his failure to observe extraordinary diligence over the
cargo in question and his negligence previous to the sinking of the carrying vessel, as above shown,
the appellee is liable to the appellant for the value of the lost cargo.
Hence the present recourse.
On November 20, 1991, this Court gave due course to the petition. The pivotal issue to be resolved
is whether or not petitioner is liable for the value of the lost cargoes.
Petitioner contends that it was not in the exercise of its function as a common carrier when it entered
into a contract with private respondent,but was then acting as a private carrier not bound by the
requirement of extraordinary diligence (Rollo, p. 15) and that the factual findings of the Board of
Marine Inquiry and the Special Board of Marine Inquiry are binding and conclusive on the Court
(Rollo, pp. 16-17).
Private respondent counters that M/L Maya was in the exercise of its function as a common carrier
and its failure to observe the extraordinary diligence required of it in the vigilance over their cargoes
makes Petitioner liable for the value of said cargoes.
The petition is devoid of merit.
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 (Art. 1732 of the New Civil Code).
In the case at bar, there is no doubt that petitioner was exercising its function as a common carrier
when it entered into a contract with private respondent to carry and transport the latter's cargoes.
This fact is best supported by the admission of petitioner's son, Mr. Eric Arada, who testified as the
officer-in-charge for operations of South Negros Enterprises in Cebu City. In substance his testimony
on January 14, 1985 is as follows:
Q. How many vessels are you operating?

A. There were all in all around five (5).

Q. And you were entering to service hauling of cargoes to different
companies, is that correct?
A. Yes, sir.
Q. In one word, the South Negros Enterprises is engaged in the
business of common carriers, is that correct?
A. Yes, sir,
Q. And in fact, at the time of the hauling of the San Miguel Beer, it
was also in the same category as a common carrier?
A. Yes, sir,
(TSN. pp. 3-4, Jan. 29, 1985)
A common carrier, both from the nature of its business and for insistent reasons of public policy is
burdened by law with the duty of exercising extraordinary diligence not only in ensuring the safety of
passengers, but in caring for the goods transported by it. The loss or destruction or deterioration of
goods turned over to the common carrier for the conveyance to a designated destination raises
instantly a presumption of fault or negligence on the part of the carrier, save only where such loss,
destruction or damage arises from extreme circumstances such as a natural disaster or calamity ...
(Benedicto v. IAC, G.R. No. 70876, July 19, 1990, 187 SCRA 547) (Emphasis supplied).
In order that the common carrier may be exempted from responsibility, the natural disaster must
have been the proximate andonly cause of the loss. However, the common carrier must exercise
due diligence to prevent or minimize the loss before, during and after the occurrence of flood, storm
or other natural disaster in order that the common carrier may be exempted from liability for the
destruction or deterioration of the goods (Article 1739, New Civil Code).
In the instant case, the appellate court was correct in finding that petitioner failed to observe the
extraordinary diligence over the cargo in question and he or the master in his employ was negligent
previous to the sinking of the carrying vessel. In substance, the decision reads:
... VIVENCIO BABAO, the master of the carrying vessel, knew that there was a
typboon coming before his departure but did not check where it was.
xxx xxx xxx
If only for the fact that he was first denied clearance to depart on March 24, 1982,
obviously because of a typhoon coming, Babao, as master of the vessel, should
have verified first where the typhoon was before departing on March 25, 1982. True,
the sea was calm at departure time. But that might be the calm before the storm.
Prudence dictates that he should have ascertained first where the storm was before
departing as it might be on his path. (Rollo, pp. 35-36)
Respondent court's conclusion as to the negligence of petitioner is supported by evidence. It will be
noted that Vivencio Babao knew of the impending typhoon on March 24, 1982 when the Philippine

Coast Guard denied M/L Maya the issuance of a clearance to sail. Less than 24 hours elapsed since
the time of the denial of said clearance and the time a clearance to sail was finally issued on March
25, 1982. Records will show that Babao did not ascertain where the typhoon was headed by the use
of his vessel's barometer and radio (Rorlo, p. 142). Neither did the captain of the vessel monitor and
record the weather conditions everyday as required by Art, 612 of the Code of Commerce (Rollo, pp.
142-143). Had he done so while navigating for 31 hours, he could have anticipated the strong winds
and big waves and taken shelter (Rollo, pp- 36; 145). His testimony on May 4, 1982 is as follows:
Q. Did you not check on your own where the typhoon was?
A. No. sir. (TSN, May 4, 1982, pp. 58-59)
Noteworthy is the fact that as Per official records of the Climatological Division of the Philippine
Atmospheric, Geophysical and Astronomical Services Administration (PAG-ASA for brevity) issued
by its Chief of Climatological Division, Primitivo G. Ballan, Jr. as to the weather and sea conditions
that prevailed in the vicinity of Catmon, Cebu during the period March 25-27, 1982, the sea
conditions on March 25, 1982 were slight to rough and the weather conditions then prevailing during
those times were cloudy skies with rainshowers and the small waves grew larger and larger, to wit:

SP
EE
D

W
A
V
E

S
E
A

H
T
.

K
N
O
TS

M
ar
ch
25

(
M
E
T
E
R
S
)

C
O
N
D
I
T
I
O
N
S

W
E
A
T
H
E
R

8
A
M

1
5

1
2

s
l
i
g
h
t

c
l
o
u
d
y
s
k
i
e
s

w
/
r
a
i
n
s
h
o
w
e
r
s

2
P
M

2
0
2
5

2
.
0
3
.
0

m
o
d
e
r
a
t
e

o
v
e
r
c
a
s
t
s
k
i
e
s

r
o
u
g
h

s
o
m
e
r
a
i
n
s

8
P
M

3
0

3
.
7

r
o
u
g
h

s
e
a
h
e
a
p
s
u
p

w
h
i
t
e
f
o
a
m
f
r
o
m

b
r

e
a
k
i
n
g
w
a
v
e
s

b
e
g
i
n
t
o
b
e
b
l
o
w
n

i
n
s
t
r
e
a
k
s
a
l
o
n

t
h
e
d
i
r
e
c
t
i
o
n
o
f

t
h
e
w
i
n
d
;

S
p
i
n
d
r
i
f
t
b
e
g
i
n

2
A
M

3
0

3
.
7

r
o
u
g
h

s
e
a
h
e
a
p
s
u
p

w
h
i
t
e
f
o
a
m
f
r
o
m

b
r
e
a
k
i
n
g
w
a
v
e

b
e
g
i
n
t
o
b
e
b
l
o
w
n

i
n
s
t
r
e
a
k
s
a
l
o
n
g

t
h
e
d
i
r

e
c
t
i
o
n
o
f
t
h
e
w
i
n
d
;

S
p
i
n
d
r
i
f
t
b
e
g
i
n
s

(Exh. 3)
A common carrier is obliged to observe extraordinary diligence and the failure of Babao to ascertain
the direction of the storm and the weather condition of the path they would be traversing, constitute
lack of foresight and minimum vigilance over its cargoes taking into account the surrounding
circumstances of the case.
While the goods are in the possession of the carrier, it is but fair that it exercises extraordinary
diligence in protecting them from loss or damage, and if loss occurs, the law presumes that it was
due to the carrier's fault or negligence; that is necessary to protect the interest of the shipper which

is at the mercy of the carrier (Art. 1756, Civil Code, Aboitiz Shipping Corporation v. Court of Appeals,
G.R. No. 89757, Aug. 6, 1990, 188 SCRA 387).
Furthermore, the records show that the crew of M/L Maya did not have the required qualifications
provided for in P.D. No. 97 or the Philippine Merchant Marine Officers Law, all of whom were
unlicensed. While it is true that they were given special permit to man the vessel, such permit was
issued at the risk and responsibility of the owner (Rollo, p. 36).
Finally, petitioner claims that the factual findings of the Special Board of Marine Inquiry exonerating
the owner/operator, crew officers of the ill-fated vessel M/L Maya from any administrative liability is
binding on the court.
In rejecting petitioner's claim, respondent court was correct in ruling that "such exoneration was but
with respect to the administrative liability of the owner/operator, officers and crew of the ill-fated"
vessel. It could not have meant exoneration of appellee from liability as a common carrier for his
failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for
the negligent acts or omissions of his employees. Such is the function of the Court, not the Special
Board of Marine Inquiry." (Rollo, P. 37, Annex A, p. 7)
The Philippine Merchant Marine Rules and Regulations particularly Chapter XVI thereof entitled
"Marine Investigation and Suspension and Revocation Proceedings" prescribes the Rules governing
maritime casualties or accidents, the rules and Procedures in administrative investigation of all
maritime cases within the jurisdiction or cognizance of the Philippine Coast Guard and the grounds
for suspension and revocation of licenses/certificates of marine officers and seamen (1601
SCOPE); clearly, limiting the jurisdiction of the Board of Marine Inquiry and Special Board of Marine
Inquiry to the administrative aspect of marine casualties in so far as it involves the shipowners and
officers.
PREMISES CONSIDERED, the appealed decision is AFFIRMED.
SO ORDERED.

FIRST DIVISION

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private
one as to negate the civil law presumption of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of
New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in
bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei
Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union,
Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued
on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant
to the Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as
shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by
the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charterparty which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from
National Cargo Bureau inspector or substitute appointed by charterers for his
account certifying the vessel's readiness to receive cargo spaces. The vessel's hold
to be properly swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector before daytime
commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin,
then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire
voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened
with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied
dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause). 6 The hatches remained open throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to
the warehouse, the trucks were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain
portions of the route to the warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress. 8 The petitioner's warehouse was made of corrugated
galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered and unloaded the

fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the
trucks to contain spillages of the ferilizer. 9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),
was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel
prior to and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July
1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer
approximating 18 M/T was contaminated with dirt. The same results were contained in a Certificate of
Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered
was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for commerce, having been
polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged
shortage in the goods shipped and the diminution in value of that portion said to have been
contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment
because, according to them, what they received was just a request for shortlanded certificate and
not a formal claim, and that this "request" was denied by them because they "had nothing to do with
the discharge of the shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the Court
of First Instance of Manila. The defendant carrier argued that the strict public policy governing common
carriers does not apply to them because they have become private carriers by reason of the provisions of
the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant
carrier for the value of the goods lost or damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the
carrier of the goods and to delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to any of the causes which
exempt him from liability is shipted to the carrier, common or private he may be. Even
if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the defendants
are liable (emphasis supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel
M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common carrier by

reason of the time charterer-party. Accordingly, the Civil Code provisions on common carriers which set
forth a presumption of negligence do not find application in the case at bar. Thus

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee

to adduce sufficient evidence to prove the negligence of the defendant carrier as
alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon
whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense (Moran, Commentaries on the Rules of
Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of
its cause of action, i.e. the alleged negligence of defendant carrier. It appears that
the plaintiff was under the impression that it did not have to establish defendant's
negligence. Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligation . . . 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due deligence
on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common carriers and not to
private carriers. 19 Petitioner further argues that since the possession and control of the vessel remain
with the shipowner, absent any stipulation to the contrary, such shipowner should made liable for the
negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the presumption
of negligence against respondent carrier, and instead shifting the onus probandi on the shipper to show
want of due deligence on the part of the carrier, when he was not even at hand to witness what transpired
during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by
reason of a charter-party; in the negative, whether the shipowner in the instant case was able to
prove that he had exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so,
we find it fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; 20 a contract of affreightment by which the
owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter parties
are of two types: (a) contract of affreightment which involves the use of shipping space on vessels leased
by the owner in part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat
charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire
command and possession and consequent control over its navigation, including the master and the crew,
who are his servants. Contract of affreightment may either be time charter, wherein the vessel is leased to

the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either for a determinate
period of time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the
wages of the master and the crew, and defray the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as ready
to engage in carrying goods or transporting passengers or both for compensation as a public employment
and not as a casual occupation. The distinction between a "common or public carrier" and a "private or
special carrier" lies in the character of the business, such that if the undertaking is a single transaction,
not a part of the general business or occupation, although involving the carriage of goods for a fee, the
person or corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the
case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.
Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to
have been at fault or to have acted negligently, and the burden of proving otherwise rests on them. 26 On
the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or
deterioration of the goods carried has the onus of proving that the cause was the negligence of the
carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly then can we charge
the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the
charterer did not have any control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks, the determination of the course
of the voyage and other technical incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only,
as in the case of a time-charter or voyage-charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least
insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in
a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity
of a stipulation in the charter-party exempting the shipowners from liability for loss due to the
negligence of its agent, and not the effects of a special charter on common carriers. At any rate, the
rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing

concern for safety in the transportation of passengers and /or carriage of goods by sea requires a more
exacting interpretation of admiralty laws, more particularly, the rules governing common carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law

30

As a matter of principle, it is difficult to find a valid distinction between cases in which

a ship is used to convey the goods of one and of several persons. Where the ship
herself is let to a charterer, so that he takes over the charge and control of her, the
case is different; the shipowner is not then a carrier. But where her services only are
let, the same grounds for imposing a strict responsibility exist, whether he is
employed by one or many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative on board the ship; the
same opportunities for fraud or collusion occur; and the same difficulty in discovering
the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same
was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to
respondent to prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
faciepresumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified
that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and
fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon
hatches were closed and sealed with iron lids, then covered with three (3) layers of serviceable
tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the
ship was in transit as the weight of the steel covers made it impossible for a person to open without
the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded,
and in the presence of a representative of the shipowner, the foreman, the stevedores, and a cargo
surveyor representing CSCI, opened the hatches and inspected the condition of the hull of the vessel.
The stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the
whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of
the cargo. This was confirmed by respondent appellate court thus

. . . Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent in
performing its obligations. Particularly, the following testimonies of plaintiff-appellee's
own witnesses clearly show absence of negligence by the defendant carrier; that the
hull of the vessel at the time of the discharge of the cargo was sealed and nobody
could open the same except in the presence of the owner of the cargo and the
representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the
hatches was made of steel and it was overlaid with tarpaulins, three layers of
tarpaulins and therefore their contents were protected from the weather (TSN, 5 April
1978, p. 24); and, that to open these hatches, the seals would have to be broken, all
the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).
The period during which private respondent was to observe the degree of diligence required of it as
a public carrier began from the time the cargo was unconditionally placed in its charge after the
vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was reexamined by the consignee, but prior to unloading. This is
clear from the limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense
to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper stowage
only when the stowing is done by stevedores employed by him, and therefore under his control and
supervision, not when the same is done by the consignee or stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless,
shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against him,
that they arose through his negligence or by reason of his having failed to take the precautions which
usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped
and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working
with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and
carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not normally evaporate
even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a
clamped shell, losses due to spillage during such operation amounting to one percent (1%) against
the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the
clamped shell which does not seal very tightly. Also, the wind tends to blow away some of the
materials during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely
high temperature in its place of storage, or when it comes in contact with water. When Urea is
drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion
which is in liquid form still remains potent and usable although no longer saleable in its original
market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles
was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the
inimical effects of the elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to seep
into the vessel's holds during the voyage since the hull of the vessel was in good condition and her
hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy
to carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more
likely to have occurred while the same was being transported from the ship to the dump trucks and
finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and
cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar
order cargo" as contained in their report to PPI was just an approximation or estimate made by
them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged according
to the supply officer of PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent during
its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face.
Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it
highly vulnerable to deterioration; as well as the inadequacy of its packaging which further
contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the
carrier was remise in the exercise of due diligence in order to minimize the loss or damage to the
goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the
First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.

FIRST DIVISION
[G.R. No. 131621. September 28, 1999]

LOADSTAR SHIPPING CO., INC., petitioner, vs.COURT OF APPEALS and

THE MANILA INSURANCE CO., INC., respondents.
DECISION
DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside
the following: (a) the 30 January 1997 decision[1] of the Court of Appeals in CA-G.R. CV No.
36401, which affirmed the decision of 4 October 1991 [2] of the Regional Trial Court of Manila,
Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila
Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of
the complaint until fully paid, P8,000 as attorneys fees, and the costs of the suit; and (b) its
resolution of 19 November 1997,[3] denying LOADSTARs motion for reconsideration of said
decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter, the
vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against
various risks including TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The vessel, in
turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4
million. On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del
Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of
its shipment, the consignee made a claim with LOADSTAR which, however, ignored the
same. As the insurer, MIC paid P6,075,000 to the insured in full settlement of its claim, and the
latter executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that
the sinking of the vessel was due to the fault and negligence of LOADSTAR and its
employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the loss of
the vessel directly to MIC, said amount to be deducted from MICs claim from LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shippers goods and
claimed that the sinking of its vessel was due to force majeure. PGAI, on the other hand, averred
that MIC had no cause of action against it, LOADSTAR being the party insured. In any event,
PGAI was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting
LOADSTAR to elevate the matter to the Court of Appeals, which, however, agreed with the trial
court and affirmed its decision in toto.
In dismissing LOADSTARs appeal, the appellate court made the following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a
single shipper on that fateful voyage. The court noted that the charter of the vessel was
limited to the ship, but LOADSTAR retained control over its crew.[4]
2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be
applied in determining the rights and liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it
had been seaworthy, it could have withstood the natural and inevitable action of the sea on
20 November 1984, when the condition of the sea was moderate. The vessel sank, not
because of force majeure, but because it was not seaworthy. LOADSTARS allegation that
the sinking was probably due to the convergence of the winds, as stated by a PAGASA
expert, was not duly proven at the trial. The limited liability rule, therefore, is not
applicable considering that, in this case, there was an actual finding of negligence on the part
of the carrier.[5]
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because
said provisions bind only the shipper/consignee and the carrier. When MIC paid the shipper
for the goods insured, it was subrogated to the latters rights as against the carrier,
LOADSTAR.[6]
5) There was a clear breach of the contract of carriage when the shippers goods never reached
their destination. LOADSTARs 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 a 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 vessels
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. MICs 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
owners 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 Courts ruling in the case of St. Paul Fire & Marine Insurance Co. v. Macondray &
Co., Inc.,[9] and National Union Fire Insurance Company of Pittsburg v. Stolt-Nielsen Phils., Inc.
[10]

Finally, LOADSTAR avers that MICs 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 LOADSTARs 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 large 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 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:

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 whoseprincipal business activity
is the carrying of persons or goods or both, and one who does such carrying only as
an ancillaryactivity (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
anoccasional, 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

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 even though private
respondents 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 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 LOADSTARs 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 area where it sank was determined to be

moderate. Since it was remiss 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 Courts 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 carriers 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 carriers 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 owners
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 is 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. MICs 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 good.[22] In 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.
SO ORDERED.