G.R. No.

L-6055

June 12, 1953

THE
PEOPLE
OF
THE
vs.
WILLIAM H. QUASHA, defendant-appellant.

PHILIPPINES, plaintiff-appellee,

Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for
appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of
Manila with the crime of falsification of a public and commercial document in that, having been
entrusted with the preparation and registration of the article of incorporation of the Pacific Airways
Corporation, a domestic corporation organized for the purpose of engaging in business as a common
carrier, he caused it to appear in said article of incorporation that one Arsenio Baylon, a Filipino
citizen, had subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the
corporation when in reality, as the accused well knew, such was not the case, the truth being that the
owner of the portion of the capital stock subscribed to by Baylon and the money paid thereon were
American citizen whose name did not appear in the article of incorporation, and that the purpose for
making this false statement was to circumvent the constitutional mandate that no corporation shall be
authorize to operate as a public utility in the Philippines unless 60 per cent of its capital stock is
owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed
to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation
registered its articles of incorporation with the Securities and Exchanged Commission. The article
were prepared and the registration was effected by the accused, who was in fact the organizer of the
corporation. The article stated that the primary purpose of the corporation was to carry on the
business of a common carrier by air, land or water; that its capital stock was P1,000,000, represented
by 9,000 preferred and 100,000 common shares, each preferred share being of the par value of p100
and entitled to 1/3 vote and each common share, of the par value of P1 and entitled to one vote; that
the amount capital stock actually subscribed was P200,000, and the names of the subscribers were
Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and
William H. Quasha, the first being a Filipino and the other five all Americans; that Baylon's
subscription was for 1,145 preferred shares, of the total value of P114,500, and for 6,500 common
shares, of the total par value of P6,500, while the aggregate subscriptions of the American subscribers
were for 200 preferred shares, of the total par value of P20,000, and 59,000 common shares, of the
total par value of P59,000; and that Baylon and the American subscribers had already paid 25 per
cent of their respective subscriptions. Ostensibly the owner of, or subscriber to, 60.005 per cent of the
subscribed capital stock of the corporation, Baylon nevertheless did not have the controlling vote
because of the difference in voting power between the preferred shares and the common shares. Still,
with the capital structure as it was, the article of incorporation were accepted for registration and a
certificate of incorporation was issued by the Securities and Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock
of the corporation. But it is admitted that the money paid on his subscription did not belong to him
but to the Americans subscribers to the corporate stock. In explanation, the accused testified, without
contradiction, that in the process of organization Baylon was made a trustee for the American
incorporators, and that the reason for making Baylon such trustee was as follows:
Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred
shares with a total value of P1,135. Do you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7 of this
certified copy came to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and
Anastasakas one evening. There was considerable difficulty to get them all together at one time
because they were pilots. They had difficulty in deciding what their respective share holdings would
be. Onstott had invested a certain amount of money in airplane surplus property and they had
obtained a considerable amount of money on those planes and as I recall they were desirous of getting
a corporation formed right away. And they wanted to have their respective shares holdings resolved at
a latter date. They stated that they could get together that they feel that they had no time to settle their
respective share holdings. We discussed the matter and finally it was decided that the best way to

handle the things was not to put the shares in the name of anyone of the interested parties and to have
someone act as trustee for their respective shares holdings. So we looked around for a trustee. And he
said "There are a lot of people whom I trust." He said, "Is there someone around whom we could get
right away?" I said, "There is Arsenio. He was my boy during the liberation and he cared for me when
i was sick and i said i consider him my friend." I said. They all knew Arsenio. He is a very kind man
and that was what was done. That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the
Revised Penal Code, which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. The
penalty of prision mayor and a fine not to exceed 5,000 pesos shall be imposed upon any
public officer, employee, or notary who, taking advantage of his official position, shall falsify a
document by committing any of the following acts:
xxx

xxx

xxx

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. The penalty
of prision correccional in its medium and maximum period and a fine of not more than 5,000
pesos shall be imposed upon:
xxx

xxx

xxx

1. Any private individual who shall commit any of the falsifications enumerated in the next
preceding article in any public or official document or letter of exchange or any other kind of
commercial document.
Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal
Code ( new edition, pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the
perversion of truth in the narration of facts must be made with the wrongful intent of injuring a third
person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the same author further maintains that
even if such wrongful intent is proven, still the untruthful statement will not constitute the crime of
falsification if there is no legal obligation on the part of the narrator to disclose the truth. Wrongful
intent to injure a third person and obligation on the part of the narrator to disclose the truth are thus
essential to a conviction for a crime of falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing
in the articles of incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses
to call him) of his American co-incorporators, thus giving the impression that Baylon was the owner
of the shares subscribed to by him which, as above stated, amount to 60.005 per cent of the subscribed capital stock. This, in the opinion of the trial court, is a malicious perversion of the truth made
with the wrongful intent circumventing section 8, Article XIV of the Constitution, which provides that
" no franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporation or other entities organized under the
law of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines .
. . ." Plausible though it may appear at first glance, this opinion loses validity once it is noted that it is
predicated on the erroneous assumption that the constitutional provision just quoted was meant to
prohibit the mere formation of a public utility corporation without 60 per cent of its capital being
owned by the Filipinos, a mistaken belief which has induced the lower court to that the accused was
under obligation to disclose the whole truth about the nationality of the subscribed capital stock of the
corporation by revealing that Baylon was a mere trustee or dummy of his American co-incorporators,
and that in not making such disclosure defendant's intention was to circumvent the Constitution to
the detriment of the public interests. Contrary to the lower court's assumption, the Constitution does
not prohibit the mere formation of a public utility corporation without the required formation of
Filipino capital. What it does prohibit is the granting of a franchise or other form of authorization for
the operation of a public utility to acorporation already in existence but without the requisite
proportion of Filipino capital. This is obvious from the context, for the constitutional provision in
question qualifies the terms " franchise", "certificate", or "any other form of authorization" with the
phrase "for the operation of a public utility," thereby making it clear that the franchise meant is not
the "primary franchise" that invest a body of men with corporate existence but the "secondary
franchise" or the privilege to operate as a public utility after the corporation has already come into
being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien
capital, then how can the accused be charged with having wrongfully intended to circumvent that
fundamental law by not revealing in the articles of incorporation that Baylon was a mere trustee of his

American co-incorporation and that for that reason the subscribed capital stock of the corporation
was wholly American? For the mere formation of the corporation such revelation was not essential,
and the Corporation Law does not require it. Defendant was, therefore, under no obligation to make
it. In the absence of such obligation and of the allege wrongful intent, defendant cannot be legally
convicted of the crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital
stock appearing in the name of Baylon was an indispensable preparatory step to the subversion of the
constitutional prohibition and the laws implementing the policy expressed therein. This view is not
correct. For a corporation to be entitled to operate a public utility it is not necessary that it be
organized with 60 per cent of its capital owned by Filipinos from the start. A corporation formed with
capital that is entirely alien may subsequently change the nationality of its capital through transfer of
shares to Filipino citizens. conversely, a corporation originally formed with Filipino capital may
subsequently change the national status of said capital through transfer of shares to foreigners. What
need is there then for a corporation that intends to operate a public utility to have, at the time of its
formation, 60 per cent of its capital owned by Filipinos alone? That condition may anytime be
attained thru the necessary transfer of stocks. The moment for determining whether a corporation is
entitled to operate as a public utility is when it applies for a franchise, certificate, or any other form of
authorization for that purpose. And that can be done after the corporation has already come into
being and not while it is still being formed. And at that moment, the corporation must show that it has
complied not only with the requirement of the Constitution as to the nationality of its capital, but also
with the requirements of the Civil Aviation Law if it is a common carrier by air, the Revised
Administrative Code if it is a common carrier by water, and the Public Service Law if it is a common
carrier by land or other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible
crime" under article 59 of the Revised Penal Code. It not being possible to suppose that defendant had
intended to commit a crime for the simple reason that the alleged constitutional prohibition which he
is charged for having tried to circumvent does not exist, conviction under that article is out of the
question.
The foregoing consideration can not but lead to the conclusion that the defendant can not be held
guilty of the crime charged. The majority of the court, however, are also of the opinion that, even
supposing that the act imputed to the defendant constituted falsification at the time it was
perpetrated, still with the approval of the Party Amendment to the Constitution in March, 1947, which
placed Americans on the same footing as Filipino citizens with respect to the right to operate public
utilities in the Philippines, thus doing away with the prohibition in section 8, Article XIV of the
Constitution in so far as American citizens are concerned, the said act has ceased to be an offense
within the meaning of the law, so that defendant can no longer be held criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H.
Quasha acquitted, with costs de oficio.

G.R. No. 114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation
and
Communications,
and
EDSA
LRT
CORPORATION,
LTD., respondents.
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further
implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit
System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine
Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr.
is the incumbent Secretary of the Department of Transportation and Communications (DOTC), while
private respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of
Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in
Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The
plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass
transit system along EDSA and alleviate the congestion and growing transportation problem in the
metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu
Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-OperateTransfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with
DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes,"
was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it
took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer (BOT) or
Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway,
DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496,
respectively creating the Prequalification Bids and Awards Committee (PBAC) and the Technical
Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the
financing and implementation of the project The notice, advertising the prequalification of bidders,
was published in three newspapers of general circulation once a week for three consecutive weeks
starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to
April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell
Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan,
and EDSA LRT Consortium, composed of ten foreign and domestic corporations: namely, Kaiser
Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox, Tradeinvest/CKD
Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia Capital and Leasing
Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial
Construction Group, Inc, and F. F. Cruz & co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria proposed
by the Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as
follows: (a) Legal aspects 10 percent; (b) Management/Organizational capability 30 percent; and
(c) Financial capability 30 percent; and (d) Technical capability 30 percent (Rollo, p. 122).

On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the
Implementation Rules and Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring
that of the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least
21 points per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least
82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractorapplicant meet the requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines
and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters
dated May 31, 1991 and June 14, 1991, respectively recommending the award of the EDSA LRT III
project to the sole complying bidder, the EDSA LRT Consortium, and requesting for authority to
negotiate with the said firm for the contract pursuant to paragraph 14(b) of the Implementing Rules
and Regulations of the BOT Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to
the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted
its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA
LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to
Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law
(Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive
Secretary Orbos, informed Secretary Prado that the President could not grant the requested approval
for the following reasons: (1) that DOTC failed to conduct actual public bidding in compliance with
Section 5 of the BOT Law; (2) that the law authorized public bidding as the only mode to award BOT
projects, and the prequalification proceedings was not the public bidding contemplated under the
law; (3) that Item 14 of the Implementing Rules and Regulations of the BOT Law which authorized
negotiated award of contract in addition to public bidding was of doubtful legality; and (4) that
congressional approval of the list of priority projects under the BOT or BT Scheme provided in the law
had not yet been granted at the time the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents renegotiated the agreement. On April 22, 1992, the parties entered into a "Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78)
inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the Agreement
without need of approval by the President pursuant to the provisions of Executive Order No. 380 and
that certain events [had] supervened since November 7, 1991 which necessitate[d] the revision of the
Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented by Secretary Jesus
Garcia vice Secretary Prado, and private respondent entered into a "Supplemental Agreement to the
22 April 1992 Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit
System for EDSA" so as to "clarify their respective rights and responsibilities" and to submit [the]
Supplemental Agreement to the President, of the Philippines for his approval" (Rollo, pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and
approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said Agreements,
(Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and Slovak
Federal Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150
million a year to be achieved-through 54 such vehicles operating simultaneously. The EDSA LRT III
will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8 kilometers from
F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its own power facility
(Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have thirteen (13) passenger
stations and one depot in 16-hectare government property at North Avenue (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete
operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target
completion date is 1,080 days or approximately three years from the implementation date of the
contract inclusive of mobilization, site works, initial and final testing of the system (Supplemental
Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability thereof, private
respondent shall deliver the use and possession of the completed portion to DOTC which shall operate

the same (Supplemental Agreement, Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 6162, 84). DOTC shall pay private respondent rentals on a monthly basis through an Irrevocable Letter
of Credit. The rentals shall be determined by an independent and internationally accredited
inspection firm to be appointed by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As
agreed upon, private respondent's capital shall be recovered from the rentals to be paid by the DOTC
which, in turn, shall come from the earnings of the EDSA LRT III (Revised and Restated Agreement,
Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall have completed payment of the rentals,
ownership of the project shall be transferred to the latter for a consideration of only U.S. $1.00
(Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled
"An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and for Other Purposes" was signed into law by the President. The law
was published in two newspapers of general circulation on May 12, 1994, and took effect 15 days
thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and allows direct negotiation
of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL
AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION,
LTD., A FOREIGN CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC
UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS
NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING
RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A.
NO. 6957 AND, HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT
CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND, HENCE, IS
ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR
FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND
INEFFECTIVE; AND
(6) THE AGREEMENTS ARE
GOVERNMENT (Rollo, pp. 15-16).

GROSSLY

DISADVANTAGEOUS

TO

THE

Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the present
petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT
Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not apply to
private respondent;
(5) The Agreements executed by and between respondents have been approved by President Ramos
and are not disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public bidding is
allowed by the BOT Law; and
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718
passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of award
of infrastructure projects.

III
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners,
however, countered that the action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into
by the national government or government-owned or controlled corporations allegedly in
contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the
same when only municipal contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow
it and uphold the legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is
limited by the Constitution to Filipino citizens and domestic corporations, not foreign
corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT
or BT Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private respondent not
through public bidding which is the only mode of awarding infrastructure projects
under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT
III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and
existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA
LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter
to operate the system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III;
a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail
tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility.
While a franchise is needed to operate these facilities to serve the public, they do not by themselves
constitute a public utility. What constitutes a public utility is not their ownership but their use to serve
the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a public
utility so long as it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive character or for a longer period than fifty years . . . (Emphasis
supplied).
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the
facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the rights

of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45
[1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be
operated and used to serve the public as a public utility unless the operator has a franchise. The
operation of a rail system as a public utility includes the transportation of passengers from one point
to another point, their loading and unloading at designated places and the movement of the trains at
pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R.
1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R.
2d 1065 [1948]).
The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. One can own said facilities without operating them as a public utility, or conversely,
one may operate a public utility without owning the facilities used to serve the public. The devotion of
property to serve the public may be done by the owner or by the person in control thereof who may
not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to
serve the public can be very well appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning
them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it
admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec.
3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion
date, private respondent will immediately deliver possession of the LRT system by way of lease for 25
years, during which period DOTC shall operate the same as a common carrier and private respondent
shall provide technical maintenance and repair services to DOTC (Revised and Restated Agreement,
Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair
and maintenance facilities for the depot and rail lines, services for routine clearing and security; and
(2) producing and distributing maintenance manuals and drawings for the entire system (Revised and
Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use,
maintenance and repair of the rolling stock, power plant, substations, electrical, signaling,
communications and all other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under simulated operating
conditions, control of operations, dealing with emergencies, collection, counting and securing cash
from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel of
DOTC will work under the direction and control of private respondent only during training (Revised
and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that upon
completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall have in
their employ personnel capable of undertaking training of all new and replacement personnel
(Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year
construction period and upon commencement of normal revenue operation, DOTC shall be able to
operate the EDSA LRT III on its own and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes the
project cost, cost of replacement of plant equipment and spare parts, investment and financing cost,
plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a
common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from
any losses, damages, injuries or death which may be claimed in the operation or implementation of
the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account of
the defective condition of equipment or facilities or the defective maintenance of such equipment
facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It
will have no dealings with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case
of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between PGMC
and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture
agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the lessor
obligated itself to build, at its own expense, all the facilities necessary to operate and maintain a

nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the same.
Upon due examination of the contract, the Court found that PGMC's participation was not confined to
the construction and setting up of the on-line lottery system. It spilled over to the actual operation
thereof, becoming indispensable to the pursuit, conduct, administration and control of the highly
technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which
actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
(Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad
Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce
Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank,
refrigerator, wine, poultry and beer cars who supply cars under contract to railroad companies
considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate or any other form of authorization for
that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not recognized
in the BOT Law and its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
(a) Build-operate-and-transfer scheme A contractual arrangement whereby the
contractor undertakes the construction including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The contractor operates the facility
over a fixed term during which it is allowed to charge facility users appropriate tolls,
fees, rentals and charges sufficient to enable the contractor to recover its operating and
maintenance expenses and its investment in the project plus a reasonable rate of return
thereon. The contractor transfers the facility to the government agency or local
government unit concerned at the end of the fixed term which shall not exceed fifty (50)
years. For the construction stage, the contractor may obtain financing from foreign
and/or domestic sources and/or engage the services of a foreign and/or Filipino
constructor [sic]: Provided, That the ownership structure of the contractor of an
infrastructure facility whose operation requires a public utility franchise must be in
accordance with the Constitution: Provided, however, That in the case of corporate
investors in the build-operate-and-transfer corporation, the citizenship of each
stockholder in the corporate investors shall be the basis for the computation of Filipino
equity in the said corporation: Provided, further, That, in the case of foreign
constructors [sic], Filipino labor shall be employed or hired in the different phases of
the construction where Filipino skills are available: Provided, furthermore, that the
financing of a foreign or foreign-controlled contractor from Philippine government
financing institutions shall not exceed twenty percent (20%) of the total cost of the
infrastructure facility or project: Provided, finally, That financing from foreign sources
shall not require a guarantee by the Government or by government-owned or controlled
corporations. The build-operate-and-transfer scheme shall include a supply-andoperate situation which is a contractual agreement whereby the supplier of equipment
and machinery for a given infrastructure facility, if the interest of the Government so
requires, operates the facility providing in the process technology transfer and training
to Filipino nationals.
(b) Build-and-transfer scheme "A contractual arrangement whereby the contractor
undertakes the construction including financing, of a given infrastructure facility, and
its turnover after completion to the government agency or local government unit
concerned which shall pay the contractor its total investment expended on the project,
plus a reasonable rate of return thereon. This arrangement may be employed in the
construction of any infrastructure project including critical facilities which for security
or strategic reasons, must be operated directly by the government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and
financing in infrastructure facility, and operates and maintains the same. The contractor operates the
facility for a fixed period during which it may recover its expenses and investment in the project plus a
reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after
completion, the ownership and operation thereof are turned over to the government. The

government, in turn, shall pay the contractor its total investment on the project in addition to a
reasonable rate of return. If payment is to be effected through amortization payments by the
government infrastructure agency or local government unit concerned, this shall be made in
accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957, Sec.
6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must
comply with the citizenship requirement of the Constitution on the operation of a public utility. No
such a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the
payment by the government of the project cost. The law must not be read in such a way as to rule out
or unduly restrict any variation within the context of the two schemes. Indeed, no statute can be
enacted to anticipate and provide all the fine points and details for the multifarious and complex
situations that may be encountered in enforcing the law (Director of Forestry v. Munoz, 23 SCRA 1183
[1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made
lighter by allowing it to amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly
basis according to a schedule of rates through and under the terms of a confirmed Irrevocable
Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and
when full payment shall have been made to and received by private respondent, it shall transfer to
DOTC, free from any lien or encumbrances, all its title to, rights and interest in, the project for only
U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental Agreement, Sec; 7; Rollo, pp.
67, .87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of
a thing for a certain price and for a period which may be definite or indefinite but not longer than 99
years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the
lease period. But if the parties stipulate that title to the leased premises shall be transferred to the
lessee at the end of the lease period upon the payment of an agreed sum, the lease becomes a leasepurchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not
Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and the
National Economic and Development Authority as falling under the Investment Priorities Plan of
Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency Act
(R.A. No. 529), which reads as follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation
to wit, any obligation contracted in the Philippines which provisions purports to give the
obligee the right to require payment in gold or in a particular kind of coin or currency
other than Philippine currency or in an amount of money of the Philippines measured
thereby, be as it is hereby declared against public policy, and null, void, and of no effect,
and no such provision shall be contained in, or made with respect to, any obligation
hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions
affecting high-priority economic projects for agricultural, industrial and power
development
as
may
be
determined
by
the National Economic Council which are financed by or through foreign funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of National
Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not
suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with
commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects falls,
amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the contract
appears to have been rigged from the very beginning to do away with the usual open international
public bidding where qualified internationally known applicants could fairly participate.

The records show that only one applicant passed the prequalification process. Since only one was left,
to conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant will
be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to
Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts," allows the negotiated award of government projects in
exceptional cases. Sections 4 of the said law reads as follows:
Bidding. Construction projects shall generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provision of laws and acts on the matter,
subject to the approval of the Minister of Public Works and Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be, if the project cost is less than P1 Million, and the President of the
Philippines, upon recommendation of the Minister, if the project cost is P1 Million or
more (Emphasis supplied).
xxx xxx xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general law
on government infrastructure contracts while the BOT Law governs particular arrangements or
schemes aimed at encouraging private sector participation in government infrastructure projects. The
two laws are not inconsistent with each other but are in pari materia and should be read together
accordingly.
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why
none of the competing firms ever brought the matter before the PBAC, or intervened in this case
before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau
Veritas v. Office of the President, 205 SCRA 705 [1992]).
The challenged agreements have been approved by President Ramos himself. Although then
Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a contract
from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal,
statutory and constitutional requirements. Under the circumstances, to require the parties to go back
to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red
tape" should be eschewed because it discourages private sector participation, the "main engine" for
national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
(e) Build-lease-and-transfer A contractual arrangement whereby a project proponent
is authorized to finance and construct an infrastructure or development facility and
upon its completion turns it over to the government agency or local government unit
concerned on a lease arrangement for a fixed period after which ownership of the facility
is automatically transferred to the government unit concerned.
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is
only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification and it meets
the prequalification requirements, after which it is required to submit a bid proposal
which is subsequently found by the agency/local government unit (LGU) to be
complying.
(b) If, after advertisement, more than one contractor applied for prequalification but
only one meets the prequalification requirements, after which it submits bid/proposal
which is found by the agency/local government unit (LGU) to be complying.

(c) If, after prequalification of more than one contractor only one submits a bid which is
found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor submit bids but only one is found
by the agency/LGU to be complying. Provided, That, any of the disqualified prospective
bidder [sic] may appeal the decision of the implementing agency, agency/LGUs
prequalification bids and awards committee within fifteen (15) working days to the head
of the agency, in case of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification was made
known to the disqualified bidder: Provided, furthermore, That the implementing
agency/LGUs concerned should act on the appeal within forty-five (45) working days
from receipt thereof.
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by
the BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law
authorizes all government infrastructure agencies, government-owned and controlled corporations
and local government units to enter into contract with any duly prequalified proponent for the
financing, construction, operation and maintenance of any financially viable infrastructure or
development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-addoperate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any of the schemes
enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined therein (Sec.
3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate
of minimum government regulations and procedures and specific government undertakings in
support of the private sector" (Sec. 1). A curative statute makes valid that which before enactment of
the statute was invalid. Thus, whatever doubts and alleged procedural lapses private respondent and
DOTC may have engendered and committed in entering into the questioned contracts, these have now
been cured by R.A. No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA
342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government
because the rental rates are excessive and private respondent's development rights over the 13
stations and the depot will rob DOTC of the best terms during the most productive years of the
project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a
period of 25 years, exclusive rights over the depot and the air space above the stations for
development into commercial premises for lease, sublease, transfer, or advertising (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights, private
respondent shall pay DOTC in Philippine currency guaranteed revenues generated therefrom in the
amounts set forth in the Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall
be unable to collect the guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the
monthly rent due private respondent for the construction of the EDSA LRT III (Supplemental
Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the
commercial spaces shall revert to DOTC upon expiration of the 25-year period. (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by
the proper administrative agencies and officials who have acquired expertise, specialized skills and
knowledge in the performance of their functions should be accorded respect absent any showing of
grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA 673
[1990]; Board of Medical Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is
necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable
rentals to be paid by the parties to each other. The matter of valuation is an esoteric field which is
better left to the experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is
deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In
all cases where a party enters into a contract with the government, he does so, not out of charity and
not to lose money, but to gain pecuniarily.

5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and
administrative entity of the Executive branch of government in the promotion, development and
regulation of dependable and coordinated networks of transportation and communications systems as
well as in the fast, safe, efficient and reliable postal, transportation and communications services
(Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in
particular that has the power, authority and technical expertise determine whether or not a specific
transportation or communication project is necessary, viable and beneficial to the people. The
discretion to award a contract is vested in the government agencies entrusted with that function
(Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED
Bellosillo and Kapunan, JJ., concur.
Padilla and Regalado, JJ., concurs in the result.
Romero, J., is on leave.
MENDOZA, J., concurring:
I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have
standing to sue, I join to dismiss the petition in this case. I write only to set forth what I understand
the grounds for our decisions on the doctrine of standing are and, why in accordance with these
decisions, petitioners do not have the rights to sue, whether as legislators, taxpayers or citizens. As
members of Congress, because they allege no infringement of prerogative as legislators. 1 As taxpayers
because petitioners allege neither an unconstitutional exercise of the taxing or spending powers of
Congress (Art VI, 24-25 and 29) 2 nor an illegal disbursement of public money. 3 As this Court
pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 a party suing as taxpayer "must specifically
prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation
and that he will sustain a direct injury as a result of the enforcement of the questioned statute or
contract. It is not sufficient that he has merely a general interest common to all members of the
public." In that case, it was held that a contract, whereby a local government leased property to a
private party with the understanding that the latter would build a market building and at the end of
the lease would transfer the building of the lessor, did not involve a disbursement of public funds so
as to give taxpayer standing to question the legality of the contract. I see no substantial difference, as
far as the standing is of taxpayers to question public contracts is concerned, between the contract
there and the build-lease-transfer (BLT) contract being questioned by petitioners in this case.
Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners
by invalidating the challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon
by the majority for upholding petitioners standing, this Court took into account the "paramount
public interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being
of the people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery
system:" 7 Accordingly, the Court invalidated the contract for the operation of lottery.
But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive
contentions to be without merit To the extent therefore that a party's standing is affected by a
determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the
case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for
a Better Philippines v. Aquino 8 and In re Bermudez 9 where we dismissed citizens' actions on the
ground that petitioners had no personality to sue and their petitions did not state a cause of action.
The holding that petitioners did not have standing followed from the finding that they did not have a
cause of action.
In order that citizens' actions may be allowed a party must show that he personally has suffered some
actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is
fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable
action. 10 As the U.S. Supreme Court has held:
Typically, . . . the standing inquiry requires careful judicial examination of a complaint's
allegation to ascertain whether the particular plaintiff is entitled to an adjudication of
the particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to
be considered judicially cognizable? Is the line of causation between the illegal conduct

and injury too attenuated? Is the prospect of obtaining relief from the injury as a result
of a favorable ruling too speculative? These questions and any others relevant to the
standing inquiry must be answered by reference to the Art III notion that federal courts
may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk
R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when
adjudication is "consistent with a system of separated powers and [the dispute is one]
traditionally thought to be capable of resolution through the judicial process," Flast v
Cohen, 392 US 83, 97, 20 L Ed 2d 947, 88 S Ct 1942 (1968). See Valley Forge, 454 US, at
472-473, 70 L Ed 2d 700, 102 S Ct 752. 11
Today's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, 5 in defining the jurisdiction of this Court. The result is to convert
the Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with
the view that this case has no merit I submit with respect that petitioners, as representatives of the
public interest, have no standing.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
DAVIDE, JR., J., dissenting:
After wading through the record of the vicissitudes of the challenged contract and evaluating the
issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the
well-written ponencia of Mr. Justice Camilo P. Quiason.
I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is anultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A.
6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)
even assuming arguendo that it has, the contract was entered into without complying with the
mandatory requirement of public bidding.
I
Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly
entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds
of contractual arrangements between the private sector and government infrastructure agencies: (a)
the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This
conclusion finds support in Section 2 thereof which defines only the BOT and BT schemes, in Section
3 which explicitly provides for said schemes thus:
Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies,
including government-owned and controlled corporations and local government units,
are hereby authorized to enter into contract with any duly prequalified private
contractor for the financing, construction, operation and maintenance of any financially
viable infrastructure facilities through the build-operate-and transfer or build-andtransfer scheme, subject to the terms and conditions hereinafter set forth; (Emphasis
supplied).
and in Section 5 which requires public bidding of projects under both schemes.
All prior acts and negotiations leading to the perfection of the challenged contract were clearly
intended and pursued for such schemes.
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC
is without any power or authority to enter into the BLT contract in question.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the
BOT and the BT schemes bar any other arrangement for the payment by the government of the
project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any
variation within the context of the two schemes." This interpretation would be correct if the law itself
provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a
BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction,
and Congress has enacted several laws relating to leases. That the BLT scheme was never intended as
a permissible variation "within the context" of the BOT and BT schemes is conclusively established by
the passage of R.A. No. 7718 which amends:

a. Section 2 by adding to the original BOT and BT schemes the following schemes:

(1)

Build-own-and-operate (BOO)

(2)

Build-Lease-and-transfer (BLT)

(3)

Build-transfer-and-operate (BTO)

(4)

Contract-add-and-operate (CAO)

(5)

Develop-operate-and-transfer (DOT)

(6)

Rehabilitate-operate-and-transfer (ROT)

(7)

Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the buildoperate-and-transfer or build-and-transfer scheme."
II
Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section
4 of this Act, the concerned head of the infrastructure agency or local government unit
shall forthwith cause to be published, once every week for three (3) consecutive weeks,
in at least two (2) newspapers of general circulation and in at least one (1) local
newspaper which is circulated in the region, province, city or municipality in which the
project is to be constructed a notice inviting all duly prequalified infrastructure
contractors to participate in the public bidding for the projects so approved. In the case
of a build-operate-and-transfer arrangement, the contract shall be awarded to the
lowest complying bidder based on the present value of its proposed tolls, fees, rentals,
and charges over a fixed term for the facility to be constructed, operated, and
maintained according to the prescribed minimum design and performance standards
plans, and specifications. For this purpose, the winning contractor shall be
automatically granted by the infrastructure agency or local government unit the
franchise to operate and maintain the facility, including the collection of tolls, fees,
rentals; and charges in accordance with Section 6 hereof.
In the case of a build-and-transfer arrangement, the contract shall be awarded to the
lowest complying bidder based on the present value of its proposed, schedule of
amortization payments for the facility to be constructed according to the prescribed
minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall be
given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith
be submitted to Congress for its information.
The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices are
eliminated or minimized. And any Government contract entered into without the required bidding is
null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A
TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991],
citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).

The Office of the President, through then Executive Secretary Franklin Drilon Correctly disapproved
the contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was
conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing Rules of
said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void because
the law itself does not recognize or allow negotiated contracts.
However the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only one
was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT
contract should be awarded "to the lowest complying bidder," which logically means that there must
at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should
be deferred and a new prequalification proceeding be scheduled. Even those who were earlier
disqualified may by then have qualified because they may have, in the meantime, exerted efforts to
meet all the qualifications.
This view of the majority would open the floodgates to the rigging of prequalification proceedings or
to unholy conspiracies among prospective bidders, which would even include dishonest government
officials. They could just agree, for a certain consideration, that only one of them qualify in order that
the latter would automatically corner the contract and obtain the award.
That section 5 admits of no exception and that no bidding could be validly had with only one bidder is
likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a
new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation
contracts. This new section reads:
Sec. 5-A. Direct Negotiation Of Contracts Direct negotiation, shall be resorted to
when there is only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification
requirements, after which it is required to submit a bid/proposal which
subsequently found by the agency/local government unit (LGU) to be
complying.
(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements,
after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying,
(c) If after prequalification of more than one contractor only one submits a
bid which is found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor, only one submit
bids but only one is found by the agency/LGU to be complying: Provided,
That, any of the disqualified prospective bidder may appeal the decision
contractor of the implementing agency/LGUs prequalification bids an
award committee within fifteen (15) working days to the head of the
agency, in case of national projects or to the Department of the Interior
and Local Government, in case of local projects from the date the
disqualification was made known to the disqualified bidder Provided, That
the implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.
Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not
provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says that
it "shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general
circulation." If it were the intention of Congress to give said act retroactive effect then it would have so
expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect,
unless the contrary is provided."
The presumption is that all laws operate prospectively, unless the contrary clearly appears or is
clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt
will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing statute,
Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions
added by the amendment affecting substantive rights are intended to operate
prospectively. Provisions added by the amendment that affect substantive rights will not
be construed to apply to transactions and events completed prior to its enactment unless
the legislature has expressed its intent to that effect or such intent is clearly implied by
the language of the amendment or by the circumstances surrounding its enactment. (1
Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the challenged contract and its
supplement.
FELICIANO, J., dissenting:
After considerable study and effort, and with much reluctance, I find I must dissent in the instant
case. I agree with many of the things set out in the majority opinion written by my distinguished
brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the
result reached by the majority.
I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on
fairly narrow grounds. At the same time; I wish to address briefly one of the points made by Justice
Quiason in the majority opinion in his effort to meet the difficulties posed by Davide Jr., J.
I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts"
More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as
follows:
Sec. 4. Bidding. Construction projects shall, generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the essence,
or where there is lack of qualified bidders or contractors, or where there is a conclusive
evidence that greater economy and efficiency would be achieved through this
arrangement, and in accordance with provisions of laws and acts on the matter, subject
to the approval of the Ministry of public Works, Transportation and Communications,
the Minister of Public Highways, or the Minister of Energy, as the case may be, if the
project cost is less than P1 Million, and of the President of the Philippines, upon the
recommendation of the Minister, if the project cost is P1 Million or more.
xxx xxx xxx
I understand the unspoken theory in the majority opinion to be that above Section 4 and presumably
the rest of Presidential Decree No. 1594 continue to exist and to run parallel to the provisions of
Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718.
A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply
to all "government contracts for infrastructure and other construction projects." But Republic Act No.
6957 as amended by Republic Act No. 7718, relates only to "infrastructure projects" which are
financed, constructed, operated and maintained "by the private sector" "through the build/operateand-transfer or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other
comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and
Republic Act. No. 7718 must be held, in my view, to be special statutes applicable to a more limited
field of "infrastructure projects" than the wide-ranging scope of application of the general statute i.e.,
Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that
Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of
contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by
administration or force account or by negotiated contract only"
(1) in exceptional cases where time is of the essence; or
(2) where there is lack of bidders or contractors; or
(3) where there is a conclusive evidence that greater economy and efficiency would be
achieved through these arrangements, and in accordance with provision[s] of laws and
acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no
mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon
the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act
No. 7718, does not purport to authorize direct negotiation of contracts situations where there is a lack
of pre-qualified contractors or, complying bidders. Thus, even under the amended special statute,
entering into contracts by negotiation is not permissible in the other (2) categories of cases referred
to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence"
and "when there is conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, etc."
The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public
bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of
contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718, The provision of Republic Act No. 7718. The assailed contract was entered into before
Republic Act. No. 7718 was enacted.
The difficulties. of applying the provisions of Presidential Degree No. 1594 to the Edsa LRT-type of
contracts are aggravated when one considers the detailed "Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree. 1 For instance:
IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxx xxx
a. In times of emergencies arising from natural calamities where
immediate action is necessary to prevent imminent loss of life and/or
property.
b. Failure to award the contract after competitive public bidding for valid
cause or causes [such as where the prices obtained through public bidding
are all above the AAE and the bidders refuse to reduce their prices to the
AAE].
In these cases, bidding may be undertaken through sealed canvass of at least three (3)
qualified contractors. Authority to negotiate contracts for projects under these
exceptional cases shall be subject to prior approval by heads of agencies within their
limits of approving authority.
c. Where the subject project is adjacent or contiguous to an on-going
project and it could be economically prosecuted by the same contractor
provided that he has no negative slippage and has demonstrated a
satisfactory performance. (Emphasis supplied).
Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and
Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as
distinguished from requiring public bidding or a second public bidding.
Note also the following provision of the same Implementing Rules and Regulations:
IB 1 Prequalification
The following may be become contractors for government projects:
1 Filipino
a. Citizens (single proprietorship)
b. Partnership of corporation duly organized under the laws of the Philippines, and at
least seventy five percent (75%) of the capital stock of which belongs to Filipino
citizens.
2. Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract,
shall for purposes of bidding/tendering comply with LOI 630, and, aside from being
currently and properly accredited by the Philippine Contractors Accreditation Board,
shall comply with the provisions of R.A. 4566, provided thatjoint ventures in which
Filipino ownership is less than seventy five percent ( 75%) may be prequalified where

the structures to be built require the application of techniques and/or

technologies which are not adequately possessed by a Filipino entity as defined above.
[The foregoing shall not negate any existing and future commitments with respect to the
bidding and aware of contracts financed partly or wholly with funds from international
lending institutions like the Asian Development Bank and the Worlds Bank as well as
from bilateral and other similar sources.(Emphases supplied)
The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT
Corporation; there is no suggestion that this corporation is organized under Philippine law and is at
least seventy-five (75%) percent owned by Philippine citizens.
Public bidding is the normal method by which a government keeps contractors honest and is able to
assure itself that it would be getting the best possible value for its money in any construction or
similar project. It is not for nothing that multilateral financial organizations like the World Bank and
the Asian Development Bank uniformly require projects financed by them to be implemented and
carried out by public bidding. Public bidding is much too important a requirement casually to loosen
by a latitudinarian exercise in statutory construction.
The instant petition should be granted and the challenged contract and its supplement should be
nullified and set aside. A true public bidding, complete with a new prequalification proceeding, should
be required for the Edsa LRT Project.

Separate Opinions
MENDOZA, J., concurring:
I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have
standing to sue, I join to dismiss the petition in this case. I write only to set forth what I understand
the grounds for our decisions petitioners do not have the rights to sue, whether as legislators,
taxpayers or citizens. As members of Congress, because they allege no infringement of prerogative as
legislators. 1 As taxpayers because petitioners allege neither an unconstitutional exercise of the taxing
or spending powers of Congress (Art VI, 24-25 and 29) 2 nor an illegal disbursement of public
money. 3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 a party suing as
taxpayer "must specifically prove that he has sufficient interest in preventing the illegal expenditure of
money raised by taxation and that he will sustain a direct injury as a result of the enforcement of the
questioned statute or contract, It is not sufficient that has merely a general interest common to all
members of the public." In that case, it was held that a contract, whereby a local government leased
property to a private party with the understanding that the latter would build a market building and at
the end of the lease would transfer the building of the lessor, did not involve a disbursement of public
funds so as to give taxpayer standing to question the legality of the contract contracts I see no
substantial difference, as far as the standing is of taxpayers is concerned, between the contract there
and the build-lease-transfer (BLT) contract being questioned by petitioners in this case.
Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners
by invalidating the challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon
by the majority for upholding petitioners standing, this Court took into account the "paramount
public interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being
of the people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery
system:" 7 Accordingly, the Court invalidated the contract for the operation of lottery.
But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive
contentions to be without merit To the extent therefore that a party's standing is affected by a
determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the
case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for a
Better Philippines v. Aquino 8 and In re Bermudez 9 where we dismissed citizens' actions on the
ground that petitioners had no personality to sue and their petitions did not state a cause of action.
The holding that petitioners did not have standing followed from the finding that they did not have a
cause of action.
In order that citizens' actions may be allowed a party must show that he personally has suffered some
actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is
fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable
action. 10 As the U.S. Supreme Court has held:

Typically, . . . the standing inquiry requires careful judicial examination of a complaint's

allegation to ascertain whether the particular plaintiff is entitled to an adjudication of
the particular claims asserted. Is the injury too abstract, or otherwise not appropriate, to
be considered judicially cognizable? Is the line of causation between the illegal conduct
and injury too attenuated? Is the prospect of obtaining relief from the injury as a result
of a favorable ruling too speculative? These questions and any others relevant to the
standing inquiry must be answered by reference to the Art III notion that federal courts
may exercise power only "in the last resort, and as a necessity, Chicago & Grand Trunk
R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892), and only when
adjudication is "consistent with a system of separated powers and [the dispute is one]
traditionally thought to be capable of resolution through the judicial process," Flast v
Cohen, 392 US 83, 97, 20 L Ed 2d 947, .88 S Ct 1942 (1968). See Valley Forge, 454 US,
at 472-473, 70 L Ed 2d 700, 102 S Ct 752. 11
Today's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, 5 in defining the jurisdiction of this Court. The result is to convert
the Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with
the view that this case has no merit I submit with respect that petitioners, as representatives of the
public interest, have no standing.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.
DAVIDE, JR., J., dissenting:
After wading through the record of the vicissitudes of the challenged contract and evaluating the
issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the
well-written ponencia of Mr. Justice Camilo P. Quiason.
I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is anultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A.
6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)
even assuming arguendo that it has, the contract was entered into without complying with the
mandatory requirement of public bidding.
I
Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly
entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds
of contractual arrangements between the private sector and government infrastructure agencies: (a)
the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This
conclusion finds support in Section 2 thereof which defines only the BOT and BT schemes, in Section
3 which explicitly provides for said schemes thus:
Sec. 3 Private Initiative in Infrastructure. All government infrastructure agencies,
including government-owned and controlled corporations and local government units,
are hereby authorized to enter into contract with any duly prequalified private
contractor for the financing, construction, operation and maintenance of any financially
viable infrastructure facilities through the build-operate-and transfer or build-andtransfer scheme, subject to the terms and conditions hereinafter set forth; (Emphasis
supplied).
and in Section 5 which requires public bidding of projects under both schemes.
All prior acts and negotiations leading to the perfection of the challenged contract were clearly
intended and pursued for such schemes.
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC
is without any power or authority to enter into the BLT contract in question.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the
BOT and the BT schemes bar any other arrangement for the payment by the government of the
project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any
variation within the context of the two schemes." This interpretation would be correct if the law itself
provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a
BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction,

and Congress has enacted several laws relating to leases. That the BLT scheme was never intended as
a permissible variation "within the context" of the BOT and BT schemes is conclusively established by
the passage of R.A. No. 7718 which amends:
a. Section. 2 by adding to the original BOT and BT schemes the following schemes:
1)

Build-own-and-operate (BOO)

2)

Build-Lease-and-transfer (BLT)

3)

Build-transfer-and-operate (BTO)

4)

Contract-add-and-operate (CAO)

5)

Develop-operate-and-transfer (DOT)

6)

Rehabilitate-operate-and-transfer (ROT)

7)

Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the buildoperate-and-transfer or build-and-transfer scheme.
II
Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
Sec. 5 Public Bidding of Projects. Upon approval of the projects mentioned in Section
4 of this Act, the concerned head of the infrastructure agency or local government unit
shall forthwith cause to be published, once every week for three (3) consecutive weeks,
in at least two (2) newspapers of general circulation and in at least one (1) local
newspaper which is circulated in the region, province, city or municipality in which the
project is to be constructed a notice inviting all duly prequalified infrastructure
contractors to participate in the public bidding for the projects so approved. In the case
of a build-operate-and-transfer arrangement, the contract shall be awarded to the
lowest complying bidder based on the present value of its proposed tolls, fees, rentals,
and charges over a fixed term for the facility to be constructed, operated, and
maintained according to the prescribed minimum design and performance standards
plans, and specifications. For this purpose, the winning contractor shall be
automatically granted by the infrastructure agency or local government unit the
franchise to operate and maintain the facility, including the collection of tolls, fees,
rentals; and charges in accordance with Section 6 hereof.
In the case of a build-and-transfer arrangement, the contract shall be awarded to the
lowest complying bidder based on the present value of its proposed, schedule of
amortization payments for the facility to be constructed according to the prescribed
minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall be
given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith
be submitted to Congress for its information.
The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices are

eliminated or minimized. And any Government contract entered into without the required bidding is
null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A
TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991],
citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).
The Office of the president secretary through then Executive Secretary Franklin Drilon Correctly
disapproved the contract because no public bidding is strict compliance with Section 5 of R.A. No.
6957 was conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing
Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void
because the law itself does not recognize or allow negotiated contracts.
However the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only one
was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT
contract should be awarded "to the lowest complying bidder," which logically means that there must
at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should
be deferred and a new prequalification proceeding be scheduled. Even those who were earlier
disqualified may by then have qualified because they may have, in the meantime, exerted efforts to
meet all the qualifications.
This view of the majority would open the floodgates to the rigging of prequalification proceedings or
to unholy conspiracies among prospective bidders, which would even include dishonest government
officials. They could just agree, for a certain consideration, that only one of them qualify in order that
the latter would automatically corner the contract and obtain the award.
That section 5 admits of no exception and that no bidding could be validly had with only one bidder is
likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7 thereof, a
new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation
contracts. This new section reads:
Sec. 5-A. Direct Negotiation Of Contracts Direct negotiation, shall be resorted to
when there is only one complying bidder left as defined hereunder.
(a) If, after advertisement, only one contractor applies for prequalification
requirements submit a bid/proposal which subsequently found by the
agency/local government unit (LGU) to be complying.
(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification .requirements,
after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying,
(c) If after prequalification of more than one contractor only one submits a
bid which is found by the agency/LGU to be complying.
(d) If, after prequalification, more than one contractor, only one submit
bids but only one is found by the agency/LGU to be complying: Provided,
That, any of the disqualified prospective bidder may appeal the decision
contractor of the implementing agency/LGUs prequalification bids an
award committee within fifteen (15) working days to the head of the
agency of national projects or to the Department of the Interior and Local
Government, in case of local projects from the date the disqualification
was made known to the disqualified bidder Provided, That the
implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.
Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not
provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says that
it "shall take effect fifteen (15) after its publication in at least two (2) newspapers of general
circulation." If it were the intention of Congress to give said act retroactive effect then it would have so
expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect,
unless the contrary is provided."
The presumption is that all laws operate prospectively, unless the contrary clearly appears or is
clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt
will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY

CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing statute,
Sutherland states:
In accordance with the rule applicable to original acts, it is presumed that provisions
added by the amendment affecting substantive rights are intended to operate
prospectively. Provisions added by the amendment that affect substantive rights will not
be construed to apply to transactions and events completed prior to its enactment unless
the legislature has expressed its intent to that effect or such intent is clearly implied by
the language of the amendment or by the circumstances surrounding its enactment. (1
Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the challenged contract and its
supplement.
FELICIANO, J., dissenting:
After considerable study and effort, and with much reluctance, I find I must dissent in the instant
case. I agree with many of the things set out in the majority opinion written by my distinguished
brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the
result reached by the majority.
I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on
fairly narrow grounds. At the same time; I wish to address briefly one of Justice Quiason in the
majority opinion in his effort to meet the difficulties posed by Davide Jr., J.
I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts"
More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree which reads as
follows:
Sec. 4. Bidding. Construction projects shall, generally be undertaken by contract after
competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the essence,
or where there is lack of qualified bidders or contractors, or where there is a conclusive
evidence that greater economy and efficiency would be achieved through this
arrangement, and in accordance with provisions of laws and acts on the matter, subject
to the approval of the Ministry of public Works, Transportation and Communications,
the Minister of Public Highways, or the Minister of Energy, as the case may be, if the
project cost is less than P1 Million, and of the president of the Philippines, upon the
recommendation of the Minister, if the project cost is P1 Million or more.
xxx xxx xxx
I understand the unspoken theory in the majority opinion utility and the ownership of the facilities
used to serve the public can be very w1594 continue to exist and to run parallel to the provisions of
Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718.
A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all
"government contracts for infrastructure and other construction projects" But Republic Act No. 6957
as amended by Republic Act No. 7718, relates on to "infrastructure projects" which are financed,
constructed, operated and maintained "by the private sector" "through the build/operate-andtransfer or build-and-transfer scheme" under Republic Act No. 6597 and under a series of
other comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and
Republic Act. No: 7718 must be held, in my view, to be special statutes applicable to a more limited
field of "infrastructure projects" than the wide-ranging scope of application of the general statute i.e.,
Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that
Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of
contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof.
It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by
administration or force account or by negotiated contract only "
(1) in exceptional cases where time is of the essence; or
(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy and efficiency would be
achieved through these arrangements, and in accordance with provision[s] of laws and
acts on the matter.
It must, upon the one hand, be noted that the special law Republic Act- No. 6957 made absolutely no
mention ofnegotiated contracts being permitted to displace the requirement of public bidding. Upon
the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act
No. 7718, does not purport to authorize direct negotiation of contracts situations where there is a lack
of pre-qualified contractors or, complying bidders. Thus, even under the amended special statute,
entering into contracts by negotiation is not permissible in the other (2) categories of cases referred
to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence"
and "when there is conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, etc."
The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public
bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of
contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718. The provision of Republic Act No. 7718. The assailed contract was entered into before
Republic Act. No. 7718 was enacted.
The difficulties. of applying the provisions of presidential Degree No. 1594 to the Edsa LRT-type of
contracts are aggravated when one considers the detailed" Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree. 1 For instance:
IB [2.5.2] 2.4.2 By Negotiated Contract
xxx xxx xxx
a. In times of emergencies arising from natural calamities where
immediate action is necessary to prevent imminent loss of life and/or
property.
b. Failure to award the contract after competitive public bidding for valid
cause or causes [such as where the prices obtained through public bidding
are all above the AAE and the bidders refuse to reduce their prices to the
AAE].
In these cases, bidding may be undertaken through sealed canvass of at least three (3)
qualified contractors. Authority to negotiate contracts for projects under these
exceptional cases shall be subject to prior approval by heads of agencies within their
limits of approving authority.
c. Where the subject project is adjacent or contiguous to an on-going
project and it could be economically prosecuted by the same contractor
provided that he has no negative slippage and has demonstrated a
satisfactory performance. (Emphasis supplied).
Note that there is no reference at all in these presidential Decree No. 1594 Implementing Rules and
Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as
distinguished from requiring public bidding or a second public bidding.
Note also the following provision of the same Implementing Rules and Regulations:
IB 1 Prequalification
The following may be become contractors for government projects:
1 Filipino
a. Citizens (single proprietorship)
b. Partnership of corporation duly organized under the laws of the Philippines, and at
least seventy five percent (75%) of the capital stock of which belongs to Filipino
citizens.
2. Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract,
shall for purposes of bidding/tendering comply with LOI 630, and, aside from being

currently and properly accredited by the Philippine Contractors Accreditation Board,

shall comply with the provisions of R.A. 4566, provided thatjoint ventures in which
Filipino ownership is less than seventy five percent ( 75%) may be prequalified where
the structures to be built require the application of techniques and/or
technologies which are not adequately possessed by a Filipino entity as defined above.
[The foregoing shall not negate any existing and future commitments with respect to the
bidding and aware of contracts financed partly or wholly with funds from international
lending institutions like the Asian Development Bank and the Worlds Bank as well as
from bilateral and other similar sources.(Emphases supplied)
The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT
Corporation; there is no suggestion that this corporation is organized under Philippine law and is at
least seventy-five (75%) percent owned by Philippine citizens.
Public bidding is the normal method by which a government keeps contractors honest and is able to
assure itself that it would be getting the best possible value for its money in any construction or
similar project. It is not for nothing that multilateral financial organizations like the World Bank and
the Asian Development Bank uniformly require projects financed by them to be implemented and
carried out by public bidding. Public bidding is much too important a requirement casually to loosen
by a latitudinarian exercise in statutory construction.
The instant petition should be granted and the challenged contract and its supplement should be
nullified and set aside. A true public bidding, complete with a new prequalification proceeding, should
be required for the Edsa LRT Project.

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

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

carriage and damages, which was docketed as Civil Case No. 92-133 and raffled to Branch 59 of the
Regional Trial Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to join Jewels of Europe was due to
respondents fault since it did not clearly indicate the departure date on the plane ticket.Respondent
was also negligent in informing her of the wrong flight schedule through its employee Menor. She
insisted that the British Pageant was merely a substitute for the Jewels of Europe tour, such that the
cost of the former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner was
informed of the correct departure date, which was clearly and legibly printed on the plane ticket. The
travel documents were given to petitioner two days ahead of the scheduled trip.Petitioner had only
herself to blame for missing the flight, as she did not bother to read or confirm her flight schedule as
printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for Jewels of Europe,
considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd.,
which had already billed the same even if petitioner did not join the tour. Lotus European tour
organizer, Insight International Tours Ltd., determines the cost of a package tour based on a
minimum number of projected participants. For this reason, it is accepted industry practice to
disallow refund for individuals who failed to take a booked tour. [3]
Lastly, respondent maintained that the British Pageant was not a substitute for the package tour
that petitioner missed. This tour was independently procured by petitioner after realizing that she
made a mistake in missing her flight for Jewels of Europe. Petitioner was allowed to make a partial
payment of only US$300.00 for the second tour because her niece was then an employee of the travel
agency. Consequently, respondent prayed that petitioner be ordered to pay the balance of P12,901.00
for the British Pageant package tour.
After due proceedings, the trial court rendered a decision,[4] the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three
Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos (P53,989.43)
with legal interest thereon at the rate of twelve percent (12%) per annum starting
January 16, 1992, the date when the complaint was filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00)
Pesos as and for reasonable attorneys fees;
3. Dismissing the defendants counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.[5]
The trial court held that respondent was negligent in erroneously advising petitioner of her
departure date through its employee, Menor, who was not presented as witness to rebut petitioners
testimony. However, petitioner should have verified the exact date and time of departure by looking at
her ticket and should have simply not relied on Menors verbal representation. The trial court thus
declared that petitioner was guilty of contributory negligence and accordingly, deducted 10% from the
amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at
fault. However, the appellate court held that petitioner is more negligent than respondent because as
a lawyer and well-traveled person, she should have known better than to simply rely on what was told
to her. This being so, she is not entitled to any form of damages. Petitioner also forfeited her right to
the Jewels of Europe tour and must therefore pay respondent the balance of the price for the British
Pageant tour. The dispositive portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995
is hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiffappellee to pay to the defendant-appellant the amount of P12,901.00, representing the balance of the
price of the British Pageant Package Tour, the same to earn legal interest at the rate of SIX PERCENT
(6%) per annum, to be computed from the time the counterclaim was filed until the finality of this
decision. After this decision becomes final and executory, the rate of TWELVE PERCENT (12%)

interest per annum shall be additionally imposed on the total obligation until payment thereof is
satisfied. The award of attorneys fees is DELETED. Costs against the plaintiff-appellee.
SO ORDERED.[6]
Upon denial of her motion for reconsideration, [7] petitioner filed the instant petition under Rule
45 on the following grounds:
I
It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in
reversing and setting aside the decision of the trial court by ruling that the petitioner is not entitled to
a refund of the cost of unavailed Jewels of Europe tour she being equally, if not more, negligent than
the private respondent, for in the contract of carriage the common carrier is obliged to observe utmost
care and extra-ordinary diligence which is higher in degree than the ordinary diligence required of the
passenger. Thus, even if the petitioner and private respondent were both negligent, the petitioner
cannot be considered to be equally, or worse, more guilty than the private respondent. At best,
petitioners negligence is only contributory while the private respondent [is guilty] of gross negligence
making the principle of pari delicto inapplicable in the case;
II
The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe tour was not
indivisible and the amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages due her as a
result of breach of contract of carriage.[8]
Petitioner contends that respondent did not observe the standard of care required of a common
carrier when it informed her wrongly of the flight schedule. She could not be deemed more negligent
than respondent since the latter is required by law to exercise extraordinary diligence in the
fulfillment of its obligation. If she were negligent at all, the same is merely contributory and not the
proximate cause of the damage she suffered. Her loss could only be attributed to respondent as it was
the direct consequence of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one place to
another for a fixed price.[9] Such person or association of persons are regarded as carriers and are
classified as private or special carriers and common or public carriers. [10] A common carrier is defined
under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place to another since its covenant
with its customers is simply to make travel arrangements in their behalf. Respondents services as a
travel agency include procuring tickets and facilitating travel permits or visas as well as booking
customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company,
this does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as
an agent of the airline, with whom petitioner ultimately contracted for her carriage to Europe.
Respondents obligation to petitioner in this regard was simply to see to it that petitioner was properly
booked with the airline for the appointed date and time. Her transport to the place of destination,
meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters service of arranging
and facilitating petitioners booking, ticketing and accommodation in the package tour. In contrast,
the object of a contract of carriage is the transportation of passengers or goods. It is in this sense
that the contract between the parties in this case was an ordinary one for services and not one of
carriage. Petitioners submission is premised on a wrong assumption.

The nature of the contractual relation between petitioner and respondent is determinative of the
degree of care required in the performance of the latters obligation under the contract. For reasons of
public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as
human care and foresight can provide using the utmost diligence of very cautious persons and with
due regard for all the circumstances. [11] As earlier stated, however, respondent is not a common carrier
but a travel agency. It is thus not bound under the law to observe extraordinary diligence in the
performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil Code. [12] This
connotes reasonable care consistent with that which an ordinarily prudent person would have
observed when confronted with a similar situation. The test to determine whether negligence
attended the performance of an obligation is: did the defendant in doing the alleged negligent act use
that reasonable care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner
of the wrong day of departure. Petitioners testimony was accepted as indubitable evidence of Menors
alleged negligent act since respondent did not call Menor to the witness stand to refute the allegation.
The lower court applied the presumption under Rule 131, Section 3 (e) [14] of the Rules of Court that
evidence willfully suppressed would be adverse if produced and thus considered petitioners
uncontradicted testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains
that petitioners assertion is belied by the evidence on record. The date and time of departure was
legibly written on the plane ticket and the travel papers were delivered two days in advance precisely
so that petitioner could prepare for the trip. It performed all its obligations to enable petitioner to join
the tour and exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners testimony could not give rise
to an inference unfavorable to the former. Menor was already working in France at the time of the
filing of the complaint,[15] thereby making it physically impossible for respondent to present her as a
witness. Then too, even if it were possible for respondent to secure Menors testimony, the
presumption under Rule 131, Section 3(e) would still not apply. The opportunity and possibility for
obtaining Menors testimony belonged to both parties, considering that Menor was not just
respondents employee, but also petitioners niece. It was thus error for the lower court to invoke the
presumption that respondent willfully suppressed evidence under Rule 131, Section 3(e). Said
presumption would logically be inoperative if the evidence is not intentionally omitted but is simply
unavailable, or when the same could have been obtained by both parties. [16]
In sum, we do not agree with the finding of the lower court that Menors negligence concurred
with the negligence of petitioner and resultantly caused damage to the latter. Menors negligence was
not sufficiently proved, considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging a fact has the burden
of proving it and a mere allegation cannot take the place of evidence. [17] If the plaintiff, upon whom
rests the burden of proving his cause of action, fails to show in a satisfactory manner facts upon which
he bases his claim, the defendant is under no obligation to prove his exception or defense. [18]
Contrary to petitioners claim, the evidence on record shows that respondent exercised due
diligence in performing its obligations under the contract and followed standard procedure in
rendering its services to petitioner. As correctly observed by the lower court, the plane ticket [19] issued
to petitioner clearly reflected the departure date and time, contrary to petitioners contention. The
travel documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered
to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour,
prepared the necessary documents and procured the plane tickets. It arranged petitioners hotel
accommodation as well as food, land transfers and sightseeing excursions, in accordance with its
avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as
everything else that was essential to book petitioner for the tour. Had petitioner exercised due
diligence in the conduct of her affairs, there would have been no reason for her to miss the flight.
Needless to say, after the travel papers were delivered to petitioner, it became incumbent upon her to
take ordinary care of her concerns. This undoubtedly would require that she at least read the
documents in order to assure herself of the important details regarding the trip.

The negligence of the obligor in the performance of the obligation renders him liable for damages
for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to
exercise due care and prudence in the performance of the obligation as the nature of the obligation so
demands.[20] There is no fixed standard of diligence applicable to each and every contractual
obligation and each case must be determined upon its particular facts. The degree of diligence
required depends on the circumstances of the specific obligation and whether one has been negligent
is a question of fact that is to be determined after taking into account the particulars of each case. [21]
The lower court declared that respondents employee was negligent. This factual finding, however,
is not supported by the evidence on record. While factual findings below are generally conclusive
upon this court, the rule is subject to certain exceptions, as when the trial court overlooked,
misunderstood, or misapplied some facts or circumstances of weight and substance which will affect
the result of the case.[22]
In the case at bar, the evidence on record shows that respondent company performed its duty
diligently and did not commit any contractual breach. Hence, petitioner cannot recover and must bear
her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of
Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent
the amount of P12,901.00 representing the balance of the price of the British Pageant Package Tour,
with legal interest thereon at the rate of 6% per annum, to be computed from the time the
counterclaim was filed until the finality of this Decision. After this Decision becomes final and
executory, the rate of 12% per annum shall be imposed until the obligation is fully settled, this interim
period being deemed to be by then an equivalent to a forbearance of credit. [23]
SO ORDERED.

G.R. No. 186312

June 29, 2010

SPOUSES
DANTE
CRUZ
vs.
SUN HOLIDAYS, INC., Respondent.

and

LEONORA

CRUZ, Petitioners,

DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001 1 against Sun
Holidays, Inc. (respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising
from the death of their son Ruelito C. Cruz (Ruelito) who perished with his wife on September 11,
2000 on board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort (Resort) owned and
operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by
virtue of a tour package-contract with respondent that included transportation to and from the Resort
and the point of departure in Batangas.
Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his account of the
incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the
Resort in the afternoon of September 10, 2000, but was advised to stay for another night because of
strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners
son and his wife trekked to the other side of the Coco Beach mountain that was sheltered from the
wind where they boarded M/B Coco Beach III, which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into
the open seas, the rain and wind got stronger, causing the boat to tilt from side to side and the captain
to step forward to the front, leaving the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which came one after the other, M/B
Coco Beach III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the
captain, Matute and the other passengers who reached the surface asked him what they could do to
save the people who were still trapped under the boat. The captain replied "Iligtas niyo na lang ang
sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera
passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting
of 18 passengers and four crew members, who were brought to Pisa Island. Eight passengers,
including petitioners son and his wife, died during the incident.
At the time of Ruelitos death, he was 28 years old and employed as a contractual worker for Mitsui
Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900. 3
Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the death
of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000, 5 denied any responsibility for the incident
which it considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the
amount of P10,000 to petitioners upon their signing of a waiver.
As petitioners declined respondents offer, they filed the Complaint, as earlier reflected, alleging that
respondent, as a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail
notwithstanding storm warning bulletins issued by the Philippine Atmospheric, Geophysical and
Astronomical Services Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000. 6
In its Answer,7 respondent denied being a common carrier, alleging that its boats are not available to
the general public as they only ferry Resort guests and crew members. Nonetheless, it claimed that it
exercised the utmost diligence in ensuring the safety of its passengers; contrary to petitioners
allegation, there was no storm on September 11, 2000 as the Coast Guard in fact cleared the voyage;
and M/B Coco Beach III was not filled to capacity and had sufficient life jackets for its passengers. By
way of Counterclaim, respondent alleged that it is entitled to an award for attorneys fees and
litigation expenses amounting to not less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four
conditions to be met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance
from the Coast Guard, (3) there is clearance from the captain and (4) there is clearance from the
Resorts assistant manager.8 He added that M/B Coco Beach III met all four conditions on September
11, 2000,9 but a subasco or squall, characterized by strong winds and big waves, suddenly occurred,
causing the boat to capsize.10
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners Complaint and
respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order dated September 2, 2005, 12 they
appealed to the Court of Appeals.

By Decision of August 19, 2008, 13 the appellate court denied petitioners appeal, holding, among other
things, that the trial court correctly ruled that respondent is a private carrier which is only required to
observe ordinary diligence; that respondent in fact observed extraordinary diligence in transporting
its guests on board M/B Coco Beach III; and that the proximate cause of the incident was a squall, a
fortuitous event.
Petitioners Motion for Reconsideration having been denied by Resolution dated January 16,
2009,14 they filed the present Petition for Review.15
Petitioners maintain the position they took before the trial court, adding that respondent is a common
carrier since by its tour package, the transporting of its guests is an integral part of its resort business.
They inform that another division of the appellate court in fact held respondent liable for damages to
the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it
is a common carrier; that the Resorts ferry services for guests cannot be considered as ancillary to its
business as no income is derived therefrom; that it exercised extraordinary diligence as shown by the
conditions it had imposed before allowing M/B Coco Beach III to sail; that the incident was caused by
a fortuitous event without any contributory negligence on its part; and that the other case wherein the
appellate court held it liable for damages involved different plaintiffs, issues and evidence. 16
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals 17 in characterizing respondent as a
common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
idiom, as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on aregular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the "general public," i.e., the general community or population, and one
who offers services or solicits business only from a narrow segment of the general population. We
think that Article 1733 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil Code.
Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
. . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services . . .18 (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as
to be properly considered ancillary thereto. The constancy of respondents ferry services in its resort
operations is underscored by its having its own Coco Beach boats. And the tour packages it offers,
which include the ferry services, may be availed of by anyone who can afford to pay the same. These
services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would
be imprudent to suppose that it provides said services at a loss. The Court is aware of the practice of
beach resort operators offering tour packages to factor the transportation fee in arriving at the tour
package price. That guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberately
refrained from making distinctions on whether the carrying of persons or goods is the carriers
principal business, whether it is offered on a regular basis, or whether it is offered to the general
public. The intent of the law is thus to not consider such distinctions. Otherwise, there is no telling
how many other distinctions may be concocted by unscrupulous businessmen engaged in the carrying
of persons or goods in order to avoid the legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence for the safety of the passengers transported by
them, according to all the circumstances of each case. 19 They are bound to carry the passengers safely
as far as human care and foresight can provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances.20
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the
common carrier is at fault or negligent. In fact, there is even no need for the court to make an express
finding of fault or negligence on the part of the common carrier. This statutory presumption may only
be overcome by evidence that the carrier exercised extraordinary diligence. 21
Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of
voyage before it allowed M/B Coco Beach III to sail on September 11, 2000. Respondents position
does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone
warnings for shipping on September 10 and 11, 2000 advising of tropical depressions in Northern
Luzon which would also affect the province of Mindoro. 22 By the testimony of Dr. Frisco Nilo,
supervising weather specialist of PAGASA, squalls are to be expected under such weather condition. 23
A very cautious person exercising the utmost diligence would thus not brave such stormy weather and
put other peoples lives at risk. The extraordinary diligence required of common carriers demands
that they take care of the goods or lives entrusted to their hands as if they were their own. This
respondent failed to do.
Respondents insistence that the incident was caused by a fortuitous event does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence,
or the failure of the debtors to comply with their obligations, must have been independent of human
will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if
foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for
the debtors to fulfill their obligation in a normal manner; and (d) the obligor must have been free
from any participation in the aggravation of the resulting injury to the creditor. 24
To fully free a common carrier from any liability, the fortuitous event must have been the proximate
and only causeof the loss. And it should have exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the fortuitous event. 25
Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned
M/B Coco Beach III. As reflected above, however, the occurrence of squalls was expected under the
weather condition of September 11, 2000. Moreover, evidence shows that M/B Coco Beach III
suffered engine trouble before it capsized and sank. 26 The incident was, therefore, not completely free
from human intervention.
The Court need not belabor how respondents evidence likewise fails to demonstrate that it exercised
due diligence to prevent or minimize the loss before, during and after the occurrence of the squall.
Article 176427 vis--vis Article 220628 of the Civil Code holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity
for death, (2) indemnity for loss of earning capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.29
As for damages representing unearned income, the formula for its computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living
expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 age of deceased at the time of death]30

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 age at death])
adopted in the American Expectancy Table of Mortality or the Actuarial of Combined Experience
Table of Mortality.31
The second factor is computed by multiplying the life expectancy by the net earnings of the deceased,
i.e., the total earnings less expenses necessary in the creation of such earnings or income and less
living and other incidental expenses. 32 The loss is not equivalent to the entire earnings of the
deceased, but only such portion as he would have used to support his dependents or heirs. Hence, to
be deducted from his gross earnings are the necessary expenses supposed to be used by the deceased
for his own needs.33
In computing the third factor necessary living expense, Smith Bell Dodwell Shipping Agency Corp.
v. Borja34teaches that when, as in this case, there is no showing that the living expenses constituted
the smaller percentage of the gross income, the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy =

2/3 x [80
2/3
2/3 x [52]

Life expectancy =

35

age

of

deceased
[80

at

the

time
-

of

death]
28]

Documentary evidence shows that Ruelito was earning a basic monthly salary of $900 35 which, when
converted to Philippine peso applying the annual average exchange rate of $1 = P44 in
2000,36 amounts to P39,600. Ruelitos net earning capacity is thus computed as follows:
Net
Capacity

Earning = life expectancy x (gross annual income - reasonable and necessary living
expenses).
=
35
x
(P475,200
- P237,600)
= 35 x (P237,600)

Net
Capacity

Earning

= P8,316,000

Respecting the award of moral damages, since respondent common carriers breach of contract of
carriage resulted in the death of petitioners son, following Article 1764 vis--vis Article 2206 of the
Civil Code, petitioners are entitled to moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of common
carriers, it is presumed to have acted recklessly, thus warranting the award too of exemplary damages,
which are granted in contractual obligations if the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.37
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral
damages andP100,000 as exemplary damages.
Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where exemplary
damages are awarded. The Court finds that 10% of the total amount adjudged against respondent is
reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals 40 teaches that when an obligation, regardless
of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for payment of interest in the concept of actual and compensatory damages, subject
to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,

where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the present
petition, the interest due shall be computed upon the finality of this decision at the rate of 12% per
annum until satisfaction, in accordance with paragraph number 3 of the immediately cited guideline
in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE.
Judgment is rendered in favor of petitioners ordering respondent to pay petitioners the following:
(1) P50,000 as indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelitos loss
of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as exemplary damages; (5) 10% of
the total amount adjudged against respondent as attorneys fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per annum
computed from the finality of this decision until full payment.
SO ORDERED.

G.R. No. 200289

November 25, 2013

WESTWIND
SHIPPING
CORPORATION, Petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.
x-----------------------x
G.R. No. 200314
ORIENT
FREIGHT
INTERNATIONAL
INC., Petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.
DECISION
PERALTA, J.:

These two consolidated cases challenge, by way of petition for certiorari under Rule 45 of the 1997
Rules of Civil Procedure, September 13, 2011 Decision 1 and January 19, 2012 Resolution2 of the Court
of Appeals (CA) in CA-G.R. CV No. 86752, which reversed and set aside the January 27, 2006
Decision3 of the Manila City Regional Trial Court Branch (RTC) 30. The facts, as established by the
records, are as follows:
On August 23, 1993, Kinsho-Mataichi Corporation shipped from the port of Kobe, Japan, 197 metal
containers/skids of tin-free steel for delivery to the consignee, San Miguel Corporation (SMC). The
shipment, covered by Bill of Lading No. KBMA-1074, 4 was loaded and received clean on board M/V
Golden Harvest Voyage No. 66, a vessel owned and operated by Westwind Shipping Corporation
(Westwind).
SMC insured the cargoes against all risks with UCPB General Insurance Co., Inc. (UCPB) for US
Dollars: One Hundred Eighty-Four Thousand Seven Hundred Ninety-Eight and Ninety-Seven
Centavos (US$184,798.97), which, at the time, was equivalent to Philippine Pesos: Six Million Two
Hundred Nine Thousand Two Hundred Forty-Five and Twenty-Eight Centavos (P6,209,245.28).
The shipment arrived in Manila, Philippines on August 31, 1993 and was discharged in the custody of
the arrastre operator, Asian Terminals, Inc. (ATI), formerly Marina Port Services, Inc. 5 During the
unloading operation, however, six containers/skids worth Philippine Pesos: One Hundred Seventeen
Thousand Ninety-Three and Twelve Centavos (P117,093.12) sustained dents and punctures from the
forklift used by the stevedores of Ocean Terminal Services, Inc. (OTSI) in centering and shuttling the
containers/skids. As a consequence, the local ship agent of the vessel, Baliwag Shipping Agency, Inc.,
issued two Bad Order Cargo Receipt dated September 1, 1993.
On September 7, 1993, Orient Freight International, Inc. (OFII), the customs broker of SMC,
withdrew from ATI the 197 containers/skids, including the six in damaged condition, and delivered
the same at SMCs warehouse in Calamba, Laguna through J.B. Limcaoco Trucking (JBL). It was
discovered upon discharge that additional nine containers/skids valued at Philippine Pesos: One
Hundred Seventy-Five Thousand Six Hundred Thirty-Nine and Sixty-Eight Centavos (P175,639.68)
were also damaged due to the forklift operations; thus, making the total number of 15
containers/skids in bad order.
Almost a year after, on August 15, 1994, SMC filed a claim against UCPB, Westwind, ATI, and OFII to
recover the amount corresponding to the damaged 15 containers/skids. When UCPB paid the total
sum of Philippine Pesos: Two Hundred Ninety-Two Thousand Seven Hundred Thirty-Two and Eighty
Centavos (P292,732.80), SMC signed the subrogation receipt. Thereafter, in the exercise of its right of
subrogation, UCPB instituted on August 30, 1994 a complaint for damages against Westwind, ATI,
and OFII.6
After trial, the RTC dismissed UCPBs complaint and the counterclaims of Westwind, ATI, and OFII.
It ruled that the right, if any, against ATI already prescribed based on the stipulation in the 16 Cargo
Gate Passes issued, as well as the doctrine laid down in International Container Terminal Services,
Inc. v. Prudential Guarantee & Assurance Co. Inc. 7 that a claim for reimbursement for damaged goods
must be filed within 15 days from the date of consignees knowledge. With respect to Westwind, even
if the action against it is not yet barred by prescription, conformably with Section 3 (6) of the Carriage
of Goods by Sea Act (COGSA) and Our rulings in E.E. Elser, Inc., et al. v. Court of Appeals, et al. 8 and
Belgian Overseas Chartering and Shipping N.V. v. Phil. First Insurance Co., Inc., 9 the court a quo still
opined that Westwind is not liable, since the discharging of the cargoes were done by ATI personnel
using forklifts and that there was no allegation that it (Westwind) had a hand in the conduct of the
stevedoring operations. Finally, the trial court likewise absolved OFII from any liability, reasoning
that it never undertook the operation of the forklifts which caused the dents and punctures, and that it
merely facilitated the release and delivery of the shipment as the customs broker and representative of
SMC.
On appeal by UCPB, the CA reversed and set aside the trial court. The fallo of its September 13, 2011
Decision directed:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The Decision dated
January 27, 2006 rendered by the court a quo is REVERSED AND SET ASIDE. Appellee Westwind
Shipping Corporation is hereby ordered to pay to the appellant UCPB General Insurance Co., Inc., the
amount of One Hundred Seventeen Thousand and Ninety-Three Pesos and Twelve Centavos
(Php117,093.12), while Orient Freight International, Inc. is hereby ordered to pay to UCPB the sum of
One Hundred Seventy-Five Thousand Six Hundred Thirty-Nine Pesos and Sixty-Eight Centavos
(Php175,639.68). Both sums shall bear interest at the rate of six (6%) percent per annum, from the
filing of the complaint on August 30, 1994 until the judgment becomes final and executory.
Thereafter, an interest rate of twelve (12%) percent per annum shall be imposed from the time this
decision becomes final and executory until full payment of said amounts.

SO ORDERED.10
While the CA sustained the RTC judgment that the claim against ATI already prescribed, it rendered a
contrary view as regards the liability of Westwind and OFII. For the appellate court, Westwind, not
ATI, is responsible for the six damaged containers/skids at the time of its unloading. In its rationale,
which substantially followed Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc., 11 it
concluded that the common carrier, not the arrastre operator, is responsible during the unloading of
the cargoes from the vessel and that it is not relieved from liability and is still bound to exercise
extraordinary diligence at the time in order to see to it that the cargoes under its possession remain in
good order and condition. The CA also considered that OFII is liable for the additional nine damaged
containers/skids, agreeing with UCPBs contention that OFII is a common carrier bound to observe
extraordinary diligence and is presumed to be at fault or have acted negligently for such damage.
Noting the testimony of OFIIs own witness that the delivery of the shipment to the consignee is part
of OFIIs job as a cargo forwarder, the appellate court ruled that Article 1732 of the New Civil Code
(NCC) does not distinguish between one whose principal business activity is the carrying of persons or
goods or both and one who does so as an ancillary activity. The appellate court further ruled that OFII
cannot excuse itself from liability by insisting that JBL undertook the delivery of the cargoes to SMCs
warehouse. It opined that the delivery receipts signed by the inspector of SMC showed that the
containers/skids were received from OFII, not JBL. At the most, the CA said, JBL was engaged by
OFII to supply the trucks necessary to deliver the shipment, under its supervision, to SMC.
Only Westwind and OFII filed their respective motions for reconsideration, which the CA denied;
hence, they elevated the case before Us via petitions docketed as G.R. Nos. 200289 and 200314,
respectively.
Westwind argues that it no longer had actual or constructive custody of the containers/skids at the
time they were damaged by ATIs forklift operator during the unloading operations. In accordance
with the stipulation of the bill of lading, which allegedly conforms to Article 1736 of the NCC, it
contends that its responsibility already ceased from the moment the cargoes were delivered to ATI,
which is reckoned from the moment the goods were taken into the latters custody. Westwind adds
that ATI, which is a completely independent entity that had the right to receive the goods as exclusive
operator of stevedoring and arrastre functions in South Harbor, Manila, had full control over its
employees and stevedores as well as the manner and procedure of the discharging operations.
As for OFII, it maintains that it is not a common carrier, but only a customs broker whose
participation is limited to facilitating withdrawal of the shipment in the custody of ATI by overseeing
and documenting the turnover and counterchecking if the quantity of the shipments were in tally with
the shipping documents at hand, but without participating in the physical withdrawal and loading of
the shipments into the delivery trucks of JBL. Assuming that it is a common carrier, OFII insists that
there is no need to rely on the presumption of the law that, as a common carrier, it is presumed to
have been at fault or have acted negligently in case of damaged goods considering the undisputed
fact that the damages to the containers/skids were caused by the forklift blades, and that there is no
evidence presented to show that OFII and Westwind were the owners/operators of the forklifts. It
asserts that the loading to the trucks were made by way of forklifts owned and operated by ATI and
the unloading from the trucks at the SMC warehouse was done by way of forklifts owned and operated
by SMC employees. Lastly, OFII avers that neither the undertaking to deliver nor the
acknowledgment by the consignee of the fact of delivery makes a person or entity a common carrier,
since delivery alone is not the controlling factor in order to be considered as such.
Both petitions lack merit.
The case of Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc. 12 applies, as it settled
the query on which between a common carrier and an arrastre operator should be responsible for
damage or loss incurred by the shipment during its unloading. We elucidated at length:
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. Subject to certain
exceptions enumerated under Article 1734 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.
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, the Court interpreted the ship

captains liability as ultimately that of the shipowner by regarding the captain as the representative of
the shipowner.
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. 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.
xxxx
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. 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.
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.
In Firemans Fund Insurance Co. v. Metro Port Service, Inc., 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
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, it was ruled that like
the duty of seaworthiness, the duty of care of the cargo is non-delegable, 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. 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.
xxxx
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under
the custody of the carrier x x x.13
In Regional Container Lines (RCL) of Singapore v. The Netherlands Insurance Co. (Philippines),
Inc.14 and Asian Terminals, Inc. v. Philam Insurance Co., Inc., 15 the Court echoed the doctrine that
cargoes, while being unloaded, generally remain under the custody of the carrier. We cannot agree
with Westwinds disputation that "the carrier in Wallem clearly exercised supervision during the
discharge of the shipment and that is why it was faulted and held liable for the damage incurred by
the shipment during such time." What Westwind failed to realize is that the extraordinary
responsibility of the common carrier lasts until the time the goods are actually or constructively
delivered by the carrier to the consignee or to the person who has a right to receive them. There is
actual delivery in contracts for the transport of goods when possession has been turned over to the

consignee or to his duly authorized agent and a reasonable time is given him to remove the goods. 16 In
this case, since the discharging of the containers/skids, which were covered by only one bill of lading,
had not yet been completed at the time the damage occurred, there is no reason to imply that there
was already delivery, actual or constructive, of the cargoes to ATI. Indeed, the earlier case of Delsan
Transport Lines, Inc. v. American Home Assurance Corp.17 serves as a useful guide, thus:
Delsans argument that it should not be held liable for the loss of diesel oil due to backflow because
the same had already been actually and legally delivered to Caltex at the time it entered the shore tank
holds no water. It had been settled that the subject cargo was still in the custody of Delsan because the
discharging thereof has not yet been finished when the backflow occurred. Since the discharging of
the cargo into the depot has not yet been completed at the time of the spillage when the backflow
occurred, there is no reason to imply that there was actual delivery of the cargo to the consignee.
Delsan is straining the issue by insisting that when the diesel oil entered into the tank of Caltex on
shore, there was legally, at that moment, a complete delivery thereof to Caltex. To be sure, the
extraordinary responsibility of common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by, the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to a person who has the right
to receive them. The discharging of oil products to Caltex Bulk Depot has not yet been finished,
Delsan still has the duty to guard and to preserve the cargo. The carrier still has in it the responsibility
to guard and preserve the goods, a duty incident to its having the goods transported.
To recapitulate, common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case. The mere proof of
delivery of goods in good order to the carrier, and their arrival in the place of destination in bad order,
make out a prima facie case against the carrier, so that if no explanation is given as to how the injury
occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove that the loss
was due to accident or some other circumstances inconsistent with its liability. 18
The contention of OFII is likewise untenable. A customs broker has been regarded as a common
carrier because transportation of goods is an integral part of its business. 19 In Schmitz Transport &
Brokerage Corporation v. Transport Venture, Inc., 20 the Court already reiterated: It is settled that
under a given set of facts, a customs broker may be regarded as a common carrier. 1wphi1 Thus, this
Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals held:
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.
xxxx
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.
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."21
That OFII is a common carrier is buttressed by the testimony of its own witness, Mr. Loveric
Panganiban Cueto, that part of the services it offers to clients is cargo forwarding, which includes the
delivery of the shipment to the consignee. 22 Thus, for undertaking the transport of cargoes from ATI
to SMCs warehouse in Calamba, Laguna, OFII is considered a common carrier. 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 of whether it owns the vehicle to be used or has to actually
hire one.
As a common carrier, OFII is mandated to observe, under Article 1733 of the Civil
Code,23 extraordinary diligence in the vigilance over the goods 24 it transports according to the peculiar
circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently unless it proves that it observed
extraordinary diligence.25 In the case at bar it was established that except for the six containers/skids
already damaged OFII received the cargoes from ATI in good order and condition; and that upon its

delivery to SMC additional nine containers/skids were found to be in bad order as noted in the
Delivery Receipts issued by OFII and as indicated in the Report of Cares Marine Cargo Surveyors.
Instead of merely excusing itself from liability by putting the blame to ATI and SMC it is incumbent
upon OFII to prove that it actively took care of the goods by exercising extraordinary diligence in the
carriage thereof. It failed to do so. Hence its presumed negligence under Article 1735 of the Civil Code
remains unrebutted.
WHEREFORE, premises considered the petitions of Westwind and OFII in G.R. Nos. 200289 and
200314 respectively are DENIED. The September 13 2011 Decision and January 19 2012 Resolution of
the Court of Appeals in CA-G.R. CV No. 86752 which reversed and set aside the January 27 2006
Decision of the Manila City Regional Trial Court Branch 30 are AFFIRMED.

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

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs. PKS
SHIPPING COMPANY, respondent.
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, whileLimar
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. [1] 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.
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.[2] Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public
Service Act, this Court has held:
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
idiom, as `a sideline). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on 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, [3] 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[4] and gets the control of the vessel and its crew. [5] Contrary to the conclusion made by the
appellate court, its factual findings indicate that PKS Shipping has engaged itself in the business of
carrying goods for others, although for a limited clientele, undertaking to carry such goods for a
fee. The regularity of its activities in this area indicates more than just a casual activity on its part.
[6]
Neither can the concept of a common carrier change merely because individual contracts are
executed or entered into with patrons of the carrier. Such restrictive interpretation would make it easy
for a common carrier to escape liability by the simple expedient of entering into those distinct
agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence
demanded of common carriers, Article 1733 of the Civil Code requires common carriers to observe
extraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault or to have acted
negligently, and the burden of proving otherwise rests on them. [7] The provisions of Article 1733,
notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of
the goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers; and
(5) Order or act of competent public authority.[8]
The appellate court ruled, gathered from the testimonies and sworn marine protests of the
respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barges or
the tugboats crew could have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots
resulting in the entry of water into the barges hatches. The official Certificate of Inspection of the
barge issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to the
seaworthiness of Limar I and should strengthen the factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized
exceptions from the rule - (1) when the factual findings of the Court of Appeals and the trial court are

contradictory; (2) when the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of
the case and such findings are contrary to the admissions of both appellant and appellee; (6) when the
judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the Court of
Appeals failed to notice certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of fact are
conclusions without citation of the specific evidence on which they are based; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record would appear to be clearly extant in this instance.
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.

[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[1] in CA-G.R. CV No. 49195 and February
21, 2001 Resolution[2] affirming with modification the April 6, 1994 Decision[3] of the Regional Trial
Court of Manila which found petitioner liable to pay private respondent the amount of indemnity and
attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.35[4] 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. [5] The shipment was insured by the private
respondent Prudential Guarantee and Assurance, Inc. against loss or damage for P14,621,771.75
under Marine Cargo Risk Note RN 11859/90.[6]
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the
custody of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the
consignee as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by
Lighterage Receipt No. 0364[7] for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of
an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering
Island off Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other
barges which arrived ahead of it while weathering out the storm that night. A few days after, the barge
developed a list because of a hole it sustained after hitting an unseen protuberance underneath the
water. The petitioner filed a Marine Protest on August 28, 1990. [8]It likewise secured the services of
Gaspar Salvaging Corporation which refloated the barge. [9] The hole was then patched with clay and
cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's
wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due
to strong current. To avoid the complete sinking of the barge, a portion of the goods was transferred
to three other barges.[10]
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting
in the total loss of the remaining cargo.[11] A second Marine Protest was filed on September 7, 1990.[12]
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and
loaded on the three other barges. [13] The total proceeds from the sale of the salvaged cargo
was P201,379.75.[14]
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another
letter dated September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.[15] Thereafter, as subrogee, it sought recovery of said amount from the petitioner,
but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the
amount of indemnity, attorney's fees and cost of suit. [16] Petitioner filed its answer with counterclaim.
[17]

The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its
Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia
Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the sum
ofP4,104,654.22 with interest from the date complaint was filed on July 3, 1991 until fully satisfied
plus 10% of the amount awarded as and for attorney's fees. Defendant's counterclaim is hereby
DISMISSED.With costs against defendant.[18]
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate
court affirmed the decision of the trial court with modification. The dispositive portion of its decision
reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that
the salvage value of P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs against
appellant.
SO ORDERED.
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,[21] 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 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
the general 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 [22] 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,[23] 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.
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.[24] 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. [25] In the case at bar, the petitioner admitted
that it is engaged in the business of shipping and lighterage, [26] offering its barges to the public,
despite its limited clientele for carrying or transporting goods by water for compensation. [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.[28] They are presumed to have been at fault or to have acted negligently if the
goods are lost, destroyed or deteriorated.[29] 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:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
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. [30] 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 partly-submerged 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 TanGatue Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE:[31]
xxxxxxxxx
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.
xxxxxxxxx

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. [32] A part of the
testimony of Robert Boyd, Cargo Operations Supervisor of the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:[33]
xxxxxxxxx
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.
xxxxxxxxx
CROSS-EXAMINATION BY ATTY. IGNACIO:[34]
xxxxxxxxx
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.

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

NATIONAL STEEL CORPORATION, petitioner, vs. COURT

VLASONS SHIPPING, INC., respondents.

OF

APPEALS

AND

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

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

STEEL CORPORATION, respondents.
DECISION
PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of a private carrier, its owners
responsibility for damage to the cargo and its liability for demurrage and attorneys fees.The Court
also reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of
Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC) and
Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of
Appeals. [1] The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro
Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing
the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the
counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at
the legal rate on both amounts from April 7, 1976 until the same shall have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.
SO ORDERED. [2]
On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by reducing the award
for demurrage to P44,000.00 and deleting the award for attorneys fees and expenses of
litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement as to
costs.
SO ORDERED. [3]

The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport
cargo or shipment for the general public. Its services are available only to specific persons who enter
into a special contract of charter party with its owner. It is undisputed that the ship is a private
carrier. And it is in this capacity that its owner, Vlasons Shipping, Inc., entered into a contract of
affreightment or contract of voyage charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons
Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit B; also Exhibit
1) whereby NSC hired VSIs vessel, the MV VLASONS I to make one (1) voyage to load steel products
at Iligan City and discharge them at North Harbor, Manila, under the following terms and
conditions, viz:
1. x x x x x x.
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
3. x x x x x x
4. Freight/Payment: P30.00 /metric ton, FIOST basis. Payment upon presentation of Bill of Lading
within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive
hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. x x x x x x
9. Cargo Insurance: Charterers and/or Shippers must insure the cargoes. Shipowners not responsible
for losses/damages except on proven willful negligence of the officers of the vessel.
10. Other terms:(a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized
Charter Party Agreement shall form part of this Contract.
xxxxxxxxx
The terms F.I.O.S.T. which is used in the shipping business is a standard provision in the NANYOZAI
Charter Party which stands for Freight In and Out including Stevedoring and Trading, which means
that the handling, loading and unloading of the cargoes are the responsibility of the Charterer. Under
Paragraph 5 of the NANYOZAI Charter Party, it states, Charterers to load, stow and discharge the
cargo free of risk and expenses to owners. x x x (Underscoring supplied).
Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the beginning of the
voyage, exercise due diligence to make the vessel seaworthy and properly manned, equipped and
supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe
for its reception, carriage and preservation. Owners shall not be liable for loss of or damage of the
cargo arising or resulting from: unseaworthiness unless caused by want of due diligence on the part of
the owners to make the vessel seaworthy, and to secure that the vessel is properly manned, equipped
and supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and
safe for its reception, carriage and preservation; xxx; perils, dangers and accidents of the sea or other
navigable waters; xxx; wastage in bulk or weight or any other loss or damage arising from inherent
defect, quality or vice of the cargo; insufficiency of packing; xxx; latent defects not discoverable by due
diligence; any other cause arising without the actual fault or privity of Owners or without the fault of
the agents or servants of owners.
Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be responsible
for split, chafing and/or any damage unless caused by the negligence or default of the master and
crew.
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV
VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of tinplates and
92 packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19

metric tons for carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief
Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board
and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The
following day, August 13, 1974, when the vessels three (3) hatches containing the shipment were
opened by plaintiffs agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found
to be wet and rusty. The cargo was discharged and unloaded by stevedores hired by the
Charterer. Unloading was completed only on August 24, 1974 after incurring a delay of eleven (11)
days due to the heavy rain which interrupted the unloading operations. (Exhibit E)
(4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the
shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated
March 17, 1975 (Exhibit G), MASCO made a report of its ocular inspection conducted on the cargo,
both while it was still on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa,
Manila where the cargo was taken and stored. MASCO reported that it found wetting and rusting of
the packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were
noted torn at various extents; that container/metal casings of the skids were rusting all over. MASCO
ventured the opinion that rusting of the tinplates was caused by contact with SEA WATER sustained
while still on board the vessel as a consequence of the heavy weather and rough seas encountered
while en route to destination (Exhibit F). It was also reported that MASCOs surveyors drew at random
samples of bad order packing materials of the tinplates and delivered the same to the M.I.T. Testing
Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770
(Exhibit I) which in part, states, The analysis of bad order samples of packing materials xxx shows
that wetting was caused by contact with SEA WATER.
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the
defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the
amount ofP941,145.18. 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
carrierinasmuch as she was under voyage charter contract with the plaintiff as charterer under the
charter party; that in the course of the voyage from Iligan City to Manila, the MV VLASONS I
encountered very rough seas, strong winds and adverse weather condition, causing strong winds and
big waves to continuously pound against the vessel and seawater to overflow on its deck and hatch
covers; that under the Contract of Voyage Charter Hire, defendant shall not be responsible for
losses/damages except on proven willful negligence of the officers of the vessel, that the officers of
said MV VLASONS I exercised due diligence and proper seamanship and were not willfully negligent;
that furthermore the Voyage Charter Party provides that loading and discharging of the cargo was on
FIOST terms which means that the vessel was free of risk and expense in connection with the loading
and discharging of the cargo; that the damage, if any, was due to the inherent defect, quality or vice of
the cargo or to the insufficient packing thereof or to latent defect of the cargo not discoverable by due
diligence or to any other cause arising without the actual fault or privity of defendant and without the
fault of the agents or servants of defendant; consequently, defendant is not liable; that the stevedores
of plaintiff who discharged the cargo in Manila were negligent and did not exercise due care in the
discharge of the cargo; and that the cargo was exposed to rain and seawater spray while on the pier or
in transit from the pier to plaintiffs warehouse after discharge from the vessel; and that plaintiffs
claim was highly speculative and grossly exaggerated and that the small stain marks or sweat marks
on the edges of the tinplates were magnified and considered total loss of the cargo. Finally, defendant
claimed that it had complied with all its duties and obligations under the Voyage Charter Hire
Contract and had no responsibility whatsoever to plaintiff. In turn, it alleged the following
counterclaim:
(a) That despite the full and proper performance by defendant of its obligations under the Voyage
Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00
despite demands made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum
of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila
waiting for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant
demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay
defendant attorneys fees and all expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the following findings
which were set forth in its decision:
(a) The MV VLASONS I is a vessel of Philippine registry engaged in the tramping service and is
available for hire only under special contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. 1), the MV
VLASONS I was covered by the required seaworthiness certificates including the Certification of
Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh. 4);
Coastwise License from the Board of Transportation (Exh. 5); International Loadline Certificate from
the Philippine Coast Guard (Exh. 6); Cargo Ship Safety Equipment Certificate also from the
Philippine Coast Guard (Exh. 7); Ship Radio Station License (Exh. 8); Certificate of Inspection by the
Philippine Coast Guard (Exh. 12); and Certificate of Approval for Conversion issued by the Bureau of
Customs (Exh. 9). That being a vessel engaged in both overseas and coastwise trade, the MV
VLASONS I has a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage
Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was thoroughly inspected by
the Philippine Coast Guard. In fact, subject voyage was the vessels first voyage after the
drydocking. The evidence shows that the MV VLASONS I was seaworthy and properly manned,
equipped and supplied when it undertook the voyage. It had all the required certificates of
seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were
covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch covers
were water tight. Furthermore, under the hatchboards were steel beams to give support.
(e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by
evidence. The provisions of the Civil Code on common carriers pursuant to which there exists a
presumption of negligence in case of loss or damage to the cargo are not applicable. As to the damage
to the tinplates which was allegedly due to the wetting and rusting thereof, there is unrebutted
testimony of witness Vicente Angliongto that tinplates sweat by themselves when packed even without
being in contract (sic) with water from outside especially when the weather is bad or raining. The rust
caused by sweat or moisture on the tinplates may be considered as a loss or damage but then,
defendant cannot be held liable for it pursuant to Article 1734 of the Civil Case which exempts the
carrier from responsibility for loss or damage arising from the character of the goods x x x. All the
1,769 skids of the tinplates could not have been damaged by water as claimed by plaintiff. It was
shown as claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining and
corrugated cardboards could not be affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not
closing the hatch openings of the MV VLASONS I when rains occurred during the discharging of the
cargo thus allowing rainwater to enter the hatches. It was proven that the stevedores merely set up
temporary tents to cover the hatch openings in case of rain so that it would be easy for them to resume
work when the rains stopped by just removing the tent or canvas. Because of this improper covering
of the hatches by the stevedores during the discharging and unloading operations which were
interrupted by rains, rainwater drifted into the cargo through the hatch openings. Pursuant to
paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly made part of the Contract of
Voyage Charter Hire, the loading, stowing and discharging of the cargo is the sole responsibility of the
plaintiff charterer and defendant carrier has no liability for whatever damage may occur or maybe
[sic] caused to the cargo in the process.
(g) It was also established that the vessel encountered rough seas and bad weather while en route
from Iligan City to Manila causing sea water to splash on the ships deck on account of which the
master of the vessel (Mr. Antonio C. Dumlao) filed a Marine Protest on August 13, 1974 (Exh. 15)
which can be invoked by defendant as a force majeure that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter
Hire contract that it was to insure the cargo because it did not. Had plaintiff complied with the
requirement, then it could have recovered its loss or damage from the insurer. Plaintiff also violated

the charter party contract when it loaded not only steel products, i.e. steel bars, angular bars and the
like but also tinplates and hot rolled sheets which are high grade cargo commanding a higher
freight. Thus plaintiff was able to ship high grade cargo at a lower freight rate.
(I) As regards defendants counterclaim, the contract of voyage charter hire under paragraph 4
thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier upon presentation of
the bill of lading within fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00
despite demands. The evidence also showed that the plaintiff was required and bound under
paragraph 7 of the same Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of
delay in the unloading of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff
liable to pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
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 from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of
litigation. NSC and VSI filed separate motions for reconsideration. In a Resolution[5] dated October
20, 1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their respective
petitions for review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the
consolidation of these petitions.[6]
The Issues
In its petition[7] and memorandum,[8] NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays
caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8, 9, 11 and 12)
were admissible in evidence and constituted evidence of the vessels seaworthiness at the
beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner from liability
for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessels officers and crew were negligent in handling and caring for NSCs
cargo;

3. Whether or not NSCs cargo of tinplates did sweat during the voyage and, hence, rusted on
their own; and
(4) Whether or not NSCs stevedores were negligent and caused the wetting[/]rusting of NSCs
tinplates.
In its separate petition, [9] VSI submits for the consideration of this Court the following alleged
errors of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage
from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for
attorneys fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]
I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to
which there exist[s] a presumption of negligence against the common carrier in case of loss or 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. [11] A carrier which does not qualify under the
above test is deemed a private carrier. Generally, private carriage is undertaken by special agreement
and the carrier does not hold himself out to carry goods for the general public. The most typical,
although not the only form of private carriage, is the charter party, a maritime contract by which the
charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship
for a period of time or a voyage or voyages. [12]
In the instant case, it is undisputed that VSI did not offer its services to the general public. As
found by the Regional Trial Court, it carried passengers or goods only for those it chose under a
special contract of charter party. [13] As correctly concluded by the Court of Appeals, the MV Vlasons
I was not a common but a private carrier. [14] Consequently, the rights and obligations of VSI and NSC,
including their respective liability for damage to the cargo, are determined primarily by stipulations in
their contract of private carriage or charter party. [15]Recently, in Valenzuela Hardwood and Industrial
Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, [16] the Court ruled:
x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations
which perforce would be binding on them. Unlike in a contract involving a common carrier, private
carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on
common carriers protecting the general public cannot justifiably be applied to a ship transporting

commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in
contracts involving common carriers.[17]
Extent of VSIs Responsibility and Liability Over NSCs Cargo
It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not
be responsible for losses except on proven willful negligence of the officers of the vessel. The
NANYOZAI Charter Party, which was incorporated in the parties contract of transportation, further
provided that the shipowner shall not be liable for loss of or damage to the cargo arising or resulting
from unseaworthiness, unless the same was caused by its lack of due diligence to make the vessel
seaworthy or to ensure that the same was properly manned, equipped and supplied, and to make the
holds and all other parts of the vessel in which cargo [was] carried, fit and safe for its reception,
carriage and preservation. [18] The NANYOZAI Charter Party also provided that [o]wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or default of the
master or crew.[19]
Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage to its
shipment was caused by VSIs willful negligence or failure to exercise due diligence in making MV
Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of
proof was placed on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has
not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the transportation, due to
fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for the
account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the
preceding article if proofs against him show that they occurred on account of his negligence or his
omission to take the precautions usually adopted by careful persons, unless the shipper committed
fraud in the bill of lading, making him to believe that the goods were of a class or quality different
from what they really were.
Because the MV Vlasons I was a private carrier, the shipowners obligations are governed by the
foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule,
places the prima facie presumption of negligence on a common carrier. It is a hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to
prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged
while in the carriers custody does not put the burden of proof on the carrier.
Since x x x a private carrier is not an insurer but undertakes only to exercise due care in the protection
of the goods committed to its care, the burden of proving negligence or a breach of that duty rests on
plaintiff and proof of loss of, or damage to, cargo while in the carriers possession does not cast on it
the burden of proving proper care and diligence on its part or that the loss occurred from an excepted
cause in the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled
to the benefit of the presumptions and inferences by which the law aids the bailor in an action against
a bailee, and since the carrier is in a better position to know the cause of the loss and that it was not
one involving its liability, the law requires that it come forward with the information available to it,
and its failure to do so warrants an inference or presumption of its liability. However, such inferences
and presumptions, while they may affect the burden of coming forward with evidence, do not alter the
burden of proof which remains on plaintiff, and, where the carrier comes forward with evidence
explaining the loss or damage, the burden of going forward with the evidence is again on plaintiff.
Where the action is based on the shipowners warranty of seaworthiness, the burden of proving a
breach thereof and that such breach was the proximate cause of the damage rests on plaintiff, and
proof that the goods were lost or damaged while in the carriers possession does not cast on it the

burden of proving seaworthiness. x x x Where the contract of carriage exempts the carrier from
liability for unseaworthiness not discoverable by due diligence, the carrier has the preliminary burden
of proving the exercise of due diligence to make the vessel seaworthy. [20]
In the instant case, the Court of Appeals correctly found that NSC has not taken the correct
position in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after
citing Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellants
[NSCs] interpretation of Clause 12 is not even correct), it argues that a careful examination of the
evidence will show that VSI miserably failed to comply with any of these obligations as if defendantappellee [VSI] had the burden of proof.[21]
First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is manifestly
relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended
purpose under the charter party; (2) whether the damage to the cargo should be attributed to the
willful negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3)
whether the rusting of the tinplates was caused by its own sweat or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties conflicting claims and to carefully weigh their respective evidence. The
findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual
findings of both the trial court and the Court of Appeals coincide, the same are binding on this
Court. [22] We stress that, subject to some exceptional instances, [23] only questions of law -- not
questions of fact -- may be raised before this Court in a petition for review under Rule 45 of the Rules
of Court. After a thorough review of the case at bar, we find no reason to disturb the lower courts
factual findings, as indeed NSC has not successfully proven the application of any of the aforecited
exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and
fit for the carriage of NSCs cargo of steel and tinplates. This is shown by the fact that it was drydocked
and inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila
under the contract of voyage charter hire. [24] The vessels voyage from Iligan to Manila was the
vessels first voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it
as seaworthy, fitted and equipped; it met all requirements for trading as cargo vessel. [25] The Court
of Appeals itself sustained the conclusion of the trial court that MV Vlasons I was seaworthy. We find
no reason to modify or reverse this finding of both the trial and the appellate courts.
Who Were Negligent: Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by
the negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit
for the carriage of tinplates. NSC failed to discharge this burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or
canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It
faults the Court of Appeals for failing to consider such claim as an uncontroverted fact [26] and denies
that MV Vlasons I was equipped with new canvas covers in tandem with the old ones as indicated in
the Marine Protest xxx. [27] We disagree.
The records sufficiently support VSIs contention that the ship used the old tarpaulin, only in
addition to the new one used primarily to make the ships hatches watertight. The foregoing are clear
from the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of
the ships boatswain, Jose Pascua. The salient portions of said marine protest read:
x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8, 1974, loaded
with approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel
Corporation; that before departure, the vessel was rigged, fully equipped and cleared by the
authorities; that on or about August 9, 1974, while in the vicinity of the western part of Negros and
Panay, we encountered very rough seas and strong winds and Manila office was advised by telegram
of the adverse weather conditions encountered; that in the morning of August 10, 1974, the weather
condition changed to worse and strong winds and big waves continued pounding the vessel at her port

side causing sea water to overflow on deck andhatch (sic) covers and which caused the first layer of
the canvass covering to give way while the new canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by Mindoro; that we
re-secured the canvass covering back to position; that in the afternoon of August 10, 1974, while
entering Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while
approaching Fortune Island, we encountered again rough seas, strong winds and big waves which
caused the same canvass to give way and leaving the new canvass holding on;
xxx xxx xxx [28]
And the relevant portions of Jose Pascuas deposition are as follows:
Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and
we place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a
stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of the hatch
opening.
A: Forty-five feet by thirty-five feet, sir.
xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of wood are put
on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How many canvas
covers?
A: Two, sir. [29]

That due diligence was exercised by the officers and the crew of the MV Vlasons I was further
demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not
give way and the ships hatches and cargo holds remained waterproof. As aptly stated by the Court of
Appeals, xxx we find no reason not to sustain the conclusion of the lower court based on
overwhelming evidence, that the MV VLASONS I was seaworthy when it undertook the voyage on
August 8, 1974 carrying on board thereof plaintiff-appellants shipment of 1,677 skids of tinplates and
92 packages of hot rolled sheets or a total of 1,769 packages from NSCs pier in Iligan City arriving
safely at North Harbor, Port Area, Manila, on August 12, 1974; xxx.[30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the
crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were
negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong rains
occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater away from the hatches of the
ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14 you went on
board the vessel upon notice from the National Steel Corporation in order to conduct the
inspection of the cargo. During the course of the investigation, did you chance to see the
discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the
pier but majority of the tinplates were inside the hall, all the hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter . . . the
transcript of stenographic notes shows the same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were built at the
opening of the hatches.
Q: You also stated that the hatches were already opened and that there were tents constructed
at the opening of the hatches to protect the cargo from the rain. Now, will you describe
[to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at
the middle with the whole side separated down to the hatch, the size of the hatch and it is
soaks [sic] at the middle because of those weather and this can be used only to
temporarily protect the cargo from getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon passing by and
the hatch tent was not good enough to hold all of it to prevent the water soaking through
the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and
soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of] the
procedure adopted by its stevedores in discharging the cargo particularly in this tent
covering of the hatches?

A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the
stevedores did not mind at all, so, I called the attention of the representative of the
National Steel but nothing was done, just the same. Finally, I wrote a letter to them. [31]
NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain
immediately about the stevedores negligence on the first day of unloading, pointing out that he wrote
his letter to petitioner only seven days later. [32] The Court is not persuaded. Angliongtos candid
answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed because he
first called the attention of the stevedores, then the NSCs representative, about the negligent and
defective procedure adopted in unloading the cargo. This series of actions constitutes a reasonable
response in accord with common sense and ordinary human experience. Vicente Angliongto could not
be blamed for calling the stevedores attention first and then the NSCs representative on location
before formally informing NSC of the negligence he had observed, because he was not responsible for
the stevedores or the unloading operations.In fact, he was merely expressing concern for NSC which
was ultimately responsible for the stevedores it had hired and the performance of their task to unload
the cargo.
We see no reason to reverse the trial and the appellate courts findings and conclusions on this
point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores
hired by NSC were negligent in the unloading of NSCs shipment. We do not think so. Such negligence
according to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV
VLASONS I when rains occurred during the discharging of the cargo thus allowing rain water and
seawater spray to enter the hatches and to drift to and fall on the cargo. It was proven that the
stevedores merely set up temporary tents or canvas to cover the hatch openings when it rained during
the unloading operations so that it would be easier for them to resume work after the rains stopped by
just removing said tents or canvass. It has also been shown that on August 20, 1974, VSI President
Vicente Angliongto wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were
discharging the cargo on rainy days and the improper closing of the hatches which allowed
continuous heavy rain water to leak through and drip to the tinplates covers and [Vicente Angliongto]
also suggesting that due to four (4) days continuos rains with strong winds that the hatches be totally
closed down and covered with canvas and the hatch tents lowered. (Exh 13). This letter was received
by [NSC] on 22 August 1974 while discharging operations were still going on (Exhibit 13-A). [33]
The fact that NSC actually accepted and proceeded to remove the cargo from the ship during
unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be
noted that the NSC may seek indemnification, subject to the laws on prescription, from the
stevedoring company at fault in the discharge operations. A stevedore company engaged in
discharging cargo xxx has the duty to load the cargo xxx in a prudent manner, and it is liable for injury
to, or loss of, cargo caused by its negligence xxx and where the officers and members and crew of the
vessel do nothing and have no responsibility in the discharge of cargo by stevedores xxx the vessel is
not liable for loss of, or damage to, the cargo caused by the negligence of the stevedores xxx [34] as in
the instant case.
Do Tinplates Sweat?
The trial court relied on the testimony of Vicente Angliongto in finding that xxx tinplates sweat by
themselves when packed even without being in contact with water from outside especially when the
weather is bad or raining xxx. [35] The Court of Appeals affirmed the trial courts finding.
A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the
damage to the tinplates was occasioned not by airborne moisture but by contact with rain and
seawater which the stevedores negligently allowed to seep in during the unloading.
Second Issue: Effect of NSCs Failure to Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is
totally separate and distinct from the contractual or statutory responsibility that may be incurred by
VSI for damage to the cargo caused by the willful negligence of the officers and the crew of MV
Vlasons I. Clearly, therefore, NSCs failure to insure the cargo will not affect its right, as owner and
real party in interest, to file an action against VSI for damages caused by the latters willful
negligence. We do not find anything in the charter party that would make the liability of VSI for
damage to the cargo contingent on or affected in any manner by NSCs obtaining an insurance over the
cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness

NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility
of the certificates of seaworthiness offered in evidence by VSI. The said certificates include the
following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]
NSC argues that the certificates are hearsay for not having been presented in accordance with the
Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are not written records or acts of public
officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not evidenced by official publications or certified
true copies as required by Sections 25 and 26, Rule 132, of the Rules of Court. [37]
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12
are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates
issued by private parties, but they have not been proven by one who saw the writing executed, or by
evidence of the genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits 5,
6, 7, 8, 9, and 12 are photocopies, but their admission under the best evidence rule have not been
demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule
per Section 44 of Rule 130 of the Rules of Court, which provides that (e)ntries in official records made
in the performance of a duty by a public officer of the Philippines, or by a person in the performance
of a duty specially enjoined by law, are prima facie evidence of the facts therein stated. [38] Exhibit 11 is
an original certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli
C. Flores to the effect that the vessel VLASONS I was drydocked x x x and PCG Inspectors were sent
on board for inspection x x x. After completion of drydocking and duly inspected by PCG Inspectors,
the vessel VLASONS I, a cargo vessel, is in seaworthy condition, meets all requirements, fitted and
equipped for trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu
Port on July 10, 1974. (sic)NSCs claim, therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that that NSC has the burden of proving that MV Vlasons I was
not seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the
obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to
discharge its duty of proving the willful negligence of VSI in making the ship seaworthy resulting in
damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is not sufficient
proof that the vessel was not seaworthy.
Fourth Issue: Demurrage and Attorneys Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Masters option.
xxx xxx xxx
6. Loading/Discharging Rate : 750 tons per WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]
The Court defined demurrage in its strict sense as the compensation provided for in the contract
of affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for
loading and unloading of cargo. [40] It is given to compensate the shipowner for the nonuse of the
vessel. On the other hand, the following is well-settled:
Laytime runs according to the particular clause of the charter party. x x x If laytime is expressed in
running days, this means days when the ship would be run continuously, and holidays are not
excepted. A qualification of weather permitting excepts only those days when bad weather reasonably
prevents the work contemplated. [41]

In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and holidays included. [42] The running of
laytime was thus made subject to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo. [43] Consequently, NSC may not be held liable for
demurrage as the four-day laytime allowed it did not lapse, having been tolled by unfavorable weather
condition in view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was error for
the trial court and the Court of Appeals to have found and affirmed respectively that NSC incurred
eleven days of delay in unloading the cargo. The trial court arrived at this erroneous finding by
subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only day of
unloading unhampered by unfavorable weather or rain which was August 22, 1974. Based on our
previous discussion, such finding is a reversible error. As mentioned, the respondent appellate court
also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by half.
Attorneys Fees
VSI assigns as error of law the Court of Appeals deletion of the award of attorneys fees. We
disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an
award of attorneys fees under Article 2208 of the Civil Code when x x x no sufficient showing of bad
faith would be reflected in a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause x x x. [44] Moreover, attorneys fees may not be awarded to a party for the
reason alone that the judgment rendered was favorable to the latter, as this is tantamount to imposing
a premium on ones right to litigate or seek judicial redress of legitimate grievances. [45]
Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to
the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such
damage was brought about during the unloading process when rain and seawater seeped through the
cargo due to the fault or negligence of the stevedores employed by it.Basic is the rule that factual
findings of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme
Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case is one of
them. Second, the agreement between the parties -- the Contract of Voyage Charter Hire -- placed the
burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such stipulation,
while disadvantageous to NSC, is valid because the parties entered into a contract of private charter,
not one of common carriage.Basic too is the doctrine that courts cannot relieve a party from the
effects of a private contract freely entered into, on the ground that it is allegedly one-sided or unfair to
the plaintiff. The charter party is a normal commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport price which is determined not
only by the actual costs but also by the risks and burdens assumed by the shipper in regard to possible
loss or damage to the cargo. In recognition of such factors, the parties even stipulated that the shipper
should insure the cargo to protect itself from the risks it undertook under the charter party. That NSC
failed or neglected to protect itself with such insurance should not adversely affect VSI, which had
nothing to do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby
DENIED. The questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION
that the demurrage awarded to VSI is deleted. No pronouncement as to costs.

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

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF

APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated November
29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas
City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a business tax
refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 [1] and
renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of
Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer
required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the
Local Government Code.[3] The respondent City Treasurer assessed a business tax on the petitioner
amounting to P956,076.04 payable in four installments based on the gross receipts for products
pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper
its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter
of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer,
the pertinent portion of which reads:
"Please note that our Company (FPIC) is a pipeline operator with a government concession granted
under the Petroleum Act. It is engaged in the business of transporting petroleum products from the
Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is
exempt from paying tax on gross receipts under Section 133 of the Local Government Code of 1991 x x
xx
"Moreover, Transportation contractors are not included in the enumeration of contractors under
Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax 'on
contractors and other independent contractors' under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on transportation contractors.
"The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of
the Local Government Code. The said section limits the imposition of fees and charges on business to
such amounts as may be commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition thereof based on gross
receipts is violative of the aforecited provision. The amount of P956,076.04 (P239,019.01 per quarter)
is not commensurate to the cost of regulation, inspection and licensing. The fee is already a revenue
raising measure, and not a mere regulatory imposition."[4]

On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner
cannot be considered engaged in transportation business, thus it cannot claim exemption under
Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint [6] for
tax refund with prayer for a writ of preliminary injunction against respondents City of Batangas and
Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia,
that: (1) the imposition and collection of the business tax on its gross receipts violates Section 133 of
the Local Government Code; (2) the authority of cities to impose and collect a tax on the gross receipts
of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include the authority
to collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term
"contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and
erroneously imposed and collected the said tax, thus meriting the immediate refund of the tax paid. [7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes
under Section 133 (j) of the Local Government Code as said exemption applies only to "transportation
contractors and persons engaged in the transportation by hire and common carriers by air, land and
water." Respondents assert that pipelines are not included in the term "common carrier" which refers
solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the
term "common carrier" under the said code pertains to the mode or manner by which a product is
delivered to its destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this
wise:
"xxx Plaintiff is either a contractor or other independent contractor.
xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions
are to be strictly construed against the taxpayer, taxes being the lifeblood of the
government. Exemption may therefore be granted only by clear and unequivocal provisions of law.
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A)
whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said
law nor the deed of concession grant any tax exemption upon the plaintiff.
"Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax
Code. Such being the situation obtained in this case (exemption being unclear and equivocal) resort to
distinctions or other considerations may be of help:
1. That the exemption granted under Sec. 133 (j) encompasses only common carriers so as
not to overburden the riding public or commuters with taxes. Plaintiff is not a
common carrier, but a special carrier extending its services and facilities to a
single specific or "special customer" under a "special contract."
2. The Local Tax Code of 1992 was basically enacted to give more and effective local
autonomy to local governments than the previous enactments, to make them
economically and financially viable to serve the people and discharge their
functions with a concomitant obligation to accept certain devolution of powers, x
x x So, consistent with this policy even franchise grantees are taxed (Sec. 137) and
contractors are also taxed under Sec. 143 (e) and 151 of the Code." [9]
Petitioner assailed the aforesaid decision before this Court via a petition for review. On February
27, 1995, we referred the case to the respondent Court of Appeals for consideration and adjudication.
[10]
On November 29, 1995, the respondent court rendered a decision [11] affirming the trial court's
dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied on July 18,
1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated November
11, 1996.[13] Petitioner moved for a reconsideration which was granted by this Court in a
Resolution[14] of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is
not a common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is
not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for compensation,
offering his services to the public generally.

Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as a public employment,
and must hold himself out as ready to engage in the transportation of goods for person
generally as a business and not as a casual occupation;
2. He must undertake to carry goods of the kind to which his business is confined;
3. He must undertake to carry by the method by which his business is conducted and over his
established roads; and
4. The transportation must be for hire.[15]
Based on the above definitions and requirements, there is no doubt that petitioner is a common
carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for
hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons
who choose to employ its services, and transports the goods by land and for compensation. The fact
that petitioner has a limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals[16] we ruled that:
"The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying only as an
ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making any distinction
between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the 'general public,' i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1877 deliberately refrained from making such
distinctions.
So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly
with the notion of 'public service,' under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, 'public service' includes:
'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire
or compensation, with general or limited clientele, whether permanent, occasional or accidental,
and done for general business purposes, any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage
system, wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers through
moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not
provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the
United States, oil pipe line operators are considered common carriers. [17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential
right to utilize installations for the transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the transportation of such other petroleum
as may be offered by others for transport, and to charge without discrimination such rates as may
have been approved by the Secretary of Agriculture and Natural Resources."

Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article
7 thereof provides:
"that everything relating to the exploration for and exploitation of petroleum x x and everything
relating to the manufacture, refining, storage, or transportation by special methods of
petroleum, is hereby declared to be a public utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:
"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum
products, it is considered a common carrier under Republic Act No. 387 x x x. Such being the case, it
is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government
Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following :
xxxxxxxxx
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code."
The deliberations conducted in the House of Representatives on the Local Government Code of
1991 are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common
Limitations on the Taxing Powers of Local Government Units." x x x
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of
those being deemed to be exempted from the taxing powers of the local government units. May we
know the reason why the transportation business is being excluded from the taxing
powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16,
paragraph 5. It states that local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that
provinces have the power to impose a tax on business enjoying a franchise at the rate of not more than
one-half of 1 percent of the gross annual receipts. So, transportation contractors who are enjoying a
franchise would be subject to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker, is the imposition of taxes by local
government units on the carrier business. Local government units may impose taxes on top of
what is already being imposed by the National Internal Revenue Code which is the so-called "common
carriers tax." We do not want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]
It is clear that the legislative intent in excluding from the taxing power of the local government
unit the imposition of business tax against common carriers is to prevent a duplication of the socalled "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.

[G.R. Nos. 121662-64. July 6, 1999]

VLASON ENTERPRISES CORPORATION
COURT OF APPEALS and DURAPROOF SERVICES,
represented by its General Manager, Cesar UrbinoSr.,

vs.

Summons to a domestic or resident corporation should be served on officers, agents or

employees, who are responsible enough to warrant the presumption that they will transmit to the
corporation notice of the filing of the action against it. Rules on the service of motions should be
liberally construed in order to promote the ends of substantial justice. A rigid application that will
result in the manifest injustice should be avoided. A default judgment against several defendants
cannot affect the rights of one who was never declared in default. In any event, such judgment cannot
include an award not prayed for in the complaint, even if proven ex parte.
The Case

These principles were used by this Court in resolving this Petition for Review on Certiorari before
us, assailing the July 19, 1993 Decision [1] and the August 15, 1995 Resolution, [2] both promulgated by
the Court of Appeals. The assailed Decision disposed as follows:[3]
ACCORDINGLY, in view of the foregoing disquisitions, all the three (3) consolidated petitions for
certiorari are hereby GRANTED.
THE assailed Order of respondent Judge Arsenio Gonong of the Regional Trial Court of Manila,
Branch 8, dated April 5, 1991, in the first petition for certiorari (CA-G.R. SP No. 24669); the assailed
Order of Judge Bernardo Pardo, Executive Judge of the Regional Trial Court of Manila, Branch 8,
dated July 6, 1992, in the second petition for certiorari (CA-G.R. SP No. 28387); and finally, the
assailed order or Resolution en banc of the respondent Court of Tax Appeals Judges Ernesto Acosta,
Ramon de Veyra and Manuel Gruba, under date of October 5, 1992, in the third petition for certiorari
(CA-G.R. SP No.29317) are all hereby NULLIFIED and SET ASIDE thereby giving way to
the entire decision dated February 18, 1991 of the respondent Regional Trial Court of Manila, Branch
8, in Civil Case No. 89-51451 which remains valid, final and executory, if not yet wholly executed.
THE writ of preliminary injunction heretofore issued by this Court on March 6, 1992 and reiterated
on July 22, 1992 and this date against the named respondents specified in the dispositive portion of
the judgment of the respondent Regional Trial Court of Manila, Branch 8 in the first petition for
certiorari,
which
remains valid, existing and enforceable,
is
hereby
MADE
PERMANENT without prejudice (1) to the [private respondents] remaining unpaid obligations to the
herein party-intervenor in accordance with the Compromise Agreement or in connection with the
decision of the respondent lower court in CA-G.R. SP No. 24669 and (2) to the government, in
relation to the forthcoming decision of the respondent Court of Tax Appeals on the amount of taxes,
charges, assessments or obligations that are due, as totally secured and fully guaranteed payment by
the [private respondents] bond, subject to the relevant rulings of the Department of Finance and
other prevailing laws and jurisprudence.
The assailed Resolution ruled:

ACCORDINGLY, in the light of the foregoing disquisitions, as well as considering these clarifications,
the three (3) motions aforementioned are hereby DENIED.
The Facts

Poro Point Shipping Services, then acting as the local agent of Omega Sea Transport Company of
Honduras & Panama, a Panamanian company, (hereafter referred to as Omega), requested
permission for its vessel M/V Star Ace, which had engine trouble, to unload its cargo and to store it at
the Philippine Ports Authority (PPA) compound in San Fernando, La Union while awaiting
transhipment to Hongkong.The request was approved by the Bureau of Customs. [4] Despite the
approval, the customs personnel boarded the vessel when it docked on January 7, 1989, on suspicion
that it was the hijacked M/V Silver Medowned by Med Line Philippines Co., and that its cargo would
be smuggled into the country.[5] The district customs collector seized said vessel and its cargo
pursuant to Section 2301, Tariff and Customs Code.A notice of hearing of SFLU Seizure Identification
No. 3-89 was served on its consignee, Singkong Trading Co. of Hongkong, and its shipper, Dusit
International Co., Ltd. of Thailand.
While seizure proceedings were ongoing, La Union was hit by three typhoons, and the vessel ran
aground and was abandoned. On June 8, 1989, its authorized representative, Frank Cadacio, entered
into a salvage agreement with private respondent to secure and repair the vessel at the agreed
consideration of $1 million and fifty percent (50%) [of] the cargo after all expenses, cost and taxes. [6]
Finding that no fraud was committed, the District Collector of Customs, Aurelio M. Quiray, lifted
the warrant of seizure on July 16, 1989. [7] However, in a Second Indorsement dated November 11,
1989, then Customs Commissioner Salvador M. Mison declined to issue a clearance for Quirays
Decision; instead, he forfeited the vessel and its cargo in accordance with Section 2530 of the Tariff
and Customs Code.[8] Accordingly, acting District Collector of Customs John S. Sy issued a Decision
decreeing the forfeiture and the sale of the cargo in favor of the government. [9]
To enforce its preferred salvors lien, herein Private Respondent Duraproof Services filed with the
Regional Trial Court of Manila a Petition for Certiorari, Prohibition and Mandamus[10] assailing the
actions of Commissioner Mison and District Collector Sy. Also impleaded as respondents were PPA
Representative Silverio Mangaoang and Med Line Philippines, Inc.
On January 10, 1989, private respondent amended its Petition [11] to include former District
Collector Quiray; PPA Port Manager Adolfo Ll. Amor Jr; Petitioner Vlason Enterprises as represented
by its president, Vicente Angliongto; Singkong Trading Company as represented by Atty. Eddie
Tamondong; Banco Du Brasil; Dusit International Co., Inc.; Thai-Nan Enterprises Ltd. and ThaiUnited Trading Co., Ltd.[12] In both Petitions, private respondent plainly failed to include any
allegation pertaining to petitioner, or any prayer for relief against it.
Summonses for the amended Petition were served on Atty. Joseph Capuyan for Med Line
Philippines: Angliongto (through his secretary, Betty Bebero), Atty. Tamondong and Commissioner
Mison.[13]Upon motion of the private respondent, the trial court allowed summons by publication to
be served upon the alien defendants who were not residents and had no direct representatives in the
country.[14]
On January 29, 1990, private respondent moved to declare respondents in default, but the trial
court denied the motion in its February 23, 1990 Order,[15] because Mangaoang and Amor had jointly
filed a Motion to Dismiss, while Mison and Med Line had moved separately for an extension to file a
similar motion.[16] Later it rendered an Order dated July 2, 1990, giving due course to the motions to
dismiss filed by Mangaoang and Amor on the ground of litis pendentia, and by the commissioner and
district collector of customs on the ground of lack of jurisdiction. [17] In another Order, the trial court
dismissed the action against Med Line Philippines on the ground of litis pendentia.[18]
On two other occasions, private respondent again moved to declare the following in
default: petitioner, Quiray, Sy and Mison on March 26, 1990; [19] and Banco Du Brazil, Dusit
International Co., Inc., Thai-Nan Enterprises Ltd. and Thai-United Trading Co., Ltd. on August 24,
1990.[20] There is no record, however, that the trial court acted upon the motions. On September 18,
1990, petitioner filed another Motion for leave to amend the petition, [21] alleging that its counsel failed
to include the following necessary and/or indispensable parties: Omega represented by Cadacio;
and M/V Star Ace represented by Capt. Nahon Rada, relief captain. Aside from impleading these
additional respondents, private respondent also alleged in the Second (actually, third) Amended
Petition[22] that the owners of the vessel intended to transfer and alienate their rights and interests
over the vessel and its cargo, to the detriment of the private respondent.
The trial court granted leave to private respondent to amend its Petition, but only to exclude the
customs commissioner and the district collector. [23] Instead, private respondent filed the Second
Amended Petition with Supplemental Petition against Singkong Trading Company; and Omega
and M/V Star Ace,[24] to which Cadacio and Rada filed a Joint Answer.[25]

Declared in default in an Order issued by the trial court on January 23, 1991, were the following:
Singkong Trading Co., Commissioner Mison, M/V Star Ace and Omega.[26] Private respondent filed,
and the trial court granted, an ex parte Motion to present evidence against the defaulting
respondents.[27] Only private respondent, Atty. Tamondong, Commissioner Mison, Omega and M/V
Star Ace appeared in the next pretrial hearing; thus, the trial court declared the other respondents in
default and allowed private respondent to present evidence against them. [28] Cesar Urbino, general
manager of private respondent, testified and adduced evidence against the other respondents,
including herein petitioner. As regards petitioner, he declared: Vlason Enterprises represented by
Atty. Sy and Vicente Angliongto thru constant intimidation and harassment of utilizing the PPA
Management of San Fernando, La Union x x x further delayed, and [private respondent] incurred
heavy overhead expenses due to direct and incidental expenses xxx causing irreparable damages of
about P3,000,000 worth of ship tackles, rigs, and appurtenances including radar antennas and
apparatuses, which were taken surreptitiously by persons working for Vlason Enterprises or its
agents[.][29]
On December 29, 1990, private respondent and Rada, representing Omega, entered into a
Memorandum of Agreement stipulating that Rada would write and notify Omega regarding the
demand for salvage fees of private respondent; and that if Rada did not receive any instruction from
his principal, he would assign the vessel in favor of the salvor. [30]
On February 18, 1991, the trial court disposed as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, based on the allegations, prayer and evidence
adduced, both testimonial and documentary, the Court is convinced, that, indeed,
defendants/respondents are liable to [private respondent] in the amount as prayed for in the petition
for which it renders judgment as follows:
1. Respondent M/V Star Ace, represented by Capt. Nahum Rada, [r]elief [c]aptain of the vessel and
Omega Sea Transport Company, Inc., represented by Frank Cadacio[,] is ordered to refrain from
alienating or [transferring] the vessel M/V Star Ace to any third parties;
2. Singkong Trading Company to pay the following:
a. Taxes due the government;
b. Salvage fees on the vessel in the amount of $1,000,000.00 based on xxx Lloyds Standard Form of
Salvage Agreement;
c. Preservation, securing and guarding fees on the vessel in the amount of $225,000.00;
d. Maintenance fees in the amount of P2,685,000.00;
e. Salaries of the crew from August 16, 1989 to December 1989 in the amount of $43,000.00 and
unpaid salaries from January 1990 up to the present;
f. Attorneys fees in the amount of P656,000.00;
3. [Vlason] Enterprises to pay [private respondent] in the amount of P3,000,000.00 for damages;
4. Banco [Du] Brazil to pay [private respondent] in the amount of $300,000.00 in damages; and
finally,
5. Costs of [s]uit.
Subsequently, upon the Motion of Omega, Singkong Trading Co. and private respondent, the trial
court approved a Compromise Agreement [31] among the movants, reducing by 20 percent the amounts
adjudged. For their part, respondents-movants agreed not to appeal the Decision. [32] On March 8,
1991, private respondent moved for the execution of judgment, claiming that the trial court Decision
had already become final and executory. [33] The Motion was granted[34] and a Writ of Execution was
issued.[35] To satisfy the Decision, Sheriffs Jorge Victorino, Amado Sevilla and Dionisio Camagon were
deputized on March 13, 1991 to levy and to sell on execution the defendants vessel and personal
property.
On March 14, 1991, petitioner filed, by special appearance, a Motion for Reconsideration, on the
grounds that it was allegedly not impleaded as a defendant, served summons or declared in default;
that private respondent was not authorized to present evidence against it in default; that the
judgment in default was fatally defective, because private respondent had not paid filing fees for the
award; and that private respondent had not prayed for such award. [36] Private respondent opposed the
Motion, arguing that it was a mere scrap of paper due to its defective notice of hearing.

On March 18, 1991, the Bureau of Customs also filed an ex parte Motion to recall the execution,
and to quash the notice of levy and the sale on execution. [37] Despite this Motion, the auction sale was
conducted on March 21, 1991 by Sheriff Camagon, with private respondent submitting the winning
bid.[38] The trial court ordered the deputy sheriffs to cease and desist from implementing the Writ of
Execution and from levying on the personal property of the defendants. [39] Nevertheless, Sheriff
Camagon issued the corresponding Certificate of Sale on March 27, 1991. [40]
On April 12, 1991,[41] private respondent filed with the Court of Appeals (CA) a Petition
for Certiorari and Prohibition to nullify the cease and desist orders of the trial court. [42] Respondent
Court issued on April 26, 1991 a Resolution which reads: [43]
MEANWHILE, in order to preserve the status quo and so as not to render the present petition moot
and academic, a TEMPORARY RESTRAINING ORDER is hereby ISSUED enjoining the respondent
Judge, the Honorable Arsenio M. Gonong, from enforcing and/or implementing the Orders dated 22
March 1991 and 5 April 1991 which ordered respondent Sheriff to cease and desist from implementing
the writ of execution and the return thereof, the quashing of the levy xxx on [the] execution [and sale]
of the properties levied upon and sold at public auction by the Sheriff, for reason of grave abuse of
discretion and in excess of jurisdiction, until further orders from this Court.
WITHIN ten (10) days from notice hereof, respondents [petitioner included] are also required to
SHOW CAUSE why the prayer for a writ of preliminary injunction should not be granted.
On May 8, 1991, petitioner received from Camagon a notice to pay private respondent P3 million
to satisfy the trial court Decision. Not having any knowledge of the CA case to which it was not
impleaded, petitioner filed with the trial court a Motion to Dismiss ex abutandi ad cautelam on the
grounds that (1) the Petition of private respondent stated no cause of action against it, (2) the trial
court had no jurisdiction over the case, and (3) litis pendentia barred the suit.[44]
On May 10, 1991, Camagon levied on petitioners properties, which were scheduled for auction
later on May 16, 1991. Specific descriptions of the properties are as follows: [45]
a) Motor Tugboat DEN DEN ex Emerson-I
Length: 35.67 ms. Breadth: 7.33 ms.
Depth: 3.15 ms. Gross Tons: 205.71
Net tons: 67.78 Official Number 213551
Material: Steel Class License: CWL
License No. 4424
b) Barge - FC99" ex YD-153
Length: 34.15 ms. Breadth: 15.85 m.s.
Depth: 2.77 m.s. Gross Tons: 491.70
Net Tons: 491.70 Official Number 227236
Material: Steel Class License: CWL
License No. 83-0012
c) Barge LAWIN ex Sea Lion 2
Length: 66.92 ms. Breadth: 11.28 ms.
Depth: 4.52 m.s. Gross Tons: 1,029.56
Net Tons: 1,027/43 Official Number 708069
Material: Steel Class License: Coastwise
License No. 81-0059

Petitioner also filed a special appearance before the CA. It prayed for the lifting of the levy on its
properties or, alternatively, for a temporary restraining order against their auction until its Motion for
Reconsideration was resolved by the trial court.[46]
Acting on petitioners Motion for Reconsideration, the trial court reversed its Decision of February
18, 1991, holding in its May 22, 1991 Resolution as follows: [47]
xxx [T]hat xxx Motion For Reconsideration [of the petitioner] was filed on March 14, 1991 (See: page
584, records, Vol.2) indubitably showing that it was seasonably filed within the 15-day timeframe.Therefore, xxx said default-judgment ha[d] not yet become final and executory when the Writ
of Execution was issued on March 13, 1991 xxx The rules [provide] that [the e]xecution shall issue as a
matter of right upon the expiration of the period of appeal from a judgment if no appeal has been duly
perfected (Sec. 1, R-39, RRC). That being the case, VEC has all the right to file as it did xxx the
aforementioned reconsideration motion calling [the] attention of the Court and pointing therein its
supposed error and its correction if, indeed, any [error was] committed. It is in this light that this
Court made an in-depth reflection and assessment of the premises or reasons raised by [petitioner],
and after a re-examination of the facts and evidence spread on the records, it has come to the
considered conclusion that the questioned default-judgment has been improvidently issued. By the
records, the claim of [private respondent] that his January 29, 1990 Ex-Parte Motion To Declare
Defendants In Default (pp. 174-177, records, Vol. 1) including VEC had been granted is belied by the
February 23, 1990 Order (pp. 214-215, records, ibid) par. 2, thereof, reading to wit:
By the foregoing, for reasons stated thereunder respectively, this Court, in the exercise of its judicious
discretion, in the sense that the rules should be liberally construed in order to promote their object
and to assist the parties, resolves to DENY petitioners Motion to have the Commissioner of Customs
AND OTHER ENUMERATED RESPONDENTS DECLARED IN DEFAULT. [Emphasis ours].
Not even [private respondents] November 23, 1990 Ex-Parte Motion To Present [Evidence] Against
Defaulting Defendants (page 489, records, Vol.2) [can] be deemed as a remedy of the fact that there
never was issued an order of default against respondents including [petitioner] VEC. Having thus
established that there [had] been no order of default against VEC as contemplated by Sec. 1, Rule 18,
in relation to Sec. 9, Rule 13, Revised Rules of Court, there could not have been any valid defaultjudgment rendered against it. The issuance of an order of default is a condition sine qua non in order
[that] a judgment by default be clothed with validity. Further, records show that this Court never had
authorized [private respondent] to adduce evidence ex-parte against [petitioner] VEC. In sum, the
February 18, 1991 decision by default is null and void as against [petitioner] VEC. With this
considered conclusion of nullity of said default judgment in question, this Court feels there is no more
need for it to resolve Arguments I-A & I-B, as well as III-A & III-B, of the March 14, 1991 Motion for
Reconsideration. The Court agrees, however, with said discussions on the non-compliance [with] Sec.
2, Rule 7 (Title of Complaint) and Sec. I, Rule 8 on the requirement of indicating in the complaint the
ultimate facts on which the party pleading relies for his claim of defense [--] which is absent in the
January 9, Amended Petition (pp. 122-141, records, Vol. I) [--] for it merely mentioned [petitioner]
VEC in par. 5 thereof and no more. It abides, likewise, with [Argument] III-B that the Decision in suit
award[ed] amounts never asked for in instant petition as regards VEC (Sec. 5, Rule 18, RRC). xxx.
WHEREFORE, in view of the foregoing consideration, and as prayed for, the February 18, 1991
Judgment by Default is hereby reconsidered and SET ASIDE.
On June 26, 1992, then Executive Judge Bernardo P. Pardo [48] of the Regional Trial Court of
Manila issued an Order[49] annulling the Sheriffs Report/Return dated April 1, 1991, and all
proceedings taken by Camagon.
The CA granted private respondents Motion to file a Supplemental Petition impleading petitioner
in CA-GR 24669.[50] In view of the rampant pilferage of the cargo deposited at the PPA compound,
private respondent obtained from the appellate court a Writ of Preliminary Injunction dated March 6,
1992. The Writ reads:[51]
ACCORDINGLY, in view of the foregoing disquisitions, the urgent verified motion for preliminary
injunction dated February 11, 1992 is hereby GRANTED. Therefore, let a writ of preliminary
injunction forthwith issue against the respondents and all persons or agents acting in their behalf,
enjoining them not to interfere in the transferring of the aforementioned vessel and its cargoes, or in
removing said cargoes xxx from [the] PPA compound.
On September 15, 1992, Sheriff Amado Sevilla seized petitioners motor tugboat Den Den by virtue
of the Order[52] dated April 3, 1992, issued by the RTC of Manila, Branch 26. [53]
On August 6, 1992, the CA consolidated CA-GR SP No. 28387 [54] with CA-GR SP No. 24669.
[55]
The Court of Tax Appeals issued on October 5, 1992, a Resolution in CTA Case Nos. 4492, 4494
and 4500, which disposed as follows:

Confirming the order in open court on October 5, 1992, the Court hereby RESOLVES to:
1. Order Respondent Commissioner of Customs to assign or detail [a] sufficient number of customs
police and guards aboard, and around the vicinity of, the vessel M/V Star Ace now in anchor at
Mariveles, Bataan or elsewhere, in order to ensure its safety during the pendency of these cases;
2. Direct him to assign personnel and/or representatives to conduct an inventory of part of the vessels
cargo now in the possession of Mr. Cesar S. Urbino, Sr. at 197 Heroes del 96 Street, Caloocan City,
which inventory may be participated in by all the parties interested in said cargo.
To enjoin the CTA from enforcing said Order, private respondent filed before the Court of Appeals
another Petition for Certiorari,[56] which was later also consolidated with CA-GR SP No. 24669.
On July 19, 1993, the CA rendered the assailed Decision. Petitioner filed (1) a Motion for
Clarification, praying for a declaration that the trial court Decision against it was not valid; and (2) a
partial Motion for Reconsideration, seeking to set aside the assailed Decision insofar as the latter
affected it.
On July 5, 1995, the Court of Appeals issued the following Resolution: [57]
Pending resolution of the motions for reconsideration, filed by Vlason Enterprises
Corporation and Banco [Du] Brazil, and considering [private respondents] Motion for Entry of
Judgment with respect to respondent PPA having already been granted by this Court as far back as
June 17, 1994, pursuant to the resolution of the Supreme Court dated December 8, 1993 in G.R. No.
111270-72 (Philippine Ports Authority vs. Court of Appeals, et al.) informing the parties in said case
that the judgment sought to be reviewed has now become final and executory, the lower court may
now take appropriate action on the urgent ex-parte motion for issuance of a writ of execution, filed
by [private respondent] on July 15, 1994.
On August 28, 1995, the Regional Trial Court of Manila, Branch 26, issued a Writ of Possession
which resulted in private respondent taking possession of petitioners barge Lawin (formerly Sea Lion
2) on September 1, 1995.[58]
Hence, this Petition.[59]
Ruling of the Respondent Court

As already adverted to, Respondent Court granted the Petition for Certiorari of the private
respondent, which was consolidated with the latters two other Petitions. The court a quo issued the
following rulings:
1. The trial court had jurisdiction over the salvors claim or admiralty case pursuant to Batas
Pambansa Bilang 129.
2. Since the Decision of the trial court became final and executory, never having been
disputed or appealed to a higher court, the trial judge committed grave abuse of discretion
in recalling the Writ of Execution and in quashing the levy and the execution of the sale
of M/V Star Ace and its cargo.
2. Such acts constituted an alteration or a modification of a final and executory judgment and
could never be justified under law and jurisprudence.
3. Civil Case 59-51451 dealt only with the salvors claim without passing upon the legality or
the validity of the undated Decision of the Commissioner of Customs in the seizure
proceeding.
4. Petitioner and his co-respondents could not invoke the jurisdiction of a court to secure
affirmative relief against their opponent and, after failing to obtain such relief, question the
courts jurisdiction.
5. Petitioner had no recourse through any of the following judicially accepted means to
question the final judgment:
a. a petition for relief from judgment under Rule 38,
b. a direct action to annul and enjoin the enforcement of the questioned judgment, and
c. a collateral attack against the questioned judgment which appears void on its face.

6. A court which has already acquired jurisdiction over a case cannot be ousted by a coequal
court; the res in this casethe vessel and its cargowere placed under the control of the trial
court ahead of the CTA.
7. The admiralty Decision had attained finality while the issue of the validity of the seizure
proceedings was still under determination.
In the assailed Resolution, Respondent Court clarified that there was no need to serve summons
anew on petitioner, since it had been served summons when the Second Amended Petition (the third)
was filed; and that petitioners Motion for Reconsideration was defective and void, because it
contained no notice of hearing addressed to the counsel of private respondent in violation of Rule 16,
Section 4 of the Rules of Court.
To this second motion, [private respondent] contends that there was no need to serve summons anew
to VEC when the second amended petition was filed impleading VEC, pursuant to the ruling of the
Supreme Court in Asiatic Travel Corp. vs. CA (164 SCRA 623); and that finally, the decision of the
court a quo o[n] February 18, 1991 became final and executory, notwithstanding the timely filing of
the motion for reconsideration of VEC for the reason that the said motion for reconsideration was
defective or void, there being no notice of hearing addressed to the counsel of petitioner. In fact, no
motion such as this instant one can be acted upon by the Court without proof of service of the notice
thereof, pursuant to Rule 16, Section 4 of the Rules of Court.
xxxxxxxxx
Finally, we should never lose sight of the fact that the instant petition for certiorari is proper only to
correct errors of jurisdiction committed by the lower court, or grave abuse of discretion which is
tantamount to lack of jurisdiction. Where the error is not one of jurisdiction but an error of law or of
fact which is a mistake of judgment, appeal is the remedy (Salas vs. Castro, 216 SCRA 198). Here,
respondents failed to appeal. Hence, the decision dated February 18, 1991 of the lower court has long
become final, executory and unappealable. We do not and cannot therefore review the instant case
as if it were on appeal and direct actions on these motions. While the proper remedy is appeal, the
action for certiorari will not be entertained. Indeed, certiorari is not a substitute for lapsed appeal.
At any rate, the decision dated July 19, 1993 of this Court on the main petition for certiorari is not yet
final (except with respect to respondent PPA), the Bureau of Customs having filed a petition
for certiorari and prohibition, under Rule 65 of the Rules of Court, with the Supreme Court,
necessitating prudence on Our part to await its final verdict. [60]
Assignment of Errors

Before us, petitioner submits the following assignment of errors on the part of Respondent Court:
[61]

I
The Court of Appeals committed serious error in ruling that the entire decision of the trial court in
Civil Case No. 89-51451 dated 18 February 1991 became final and executory because it was never
disputed or appealed.
A. VEC filed a motion for reconsideration of the said decision two days before deadline, which motion
was granted by the trial court.
B. The trial court correctly granted VECs motion for reconsideration and set aside the 18 February
1991 decision xxx against VEC, for:
1. The trial court never acquired jurisdiction over the person of VEC as to enable it to render any
judgment against it:
(i) VEC was not impleaded as a respondent in Civil Case No. 89-51451;
(ii) Summons was not served on VEC;
2. The trial court improperly rendered judgment by default against VEC;
(i) The trial court never issued an order of default against VEC;
(ii) The trial court never authorized ex-parte presentation of evidence against VEC.

3. The Judgment by default was fatally defective because:

(i) No filing fee was paid by [private respondent] for the staggering amount of damages awarded by
the trial court.
(ii) The 18 February 1991 decision violates the Revised Rules of Court, which prescribe that a
judgment by default cannot decree a relief not prayed for.
II
Since the 18 February 1991 Decision in Civil Case No. 89-51451 is void as against VEC, the recall of the
writ of execution was valid, as far as VEC is concerned.
The Court believes that the issues can be simplified and restated as follows:
1. Has the February 18, 1991 RTC Decision become final and executory in regard to
petitioner?
2. Did the trial court acquire jurisdiction over the petitioner?
3. Was the RTC default judgment binding on petitioner?
4. Was the grant of damages against petitioner procedurally proper?
5. Was private respondent entitled to a writ of execution?
This Courts Ruling

The petition is meritorious.

First Issue: Finality of the RTC Decision

A judgment becomes final and executory by operation of law. Its finality becomes a fact when the
reglementary period to appeal lapses, and no appeal is perfected within such period. [62] The admiralty
case filed by private respondent with the trial court involved multiple defendants. This being the case,
it necessarily follows that the period of appeal of the February 18, 1991 RTC Decision depended on the
date a copy of the judgment was received by each of the defendants. Elsewise stated, each defendant
had a different period within which to appeal, depending on the date of receipt of the Decision. [63]
Omega, Singkong Trading Co. and M/V Star Ace chose to enter into a compromise agreement
with private respondent. As to these defendants, the trial court Decision had become final, and a writ
of execution could be issued against them. [64] Doctrinally, a compromise agreement is immediately
final and executory.[65]
Petitioner, however, is not in the same situation. Said Decision cannot be said to have attained
finality as to the petitioner, which was not a party to the compromise. Moreover, petitioner filed a
timely Motion for Reconsideration with the trial court, thirteen days after it received the Decision or
two days before the lapse of the reglementary period to appeal. A motion for reconsideration tolls the
running of the period to appeal. [66] Thus, as to petitioner, the trial court Decision had not attained
finality.
Exception to the Rule on Notice of Hearing

Respondent Court and private respondent argue that, although timely filed, petitioners Motion
for Reconsideration was a mere scrap of paper, because (1) it did not contain a notice of hearing
addressed to the current counsel of private respondent, and (2) the notice of hearing addressed to and
served on private respondents deceased counsel was not sufficient. Admittedly, this Motion contained
a notice of hearing sent to Atty. Jesus C. Concepcion who, according to private respondent, had
already died and had since been substituted by its new counsel, Atty. Domingo Desierto. Therefore,
the appellate court ruled that the said Motion did not toll the reglementary period to appeal and that
the trial court Decision became final.
This Court disagrees. Rule 15 of the Rules of Court states:
SEC. 4. Notice.Notice of a motion shall be served by the applicant to all parties concerned, at least
three (3) days before the hearing thereof, together with a copy of the motion, and of any affidavits and

other papers accompanying it. The court, however, for good cause may hear a motion on shorter
notice, specially on matters which the court may dispose of on its own motion.
SEC. 5. Contents of notice.The notice shall be directed to the parties concerned, and shall state the
time and place for the hearing of the motion. [67]
Ideally, the foregoing Rule requires the petitioner to address and to serve on the counsel of
private respondent the notice of hearing of the Motion for Reconsideration. The case at bar, however,
is far from ideal. First, petitioner was not validly summoned and it did not participate in the trial of
the case in the lower court; thus, it was understandable that petitioner would not be familiar with the
parties and their counsels. Second, Atty. Desierto entered his appearance only as collaborating
counsel,[68] who is normally not entitled to notices even from this Court. Third, private respondent
made no manifestation on record that Atty. Concepcion was already dead. Besides, it was Atty.
Concepcion who signed the Amended Petition, wherein petitioner was first impleaded as respondent
and served a copy thereof. Naturally, petitioners attention was focused on this pleading, and it was
within its rights to assume that the signatory to such pleading was the counsel for private respondent.
The Court has consistently held that a motion which does not meet the requirements of Sections 4
and 5 of Rule 15 of the Rules of Court is considered a worthless piece of paper, which the clerk of court
has no right to receive and the trial court has no authority to act upon. Service of a copy of a motion
containing a notice of the time and the place of hearing of that motion is a mandatory requirement,
and the failure of movants to comply with these requirements renders their motions fatally defective.
[69]
However, there are exceptions to the strict application of this rule. These exceptions are as follows:
[70]

xxx Liberal construction of this rule has been allowed by this Court in cases (1) where a rigid
application will result in a manifest failure or miscarriage of justice; [71] especially if a party successfully
shows that the alleged defect in the questioned final and executory judgment is not apparent on its
face or from the recitals contained therein; (2) where the interest of substantial justice will be served;
[72]
(3) where the resolution of the motion is addressed solely to the sound and judicious discretion of
the court;[73] and (4) where the injustice to the adverse party is not commensurate [to] the degree of
his thoughtlessness in not complying with the procedure prescribed. [74]
The present case falls under the first exception. Petitioner was not informed of any cause of action
or claim against it. All of a sudden, the vessels which petitioner used in its salvaging business were
levied upon and sold in execution to satisfy a supposed judgment against it. To allow this to happen
simply because of a lapse in fulfilling the notice requirement which, as already said, was satisfactorily
explained would be a manifest failure or miscarriage of justice.
A notice of hearing is conceptualized as an integral component of procedural due process
intended to afford the adverse parties a chance to be heard before a motion is resolved by the
court. Through such notice, the adverse party is permitted time to study and answer the arguments in
the motion.
Circumstances in the case at bar show that private respondent was not denied procedural due
process, and that the very purpose of a notice of hearing had been served. On the day of the hearing,
Atty. Desierto did not object to the said Motion for lack of notice to him; in fact, he was furnished in
open court with a copy of the motion and was granted by the trial court thirty days to file his
opposition to it.These circumstances clearly justify a departure from the literal application of the
notice of hearing rule.[75] In other cases, after the trial court learns that a motion lacks such notice, the
prompt resetting of the hearing with due notice to all the parties is held to have cured the defect. [76]
Verily, the notice requirement is not a ritual to be followed blindly. Procedural due process is not
based solely on a mechanistic and literal application that renders any deviation inexorably
fatal. Instead, procedural rules are liberally construed to promote their objective and to assist in
obtaining a just, speedy and inexpensive determination of any action and proceeding. [77] For the
foregoing reasons, we believe that Respondent Court committed reversible error in holding that the
Motion for Reconsideration was a mere scrap of paper.
Second Issue: Jurisdiction Over Petitioner

Service of Summons on a Corporation

The sheriffs return shows that Angliongto who was president of petitioner corporation, through
his secretary Betty Bebero, was served summons on January 18, 1990. [78] Petitioner claims that this
service was defective for two reasons: (1) Bebero was an employee of Vlasons Shipping, Inc., which
was an entity separate and distinct from Petitioner Vlason Enterprises Corporation (VEC); and (2) the

return pertained to the service of summons for the amended Petition, not for the Second Amended
Petition with Supplemental Petition, the latter pleading having superseded the former.
A corporation may be served summons through its agents or officers who under the Rules are
designated to accept service of process. A summons addressed to a corporation and served on the
secretary of its president binds that corporation. [79] This is based on the rationale that service must be
made on a representative so integrated with the corporation sued, that it is safe to assume that said
representative had sufficient responsibility and discretion to realize the importance of the legal papers
served and to relay the same to the president or other responsible officer of the corporation being
sued.[80] The secretary of the president satisfies this criterion. This rule requires, however, that the
secretary should be an employee of the corporation sought to be summoned. Only in this manner can
there be an assurance that the secretary will bring home to the corporation [the] notice of the filing of
the action against it.
In the present case, Bebero was the secretary of Angliongto, who was president of both VSI and
petitioner, but she was an employee of VSI, not of petitioner. The piercing of the corporate veil cannot
be resorted to when serving summons. [81] Doctrinally, a corporation is a legal entity distinct and
separate from the members and stockholders who compose it. However, when the corporate fiction is
used as a means of perpetrating a fraud, evading an existing obligation, circumventing a statute,
achieving or perfecting a monopoly or, in generally perpetrating a crime, the veil will be lifted to
expose the individuals composing it. None of the foregoing exceptions has been shown to exist in the
present case. Quite the contrary, the piercing of the corporate veil in this case will result in manifest
injustice. This we cannot allow. Hence, the corporate fiction remains.
Effect of Amendment of Pleadings on Jurisdiction

Petitioner claims that the trial court did not acquire jurisdiction over it, because the former had
not been served summons anew for the Second Amended Petition or for the Second Amended Petition
with Supplemental Petition. In the records, it appears that only Atty. Tamondong, counsel for
Singkong Trading, was furnished a copy of the Second Amended Petition. [82] The corresponding
sheriffs return indicates that only Omega, M/V Star Ace and Capt. Rada were served summons and
copies of said Petition.[83]
We disagree. Although it is well-settled that an amended pleading supersedes the original one,
which is thus deemed withdrawn and no longer considered part of the record, it does not follow ipso
facto that the service of a new summons for amended petitions or complaints is required. Where the
defendants have already appeared before the trial court by virtue of a summons on the original
complaint, the amended complaint may be served upon them without need of another summons, even
if new causes of action are alleged.[84] After it is acquired, a courts jurisdiction continues until the case
is finally terminated.Conversely, when defendants have not yet appeared in court and no summons
has been validly served, new summons for the amended complaint must be served on them. [85] It is
not the change of cause of action that gives rise to the need to serve another summons for the
amended complaint, but rather the acquisition of jurisdiction over the persons of the defendants. If
the trial court has not yet acquired jurisdiction over them, a new service of summons for the amended
complaint is required.
In this case, the trial court obviously labored under the erroneous impression that petitioner had
already been placed under its jurisdiction since it had been served summons through the secretary of
its president. Thus, it dispensed with the service on petitioner of new summons for the subsequent
amendments of the Petition. We have already ruled, however, that the first service of summons on
petitioner was invalid. Therefore, the trial court never acquired jurisdiction, and the said court should
have required a new service of summons for the amended Petitions.
Impleading a Party in the Title of the Complaint

Petitioner further claims that the trial court failed to acquire jurisdiction to render judgment
against it because (1) the title of the three Petitions filed by private respondent never included
petitioner as a party-defendant, in violation of Rule 7; and (2) the Petitions failed to state any
allegation of ultimate facts constituting a cause of action against petitioner.
We disagree with petitioner on the first ground. The judicial attitude has always been favorable
and liberal in allowing amendments to pleadings. Pleadings shall be construed liberally so as to
render substantial justice to the parties and to determine speedily and inexpensively the actual merits
of the controversy with the least regard to technicalities. [86]
The inclusion of the names of all the parties in the title of a complaint is a formal requirement
under Section 3, Rule 7. However, the rules of pleadings require courts to pierce the form and go into
the substance, and not to be misled by a false or wrong name given to a pleading. The averments in

the complaint, not the title, are controlling. Although the general rule requires the inclusion of the
names of all the parties in the title of a complaint, the non-inclusion of one or some of them is not
fatal to the cause of action of a plaintiff, provided there is a statement in the body of the petition
indicating that a defendant was made a party to such action.
Private respondent claims that petitioner has always been included in the caption of all the
Petitions it filed, which included Antonio Sy, field manager of petitioner. We checked and noted that
in the caption and the body of the Amended Petition and Second Amended Petition with
Supplemental Petition, Antonio Sy was alleged to be representing Med Line Philippines, not
petitioner. Because it was private respondent who was responsible for the errors, the Court cannot
excuse it from compliance, for such action will prejudice petitioner, who had no hand in the
preparation of these pleadings. In any event, we reiterate that, as a general rule, mere failure to
include the name of a party in the title of a complaint is not fatal by itself.
Stating a Cause of Action in the Complaint

The general rule is allegata et probata -- a judgment must conform to the pleadings and the
theory of the action under which the case was tried. [87] But a court may also rule and render judgment
on the basis of the evidence before it, even though the relevant pleading has not been previously
amended, so long as no surprise or prejudice to the adverse party is thereby caused. [88]
In the case at bar, the liability of petitioner was based not on any allegation in the four Petitions
filed with the trial court, but on the evidence presented ex parte by the private respondent. Since the
trial court had not validly acquired jurisdiction over the person of petitioner, there was no way for the
latter to have validly and knowingly waived its objection to the private respondents presentation of
evidence against it.
Third Issue: Judgment By Default

The trial court Decision holding petitioner liable for damages is basically a default judgment. In
Section 18, judgment by default is allowed under the following condition: [89]
SEC. 1. Judgment by default.If the defendant fails to answer within the time specified in these rules,
the court shall, upon motion of the plaintiff and proof of such failure, declare the defendant in
default.Thereupon the court shall proceed to receive the plaintiffs evidence and render judgment
granting him such relief as the complaint and the facts proven may warrant. xxxx.
Thus, it becomes crucial to determine whether petitioner was ever declared in default, and whether
the reception of evidence ex parte against it was procedurally valid.
Petitioner Was Never Declared In Default

Petitioner insists that the trial court never declared it in default.

We agree. The trial court denied the January 29, 1990 Motion of private respondent to declare all
the defendants in default, but it never acted on the latters subsequent Motion to declare petitioner
likewise.During the pretrial on January 23, 1993, the RTC declared in default only Atty. Eddie
Tamondong, as well as the other defendants Hon. Salvador Mison, M/V Star Ace, Omega Sea
Transport Co., Inc. of Panama and Sinkong Trading Co., [but] despite xxx due notice to them, [they]
failed to appear.[90] Even private respondent cannot pinpoint which trial court order held petitioner in
default.
More important, the trial court, in its Resolution dated May 22, 1991, admitted that it never
declared petitioner in default, viz.:
xxx It is in this light that this [c]ourt made an in-depth reflection and assessment of the premises or
reasons raised by [petitioner] VEC[;] and after a re-examination of the facts and evidence spread on
the records, it has come to the considered conclusion that the questioned default-judgment has been
improvidently issued. [Based on] the records, the claim of [private respondent] that [its] January 29,
1990 Ex-Parte Motion to Declare Defendants In Default (pp. 174-177, records, Vol. 1) including VEC
had been granted is belied by the February 23, 1990 Order (pp. 214-215, records, ibid) par. 2, thereof,
xxx
xxxxxxxxx

Not even petitioners November 23, 1990 Ex-Parte Motion To Present Evidence Against Defaulting
Defendants (page 489, records, Vol. 2) [can] be deemed as a remedy [for] the fact that there never was
issued an order of default against respondents including [petitioner] VEC. Having thus established
that there ha[d] been no order of default against VEC as contemplated by Sec. 1, Rule 18, in relation to
Sec. 9, Rule 13, Revised Rules of Court, there could not have been any valid default-judgment
rendered against it. The issuance of an order [o]f default is a condition sine qua non in order [that] a
judgment by default be clothed with validity. Further, records show that this [c]ourt never had
authorized [private respondent] to adduce evidence ex-parte against [Petitioner] VEC. In sum, the
February 18, 1991 decision by default is null and void as against [Petitioner] VEC. xxxx.
The aforementioned default judgment refers to the February 18, 1989 Decision, not to the Order
finding petitioner in default as contended by private respondent. Furthermore, it is a legal
impossibility to declare a party-defendant to be in default before it was validly served summons.
Trial Court Did Not Allow Presentation of Evidence Ex Parte Against Petitioner

The Order of December 10, 1990, which allowed the presentation of evidence ex parte against the
defaulting defendants, could not have included petitioner, because the trial court granted private
respondents motion praying for the declaration of only the foreign defendants in default. So too,
private respondents ex parte Motion to present evidence referred to the foreign defendants only.[91]
Furthermore, the reception of evidence ex parte against a non-defaulting party is procedurally
indefensible. Without a declaration that petitioner is in default as required in Section 1, Rule 18, the
trial court had no authority to order the presentation of evidence ex parte against petitioner to render
judgment against it by default. The trial judge must have thought that since it failed to appear despite
summons and was in default, it effectively waived any objection to the presentation of evidence
against it. This rule, however, would have applied only if petitioner had submitted itself to the
jurisdiction of the trial court. The latter correctly declared, in the Resolution just cited, that the
default judgment against the former had been improvidently rendered.
Fourth Issue: Awards Not Paid and Prayed For

Additional Filing Fees as Lien on the Judgment

Had the trial court validly acquired jurisdiction over petitioner, nonpayment of docket fees would
not have prevented it from holding petitioner liable for damages. The Court, in Manchester
Development Corporation v. Court of Appeals,[92] ruled that a court acquires jurisdiction over any
case only upon the payment of the prescribed docket fee, not upon the amendment of the complaint
or the payment of the docket fees based on the amount sought in the amended pleading. This ruling,
however, was modified in Sun Insurance Office, Ltd. v. Asuncion,[93] which added:
3. Where the trial court acquires jurisdiction over a claim [through] the filing of the appropriate
pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim not
specified in the pleading, or if specified the same has been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the judgment. It shall be the responsibility of
the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the
additional fee.
Filing fees for damages and awards that cannot be estimated constitute liens on the awards finally
granted by the trial court. Their nonpayment alone is not a ground for the invalidation of the award.
Judgment by Default Cannot Grant Relief Not Prayed For

A declaration or order of default is issued as a punishment for unnecessary delay in joining

issues. In such event, defendants lose their standing in court, they cannot expect the trial court to act
upon their pleadings, and they are not entitled to notice of the proceeding until the final termination
of the case.[94] Thus, the trial court proceeds with the reception of the plaintiffs evidence upon which a
default judgment is rendered.
Section 1 of Rule 18 provides that after the defendant has been declared in default, the court shall
proceed to receive the plaintiffs evidence and render judgment granting him such relief as the
complaint and the facts proven may warrant. The reliefs that may be granted, however, are restricted

by Section 5, which provides that a judgment entered against a party in default shall not exceed the
amount or be different in kind from that prayed for.
In other words, under Section 1, a declaration of default is not an admission of the truth or the
validity of the plaintiffs claims.[95] The claimant must still prove his claim and present evidence. In this
sense the law gives defaulting parties some measure of protection because plaintiffs, despite the
default of defendants, are still required to substantiate their allegations in the complaint. The
judgment of default against defendants who have not appeared or filed their answers does not imply a
waiver of all their rights, except their right to be heard and to present evidence in their favor. Their
failure to answer does not imply their admission of the facts and the causes of action of the plaintiffs,
because the latter are required to adduce evidence to support their allegations.
Moreover, the trial court is not allowed by the Rules to receive evidence that tends to show a relief
not sought or specified in the pleadings. [96] The plaintiff cannot be granted an award greater than or
different in kind from that specified in the complaint.[97]
This case should be distinguished, however, from that of defendants, who filed an answer but
were absent during trial. In that case, they can be held liable for an amount greater than or different
from that originally prayed for, provided that the award is warranted by the proven facts. This rule is
premised on the theory that the adverse party failed to object to evidence relating to an issue not
raised in the pleadings.
The latter rule, however, is not applicable to the instant case. Admittedly, private respondent
presented evidence that would have been sufficient to hold petitioner liable for damages. However, it
did not include in its amended Petitions any prayer for damages against petitioner. Therefore, the
trial court could not have validly held the latter liable for damages even if it were in default.
Fifth Issue: Execution of Final Judgment

Section 1 of Rule 39 provides that execution shall issue only upon a judgment that finally disposes
of the action or proceeding. Such execution shall issue as a matter of right upon the expiration of the
period to appeal it, if no appeal has been duly perfected.[98]
In the present case, however, we have already shown that the trial courts Decision has not become
final and executory against petitioner. In fact, the judgment does not even bind it. Obviously,
Respondent Court committed serious reversible errors when it allowed the execution of the said
judgment against petitioner.
WHEREFORE, the appeal is hereby GRANTED, and the assailed Decision and Resolution of the
Court of Appeals are REVERSED and SET ASIDE insofar as they affect petitioner. The levy and the
sale on execution of petitioners properties are declared NULL and VOID. Said properties are
ordered RESTORED to petitioner. No pronouncement as to cost.

SECOND DIVISION
MINDANAO TERMINAL AND G.R. No. 162467
BROKERAGE SERVICE, INC.
Petitioner, Present:
- versus - CARPIO MORALES ,* JJ.,
Acting Chairperson,
TINGA,
PHOENIX ASSURANCE VELASCO, JR.,
COMPANY OF NEW YORK/ LEONARDO DE CASTRO,** and
MCGEE & CO., INC., BRION, JJ.
Respondent.
Promulgated:
May 8, 2009
x------------------------------------------------------------------------------------x
DECISION
TINGA, J.:
Before us is a petition for review on certiorari [1] under Rule 45 of the 1997 Rules of Civil Procedure of
the 29 October 2003[2] Decision of the Court of Appeals and the 26 February 2004 Resolution[3] of the
same court denying petitioners motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and
Brokerage Service, Inc. (Mindanao Terminal), a stevedoring company, to load and stow a shipment of
146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh pineapples belonging
to Del Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo hold of the
vessel M/V Mistrau. The vessel was docked at the port of Davao City and the goods were to be
transported by it to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte
Produce insured the shipment under an open cargo policy with private respondent Phoenix Assurance
Company of New York (Phoenix), a non-life insurance company, and private respondent McGee & Co.
Inc. (McGee), the underwriting manager/agent of Phoenix.[4]
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from
the port of Davao City and arrived at the port of Inchon, Korea. It was then discovered upon discharge
that some of the cargo was in bad condition. The Marine Cargo Damage Surveyor of Incok Loss and
Average Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong), surveyed the extent

of the damage of the shipment. In a survey report, it was stated that 16,069 cartons of the banana
shipment and 2,185 cartons of the pineapple shipment were so damaged that they no longer had
commercial value.[5]
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. McGees
Marine Claims Insurance Adjuster evaluated the claim and recommended that payment in the
amount of $210,266.43 be made. A check for the recommended amount was sent to Del Monte
Produce; the latter then issued a subrogation receipt[6] toPhoenix and McGee.
Phoenix and McGee instituted an action for damages [7] against Mindanao Terminal in the Regional
Trial Court (RTC) of Davao City, Branch 12. After trial, the RTC, [8] in a decision dated 20 October
1999, held that the only participation of Mindanao Terminal was to load the cargoes on board
the M/V Mistrau under the direction and supervision of the ships officers, who would not have
accepted the cargoes on board the vessel and signed the foremans report unless they were properly
arranged and tightly secured to withstand voyage across the open seas. Accordingly, Mindanao
Terminal cannot be held liable for whatever happened to the cargoes after it had loaded and stowed
them. Moreover, citing the survey report, it was found by the RTC that the cargoes were damaged on
account of a typhoon which M/V Mistrau had encountered during the voyage. It was further held
thatPhoenix and McGee had no cause of action against Mindanao Terminal because the latter, whose
services were contracted by Del Monte, a distinct corporation from Del Monte Produce, had no
contract with the assured Del Monte Produce. The RTC dismissed the complaint and awarded the
counterclaim of Mindanao Terminal in the amount of P83,945.80 as actual damages
and P100,000.00 as attorneys fees.[9] The actual damages were awarded as reimbursement for the
expenses incurred by Mindanao Terminals lawyer in attending the hearings in the case wherein he
had to travel all the way from Metro Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set
aside[10] the decision of the RTC in its 29 October 2003 decision. The same court ordered Mindanao
Terminal to pay Phoenix and McGee the total amount of $210,265.45 plus legal interest from the
filing of the complaint until fully paid and attorneys fees of 20% of the claim. [11] It sustained Phoenixs
and McGees argument that the damage in the cargoes was the result of improper stowage by
Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to
exercise extraordinary diligence in loading and stowing the cargoes. It further held that even with the
absence of a contractual relationship between Mindanao Terminal and Del Monte Produce, the cause
of action of Phoenix and McGee could be based on quasi-delict under Article 2176 of the Civil Code. [12]
Mindanao Terminal filed a motion for reconsideration,[13] which the Court of Appeals denied in
its 26 February 2004[14] resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and
negligent in the loading and stowage of the cargoes onboard M/V Mistraumaking it liable for
damages; and, whether Phoenix and McGee has a cause of action against Mindanao Terminal under
Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three questions have to be
answered: first, whether Phoenix and McGee have a cause of action against Mindanao Terminal;
second, whether Mindanao Terminal, as a stevedoring company, is under obligation to observe the
same extraordinary degree of diligence in the conduct of its business as required by law for common
carriers[15] and warehousemen;[16] and third, whether Mindanao Terminal observed the degree of
diligence required by law of a stevedoring company.
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 contract may be also a tort. [17] In fine, a
liability for tort may arise even under a contract, where tort is that which breaches the contract [18]. 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. [19]
The resolution of the two remaining issues is determinative of the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of
diligence which is to be observed in the performance of an obligation then that which is expected of a
good father of a family or ordinary diligence shall be required. Mindanao Terminal, a stevedoring
company which was charged with the loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no specific
provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring
company or one who is charged only with the loading and stowing of cargoes. It was neither alleged
nor proven byPhoenix and McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of a family. We therefore
conclude that following Article 1173, Mindanao Terminal was required to observe ordinary diligence
only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
The Court of Appeals erred when it cited the case of Summa Insurance Corporation v. CA and
Port Service Inc.[20] in imposing a higher degree of diligence,[21] on Mindanao Terminal in loading and
stowing the cargoes. The case of Summa Insurance Corporation v. CA, which involved the issue of
whether an arrastre operator is legally liable for the loss of a shipment in its custody and the extent of
its liability, is inapplicable to the factual circumstances of the case at bar. Therein, a vessel owned by
the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila, carrying
a shipment consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation
(Semirara) as "notify party." The shipment, including a bundle of PC 8 U blades, was discharged from
the vessel to the custody of the private respondent, the exclusive arrastre operator at
the South Harbor. Accordingly, three good-order cargo receipts were issued by NGSC, duly signed by
the ship's checker and a representative of private respondent. When Semirara inspected the shipment
at house, it discovered that the bundle of PC8U blades was missing. From those facts, the Court
observed:
x x x The relationship therefore between the consignee and the arrastre
operator must be examined. This relationship is much akin to that existing between
the consignee or owner of shipped goods and the common carrier, or that between a
depositor and a warehouseman[[22]]. In the performance of its obligations, an
arrastre operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman as enunciated under
Article 1733 of the Civil Code and Section 3(b) of the Warehouse Receipts Law,
respectively.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. (Emphasis supplied)[23]

There is a distinction between an arrastre and a stevedore. [24] Arrastre, a Spanish word which refers to
hauling of cargo, comprehends the handling of cargo on the wharf or between the establishment of the
consignee or shipper and the ship's tackle. The responsibility of the arrastre operator lasts until the
delivery of the cargo to the consignee. The service is usually performed by longshoremen. On the

other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or between the
ship's tackle and the holds of the vessel. The responsibility of the stevedore ends upon the loading and
stowing of the cargo in the vessel.
It is not disputed that Mindanao Terminal was performing purely stevedoring function while
the private respondent in the Summa case was performing arrastre function. In the present case,
Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of the cargoes
from the pier to the ships cargo hold; it was never the custodian of the shipment of Del Monte
Produce. A stevedore is not a common carrier for it does not transport goods or passengers; it is not
akin to a warehouseman for it does not store goods for profit. The loading and stowing of cargoes
would not have a far reaching public ramification as that of a common carrier and a warehouseman;
the public is adequately protected by our laws on contract and on quasi-delict. The public policy
considerations in legally imposing upon a common carrier or a warehouseman a higher degree of
diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of
cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of evidence [25] that Mindanao
Terminal had acted negligently. Where the evidence on an issue of fact is in equipoise or there is any
doubt on which side the evidence preponderates the party having the burden of proof fails upon that
issue. That is to say, if the evidence touching a disputed fact is equally balanced, or if it does not
produce a just, rational belief of its existence, or if it leaves the mind in a state of perplexity, the party
holding the affirmative as to such fact must fail.[26]
We adopt the findings[27] of the RTC,[28] which are not disputed by Phoenix and McGee. The
Court of Appeals did not make any new findings of fact when it reversed the decision of the trial court.
The only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau.[29] It was
not disputed by Phoenix and McGee that the materials, such as ropes, pallets, and cardboards, used in
lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry
standard.[30]
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del
Monte Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for the area
assignments of the goods in the vessels hold, prepared by Del Monte Produce and the officers of M/V
Mistrau.[31] The loading and stowing was done under the direction and supervision of the ship officers.
The vessels officer would order the closing of the hatches only if the loading was done correctly after a
final inspection.[32] The said ship officers would not have accepted the cargoes on board the vessel if
they were not properly arranged and tightly secured to withstand the voyage in open seas. They would
order the stevedore to rectify any error in its loading and stowing. A foremans report, as proof of work
done on board the vessel, was prepared by the checkers of Mindanao Terminal and concurred in by
the Chief Officer of M/V Mistrau after they were satisfied that the cargoes were properly loaded. [33]
Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn [34] and on the survey
report[35] of the damage to the cargoes. Byeong, whose testimony was refreshed by the survey report,
[36]
found that the cause of the damage was improper stowage [37] due to the manner the cargoes were
arranged such that there were no spaces between cartons, the use of cardboards as support system,
and the use of small rope to tie the cartons together but not by the negligent conduct of Mindanao
Terminal in loading and stowing the cargoes. As admitted by Phoenix and McGee in their
Comment[38] before us, the latter is merely a stevedoring company which was tasked by Del Monte to
load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V
Mistrau. How and where it should load and stow a shipment in a vessel is wholly dependent on the
shipper and the officers of the vessel. In other words, the work of the stevedore was under the
supervision of the shipper and officers of the vessel. Even the materials used for stowage, such as
ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report found that it was
because of the boisterous stormy weather due to the typhoon Seth, as encountered by M/V

Mistrau during its voyage, which caused the shipments in the cargo hold to collapse, shift and bruise
in extensive extent.[39] Even the deposition of Byeong was not supported by the conclusion in the
survey report that:

CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the opinion that damage
occurred aboard the carrying vessel during sea transit, being caused by ships heavy
rolling and pitching under boisterous weather while proceeding from 1600 hrs on
7th October to 0700 hrs on 12th October, 1994 as described in the sea protest.[40]

As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in
loading and stowing the cargoes, which is the ordinary diligence of a good father of a family, the grant
of the petition is in order.
However, the Court finds no basis for the award of attorneys fees in favor of petitioner. None of
the circumstances enumerated in Article 2208 of the Civil Code exists. The present case is clearly not
an unfounded civil action against the plaintiff as there is no showing that it was instituted for the
mere purpose of vexation or injury. It is not sound public policy to set a premium to the right to
litigate where such right is exercised in good faith, even if erroneously. [41] Likewise, the RTC erred in
awarding P83,945.80 actual damages to Mindanao Terminal. Although actual expenses were incurred
by Mindanao Terminal in relation to the trial of this case in Davao City, the lawyer of Mindanao
Terminal incurred expenses for plane fare, hotel accommodations and food, as well as other
miscellaneous expenses, as he attended the trials coming all the way from Manila. But there is no
showing that Phoenix and McGee made a false claim against Mindanao Terminal resulting in the
protracted trial of the case necessitating the incurrence of expenditures. [42]
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 66121 is SET ASIDE and the decision of the Regional Trial Court ofDavao City, Branch 12 in
Civil Case No. 25,311.97 is hereby REINSTATED MINUS the awards of P100,000.00 as attorneys
fees and P83,945.80 as actual damages.
G.R. No. 200289

November 25, 2013

WESTWIND
SHIPPING
CORPORATION, Petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.
REPEATED

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

SCHMITZ TRANSPORT & BROKERAGE CORPORATION, petitioner, vs. TRANSPORT VENTUR

INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA SHIPPING A
DODWELL now INCHCAPE SHIPPING SERVICES, respondents.
DECISION
CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision [1] of the Court of Appeals, as well as
Resolution[2] dated September 28, 2001 denying the motion for reconsideration, which affirmed that of Bra
21 of the Regional Trial Court (RTC) of Manila in Civil Case No. 92-63132 [3] holding petitioner Schmitz Transp
Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping Corporation (Black S
represented by its ship agent Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily lia
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
Alexander Saveliev (a vessel of Russian registry and owned by Black Sea) 545 hot rolled steel sheets in
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 S
Pipe Corporation (Little Giant),[4] were insured against all risks with Industrial Insurance Company L
(Industrial Insurance) under Marine Policy No. M-91-3747-TIS.[5]

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (P
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
cargoes from the shipside, and to deliver them to its (the consignees) warehouse at Cainta, Rizal, [7] in t
engaged the services of TVI to send a barge and tugboat at shipside.
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
returned to the port terminal.[9] At 9:00 p.m., arrastre operator Ocean Terminal Services Inc. commenced
unload 37 of the 545 coils from the vessel unto the barge.

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

At around 5:30 a.m. of October 27, 1991, due to strong waves, [11] the crew of the barge abandoned it
transferred to the vessel. The barge pitched and rolled with the waves and eventually capsized, washing the
coils into the sea.[12] At 7:00 a.m., a tugboat finally arrived to pull the already empty and damaged barge bac
the pier.[13]
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the
cargoes proved futile.[14]

Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of P5,246,113
Little Giant thereupon executed a subrogation receipt[15] in favor of Industrial Insurance.

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

Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typh
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
cargoes outside of the breakwater notwithstanding the storm signal. [18] The dispositive portion of the decis
reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering
defendants to pay plaintiff jointly and severally the sum of P5,246,113.11 with interest from the date
complaint was filed until fully satisfied, as well as the sum of P5,000.00 representing the adjustment fee plus
sum of 20% of the amount recoverable from the defendants as attorneys fees plus the costs of suit.
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
reconsideration assailing the finding that they are common carriers and the award of excessive attorneys fee
more than P1,000,000. And they argued that they were not motivated by gross or evident bad faith and that
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
decision of the trial court, [22] it finding that all the defendants were common carriers Black Sea and TVI
engaging in the transport of goods and cargoes over the seas as a regular business and not as an isola
transaction,[23] and Schmitz Transport for entering into a contract with Little Giant to transport the cargoes fr
ship to port for a fee.[24]

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

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

The defendants respective motions for reconsideration having been denied by Resolution [27] of Septem
28, 2001, Schmitz Transport (hereinafter referred to as petitioner) filed the present petition against T
Industrial Insurance and Black Sea.

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal, consig
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 w
required to file their respective Comments.[29]

By its Comment, Black Sea argued that the cargoes were received by the consignee through petitione
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 transfer
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
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 liab
arising therefrom:

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or w
the nature of the obligation requires the assumption of risk, no person shall be responsible for those eve
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 unexpec
occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will; (2
must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it must
impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill

obligation in any manner; and (4) the obligor must be free from any participation in the aggravation of the inj
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
violence of nature. Human intervention is to be excluded from creating or entering into the cause of the misch
When the effect is found to be in part the result of the participation of man, whether due to his ac
intervention or neglect or failure to act, the whole occurrence is then humanized and removed from the ru
applicable to the acts of God.[33]

The appellate court, in affirming the finding of the trial court that human intervention in the form
contributory negligence by all the defendants resulted to the loss of the cargoes, [34] held that unloading out
the breakwater, instead of inside the breakwater, while a storm signal was up constitutes negligence. [35] It t
concluded that the proximate cause of the loss was Black Seas negligence in deciding to unload the cargoes a
unsafe place and while a typhoon was approaching.[36]

From a review of the records of the case, there is no indication that there was greater risk in loading
cargoes outside the breakwater. As the defendants proffered, the weather on October 26, 1991 remained nor
with moderate sea condition such that port operations continued and proceeded normally. [37]

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

That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in
morning[39] is, however, a material fact which the appellate court failed to properly consider and appreciate [40]
proximate cause of the loss of the cargoes. Had the barge been towed back promptly to the pier, the deteriorat
sea conditions notwithstanding, the loss could have been avoided. But the barge was left floating in open
until big waves set in at 5:30 a.m., causing it to sink along with the cargoes.[41] The loss thus falls outside the
of God doctrine.

The proximate cause of the loss having been determined, who among the parties is/are responsible theref

Contrary to petitioners insistence, this Court, as did the appellate court, finds that petitioner is a comm
carrier. For it undertook to transport the cargoes from the shipside of M/V Alexander Saveliev to the consign
warehouse at Cainta, Rizal. As the appellate court put it, as long as a person or corporation holds [itself] to
public for the purpose of transporting goods as [a] business, [it] is already considered a common car
regardless if [it] owns the vehicle to be used or has to hire one. [42] That petitioner is a common carrier,
testimony of its own Vice-President and General Manager Noel Aro that part of the services it offers to its clie
as a brokerage firm includes the transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President
General Manager of said Company?

Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the compan
also handle the various division heads of the company for operation matters, and all other rela
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
Honorable Court if you came to know the company by the name Little Giant Steel Pipe Corporatio
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 perfo
in behalf of this company?

A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also in-char
of the delivery of the goods to their warehouses. We also handled the clearances of their shipmen
the Bureau of Customs, Sir.
xxx

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with rega
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 [t
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 perfo
what equipment do (sic) you require or did you use in order to effect this unloading, transfer
delivery to the warehouse?

A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter,
on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was] in-charged (sic
the barges. Also, in BASECO compound we are leasing cranes to have the cargo unloaded from
barge to trucks, [and] then we used trucks to deliver [the cargoes] to the consignees warehouse, Si
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
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 kn
[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,
Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals,[44] held:

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defi
under Article 1732 of the Civil Code, to wit,

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carry
or transporting passengers or goods or both, by land, water, or air, for compensation, offering their service
the public.
xxx

Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and
who does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is no
common carrier but a customs broker whose principal function is to prepare the correct customs declaration
proper shipping documents as required by law is bereft of merit. It suffices that petitioner undertakes to del
the goods for pecuniary consideration.[45]

And in Calvo v. UCPB General Insurance Co. Inc.,[46] this Court held that as the transportation of goods is
integral part of a customs broker, the customs broker is also a common carrier. For to declare otherwise wo
be to deprive those with whom [it] contracts the protection which the law affords them notwithstanding the
that the obligation to carry goods for [its] customers, is part and parcel of petitioners business. [47]

As for petitioners argument that being the agent of Little Giant, any negligence it committed was deemed
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
transportation of the cargoes from the shipside and into Little Giants warehouse, however, petitioner
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 [48] to provide
barge and the tugboat. In their Service Contract, [49] while Little Giant was named as the consignee, petitioner
not disclose that it was acting on commission and was chartering the vessel for Little Giant. [50] Little Giant
not thus automatically become a party to the Service Contract and was not, therefore, bound by the terms
conditions therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it
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 extraordin
diligence, it was still required to observe ordinary diligence to ensure the proper and careful handling, care
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 th
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
the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the pla
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 whic
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 sa
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 reasona
anticipated during the shipside operation, but was the proximate cause of the loss. A man of ordin
prudence would not leave a heavily loaded barge floating for a considerable number of hours, at suc
precarious time, and in the open sea, knowing that the barge does not have any power of its own and is tot
defenseless from the ravages of the sea. That it was nighttime and, therefore, the members of the crew o
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 [53] of the Civil Code, pr
that it exercised due diligence to prevent or minimize the loss, before, during and after the occurrence of
storm in order that it may be exempted from liability for the loss of the goods.

While petitioner sent checkers[54] and a supervisor[55] on board the vessel to counter-check the operation
TVI, it failed to take all available and reasonable precautions to avoid the loss. After noting that TVI failed
arrange for the prompt towage of the barge despite the deteriorating sea conditions, it should have summo
the same or another tugboat to extend help, but it did not.

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

The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify the victim ar
from the breach of that contract by reason of its failure to exercise the high diligence required of the comm
carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire
own employees or avail itself of the services of an outsider or an independent firm to undertake the task
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
Article 2176 and related provisions, in conjunction with Article 2180 of the Civil Code. x x x[O]ne might
further, how then must the liability of the common carrier, on one hand, and an independent contractor, on
other hand, be described? It would be solidary. A contractual obligation can be breached by tort and when
same act or omission causes the injury, one resulting in culpa contractual and the other in culpa aquilia
Article 2194 of the Civil Code can well apply. In fine, a liability for tort may arise even under a contract, wh
tort is that which breaches the contract. Stated differently, when an act which constitutes a breach of cont
would have itself constituted the source of a quasi-delictual liability had no contract existed between the part
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
unconditionally placed in its possession and received for transportation until they were delivered actually
constructively to consignee Little Giant.[58]

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the serv
rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipment provides that delivery
made to the port of discharge or so near thereto as she may safely get, always afloat.[59] The delivery of the go
to the consignee was not from pier to pier but from the shipside of M/V Alexander Saveliev and into barges,
which reason the consignee contracted the services of petitioner. Since Black Sea had constructively delive
the cargoes to Little Giant, through petitioner, it had discharged its duty.[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 lac
factual and legal basis, this Court sets it aside. While Industrial Insurance was compelled to litigate its rig
such fact by itself does not justify the award of attorneys fees under Article 2208 of the Civil Code. For
sufficient showing of bad faith would be reflected in a partys persistence in a case other than an errone
conviction of the righteousness of his cause. [61] To award attorneys fees to a party just because the judgmen
rendered in its favor would be tantamount to imposing a premium on ones right to litigate or seek judi
redress of legitimate grievances.[62]

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

As for the court a quos award of interest on the amount claimed, the same calls for modification follow
the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals [64] that when the demand cannot be reasona
established at the time the demand is made, the interest shall begin to run not from the time the claim is m
judicially or extrajudicially but from the date the judgment of the court is made (at which the time
quantification of damages may be deemed to have been reasonably ascertained). [65]

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Broker
Corporation, and Transport Venture Incorporation jointly and severally liable for the amount ofP5,246,11
with the MODIFICATION that interest at SIX PERCENT per annum of the amount due should be compu
from the promulgation on November 24, 1997 of the decision of the trial court.
Costs against petitioner.

G.R. No. 200289

November 25, 2013

WESTWIND
SHIPPING
CORPORATION, Petitioner,
vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.
REPEATED

[G.R. No. 147079. December 21, 2004]

A.F. SANCHEZ BROKERAGE INC., petitioners, vs. THE HON. COURT OF APPEALS and
FGU INSURANCE CORPORATION, respondents.
DECISION
CARPIO MORALES, J.:
Before this Court on a petition for Certiorari is the appellate courts Decision[1] of August 10, 2000
reversing and setting aside the judgment of Branch 133, Regional Trial Court of Makati City, in Civil
Case No. 93-76B which dismissed the complaint of respondent FGU Insurance Corporation (FGU
Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch
Airlines at Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal tablets,
14,000 Blisters Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of
the consignee, Wyeth-Suaco Laboratories, Inc. [2] The Femenal tablets were placed in 124 cartons and
the Nordiol tablets were placed in 20 cartons which were packed together in one (1) LD3 aluminum
container, while the Trinordial tablets were packed in two pallets, each of which contained 30 cartons.
[3]

Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine
Risk Note No. 4995 pursuant to Marine Open Policy No. 138.[4]
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA),
it was discharged without exception[6] and delivered to the warehouse of the Philippine Skylanders,
Inc. (PSI) located also at the NAIA for safekeeping. [7]
[5]

In order to secure the release of the cargoes from the PSI and the Bureau of Customs, WyethSuaco engaged the services of Sanchez Brokerage which had been its licensed broker since 1984. [8] As
its customs broker, Sanchez Brokerage calculates and pays the customs duties, taxes and storage fees
for the cargo and thereafter delivers it to Wyeth-Suaco.[9]
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage,
paid PSI storage fee amounting to P8,572.35 a receipt for which, Official Receipt No. 016992, [10] was
issued. On the receipt, another representative of Sanchez Brokerage, M. Sison, [11] acknowledged that
he received the cargoes consisting of three pieces in good condition.[12]
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes [13] which
were thereupon stripped from the aluminum containers [14] and loaded inside two transport vehicles
hired by Sanchez Brokerage.[15]
Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben
Alonso and Tony Akas,[16] employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a marine
and cargo surveyor and insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU
Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in
Antipolo City for quality control check.[17] The delivery receipt, bearing No. 07037 dated July 29, 1992,

indicated that the delivery consisted of one container with 144 cartons of Femenal and Nordiol and 1
pallet containing Trinordiol.[18]
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of
the cargoes by affixing his signature on the delivery receipt. [19] Upon inspection, however, he, together
with Ruben Alonzo of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol
tablets were in bad order.[20] He thus placed a note above his signature on the delivery receipt stating
that 44 cartons of oral contraceptives were in bad order. The remaining 160 cartons of oral
contraceptives were accepted as complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report [21] dated July
31, 1992 stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were wetted (sic).
[22]

The Elite Surveyors later issued Certificate No. CS-0731-1538/92 [23] attached to which was an
Annexed Schedule whereon it was indicated that prior to the loading of the cargoes to the brokers
trucks at the NAIA, they were inspected and found to be in apparent good condition. [24] Also noted
was that at the time of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell,
which could account for the wetting of the 44 cartons of Femenal and Nordiol tablets. [25]
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report [26] confirming that 38
x 700 blister packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister
packs of Nordiol tablets were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection [27] of 38 cartons of
Femenal and 3 cartons of Nordiol on the ground that they were delivered to Hizon Laboratories with
heavy water damaged (sic) causing the cartons to sagged (sic) emitting a foul order and easily
attracted flies.[28]
Wyeth-Suaco later demanded, by letter[29] of August 25, 1992, from Sanchez Brokerage the
payment of P191,384.25 representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim
against FGU Insurance which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its claim
under Marine Risk Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt[30] in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco,
Sanchez Brokerage, by letter[31] of January 7, 1993, disclaimed liability for the damaged goods,
positing that the damage was due to improper and insufficient export packaging; that when the sealed
containers were opened outside the PSI warehouse, it was discovered that some of the loose cartons
were wet,[32] prompting its (Sanchez Brokerages) representative Morales to inform the Import-Export
Assistant of Wyeth-Suaco, Ramir Calicdan, about the condition of the cargoes but that the latter
advised to still deliver them to Hizon Laboratories where an adjuster would assess the damage. [33]
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of
Makati City against the Sanchez Brokerage.
The trial court, by Decision[34] of July 29, 1996, dismissed the complaint, holding that the Survey
Report prepared by the Elite Surveyors is bereft of any evidentiary support and a mere product of
pure guesswork.[35]
On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez
Brokerage engaged not only in the business of customs brokerage but also in the transportation and
delivery of the cargo of its clients, hence, a common carrier within the context of Article 1732 of the
New Civil Code.[36]
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good
order and condition but were in a damaged state when delivered to Wyeth-Suaco, the appellate court
held that Sanchez Brokerage is presumed negligent and upon it rested the burden of proving that it
exercised extraordinary negligence not only in instances when negligence is directly proven but also in
those cases when the cause of the damage is not known or unknown. [37]
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The Decision
of the Court a quo is REVERSED. Another Decision is hereby rendered in favor of the Appellant and
against the Appellee as follows:
1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181,
431.49, with interest thereupon at the rate of 6% per annum, from the date of the
Decision of the Court, until the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00 as
and by way of attorneys fees; and
3. The counterclaims of the Appellee are DISMISSED.[38]
Sanchez Brokerages Motion for Reconsideration having been denied by the appellate courts
Resolution of December 8, 2000 which was received by petitioner on January 5, 2001, it comes to this
Court on petition for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error
tantamount to abuse of discretion when it found petitioner a common carrier within the context of
Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which
petitioner should have taken was to file a petition for review on certiorari since the sole office of a writ
of certiorari is the correction of errors of jurisdiction including the commission of grave abuse of
discretion amounting to lack or excess of jurisdiction and does not include correction of the appellate
courts evaluation of the evidence and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to
overcome the presumption of negligence, it being documented that petitioner withdrew from the
warehouse of PSI the subject shipment entirely in good order and condition.[39]
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any
case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this Court
by filing a petition for review, which would be but a continuation of the appellate process over the
original case.[40]
The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for
reconsideration of its Decision of August 10, 2000 was received by petitioner on January 5, 2001.
Since petitioner failed to appeal within 15 days or on or before January 20, 2001, the appellate courts
decision had become final and executory. The filing by petitioner of a petition for certiorari on March
6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove
not merely reversible error but also grave abuse of discretion amounting to lack or excess of
jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the
trial court based on its finding that petitioner is liable for the damage to the cargo as a common
carrier. What petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the
subject of an ordinary appeal.
Where the issue or question involves or affects the wisdom or legal soundness of the decision not
the jurisdiction of the court to render said decision the same is beyond the province of a petition
for certiorari.[41] The supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in
order to review the judgment of lower courts as to its intrinsic correctness, either upon the law or the
facts of the case.[42]
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself
testified that the services the firm offers include the delivery of goods to the warehouse of the
consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those upon
approval of the importer, we prepare the entry together for processing and claims from
customs and finallydeliver the goods to the warehouse of the importer. [43]
Article 1732 does not distinguish between one whose principal business activity is the carrying of
goods and one who does such carrying only as an ancillary activity. [44] The contention, therefore, of

petitioner that it is not a common carrier but a customs broker whose principal function is to prepare
the correct customs declaration and proper shipping documents as required by law is bereft of merit.
It suffices that petitioner undertakes to deliver the goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 1733 [45] of the
Civil Code, extraordinary diligence in the vigilance over the goods it transports according to all the
circumstances of each case. In the event that the goods are lost, destroyed or deteriorated, it is
presumed to have been at fault or to have acted negligently, unless it proves that it observed
extraordinary diligence.[46]
The concept of extra-ordinary diligence was explained in Compania Maritima v. Court of
Appeals:[47]
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction
of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and to use all reasonable means to ascertain the nature
and characteristics of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires.[48]
In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse
in NAIA in good order and condition; [49] and that upon delivery by petitioner to Hizon Laboratories
Inc., some of the cargoes were found to be in bad order, as noted in the Delivery Receipt [50] issued by
petitioner, and as indicated in the Survey Report of Elite Surveyors [51] and the Destruction Report of
Hizon Laboratories, Inc.[52]
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that
they were damaged due to the fault or negligence of the shipper for failing to properly pack them and
to the inherent characteristics of the goods [53]; and that it should not be faulted for following the
instructions of Calicdan of Wyeth-Suaco to proceed with the delivery despite information conveyed to
the latter that some of the cartons, on examination outside the PSI warehouse, were found to be wet.
[54]

While paragraph No. 4 of Article 1734[55] of the Civil Code exempts a common carrier from liability
if the loss or damage is due to the character of the goods or defects in the packing or in the containers,
the rule is that if the improper packing is known to the carrier or his employees or is apparent upon
ordinary observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for the resulting damage. [56]
If the claim of petitioner that some of the cartons were already damaged upon delivery to it were
true, then it should naturally have received the cargo under protest or with reservations duly noted on
the receipt issued by PSI. But it made no such protest or reservation. [57]
Moreover, as observed by the appellate court, if indeed petitioners employees only examined the
cargoes outside the PSI warehouse and found some to be wet, they would certainly have gone back to
PSI, showed to the warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage.[58] Or, petitioner would have presented, as
witness, the employees of the PSI from whom Morales and Domingo took delivery of the cargo to
prove that, indeed, part of the cargoes was already damaged when the container was allegedly opened
outside the warehouse.[59]
Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day.
Instead, it asserts that some of the cargoes were already wet on delivery by PSI outside the PSI
warehouse but such notwithstanding Calicdan directed Morales to proceed with the delivery to Hizon
Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992,
he failed to specifically declare what time he received the call. As to whether the call was made at the
PSI warehouse when the shipment was stripped from the airport containers, or when the cargoes
were already in transit to Antipolo, it is not determinable. Aside from that phone call, petitioner
admitted that it had no documentary evidence to prove that at the time it received the cargoes, a part
of it was wet, damaged or in bad condition.[60]
The 4-page weather data furnished by PAGASA [61] on request of Sanchez Brokerage hardly
impresses, no witness having identified it and interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral
contraceptives were damaged by rainwater while in transit to Antipolo City is more likely then.
Sanchez himself testified that in the past, there was a similar instance when the shipment of WyethSuaco was also found to be wet by rain.
ATTY. FLORES:

Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at
the NAIA were damaged and claimed by the Wyeth-Suaco without any question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco did
not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon ( sic) wetted
(sic) up to the bottom are wet specially during rainy season.[62]
Since petitioner received all the cargoes in good order and condition at the time they were turned
over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion thereof
was found to be in bad order, it was incumbent on petitioner to prove that it exercised extraordinary
diligence in the carriage of the goods. It did not, however. Hence, its presumed negligence under
Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.

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

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

Luna, claimed to be tearrage at the end and tearrage at the middle of the subject damaged cargoes
respectively, coupled with the Marine Cargo Survey Report (Exh. H - H-4-A) confirms the fact of the
damaged condition of the subject cargoes. The surveyor[s] report (Exh. H-4-A) in particular, which
provides among others that:
. . . we opine that damages sustained by shipment is attributable to improper handling in transit
presumably whilst in the custody of the broker . . . .
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense that [she is] are not
liable. Defendant by reason of the nature of [her] business should have devised ways and means in
order to prevent the damage to the cargoes which it is under obligation to take custody of and to
forthwith deliver to the consignee. Defendant did not present any evidence on what precaution [she]
performed to prevent [the] said incident, hence the presumption is that the moment the defendant
accepts the cargo [she] shall perform such extraordinary diligence because of the nature of the cargo.
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to have been lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they have observed the extraordinary diligence required by law.
The burden of the plaintiff, therefore, is to prove merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove that he has
exercised the extraordinary diligence required by law. Thus, it has been held that the mere proof of
delivery of goods in good order to a carrier, and of their arrival at the place of destination in bad
order, makes out a prima facie case against the carrier, so that if no explanation is given as to how the
injury occurred, the carrier must be held responsible. It is incumbent upon the carrier to prove that
the loss was due to accident or some other circumstances inconsistent with its liability. (cited in
Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a common carrier is
supposed [to] exercise [the] extraordinary diligence required by law, hence the extraordinary
responsibility lasts from the time the goods are unconditionally placed in the possession of and
received by the carrier for transportation until the same are delivered actually or constructively by the
carrier to the consignee or to the person who has the right to receive the same. [3]
Accordingly, the trial court ordered petitioner to pay the following amounts
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyers fee;
3. Costs of suit.[4]
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE
SURMISES, SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR
SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.[5]
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not a
common carrier, although both the trial court and the Court of Appeals held otherwise, then she is
indeed not liable beyond what ordinary diligence in the vigilance over the goods transported by her,
would require.[6] Consequently, any damage to the cargo she agrees to transport cannot be presumed
to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is
not a common carrier but a private carrier because, as a customs broker and warehouseman, she does
not indiscriminately hold her services out to the public but only offers the same to select parties with
whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,[7] the Court dismissed a similar
contention and held the party to be a common carrier, thus

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity . . . Article
1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and one who offers services
or solicits business only from a narrow segment of the general population. We think that Article 1732
deliberately refrained from making such distinctions.
So understood, the concept of common carrier under Article 1732 may be seen to coincide neatly with
the notion of public service, under the Public Service Act (Commonwealth Act No. 1416, as amended)
which at least partially supplements the law on common carriers set forth in the Civil Code. Under
Section 13, paragraph (b) of the Public Service Act, public service includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed
route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration
plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations
and other similar public services. x x x [8]
There is greater reason for holding petitioner to be a common carrier because the transportation
of goods is an integral part of her business. To uphold petitioners contention would be to deprive
those with whom she contracts the protection which the law affords them notwithstanding the fact
that the obligation to carry goods for her customers, as already noted, is part and parcel of petitioners
business.
Now, as to petitioners liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case. . . .
In Compania Maritima v. Court of Appeals,[9] the meaning of extraordinary diligence in the
vigilance over goods was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or destruction
of the goods entrusted to it for sale, carriage and delivery. It requires common carriers to render
service with the greatest skill and foresight and to use all reasonable means to ascertain the nature
and characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires.
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
spoilage or wettage took place while the goods were in the custody of either the carrying vessel M/V
Hayakawa Maru, which transported the cargo to Manila, or the arrastre operator, to whom the goods
were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23, 1998
notwithstanding the fact that some of the containers were deformed, cracked, or otherwise damaged,
as noted in the Marine Survey Report (Exh. H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked

MAXU-201406-0 - with dent/crack on roof panel

ICSU-412105-0 - rubber gasket on left side/door panel partly detached loosened.[10]
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he has
no personal knowledge on whether the container vans were first stored in petitioners warehouse prior
to their delivery to the consignee. She likewise claims that after withdrawing the container vans from
the arrastre operator, her driver, Ricardo Nazarro, immediately delivered the cargo to SMCs
warehouse in Ermita, Manila, which is a mere thirty-minute drive from the Port Area where the cargo
came from. Thus, the damage to the cargo could not have taken place while these were in her custody.
[11]

Contrary to petitioners assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator, these were
covered by clean Equipment Interchange Report (EIR) and, when petitioners employees withdrew the
cargo from the arrastre operator, they did so without exception or protest either with regard to the
condition of container vans or their contents. The Survey Report pertinently reads
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel to dock of Pier
#13 South Harbor, Manila on 14 July 1990, containerized onto 30 x 20 secure metal vans, covered by
clean EIRs. Except for slight dents and paint scratches on side and roof panels, these containers were
deemed to have [been] received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30 x 20 cargo containers was [withdrawn] by Transorient
Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignees storage warehouse located at Tabacalera
Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.[12]
As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the
arrastre, Marina Port Services Inc., in good order and condition as evidenced by clean Equipment
Interchange Reports (EIRs). Had there been any damage to the shipment, there would have been a
report to that effect made by the arrastre operator. The cargoes were withdrawn by the defendantappellant 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.

[G.R. No. 159636. November 25, 2004]

VICTORY LINER, INC., petitioner, vs. ROSALITO GAMMAD, APRIL ROSSAN P.

GAMMAD, ROI ROZANO P. GAMMAD and DIANA FRANCES P.
GAMMAD,respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the April 11, 2003 decision [1] of the Court of
Appeals in CA-G.R. CV No. 63290 which affirmed with modification the November 6, 1998
decision[2] of the Regional Trial Court of Tuguegarao, Cagayan, Branch 5 finding petitioner Victory
Liner, Inc. liable for breach of contract of carriage in Civil Case No. 5023.
The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife
Marie Grace Pagulayan-Gammad,[3] was on board an air-conditioned Victory Liner bus bound for
Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a
ravine somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie
Grace and physical injuries to other passengers.[4]
On May 14, 1996, respondent heirs of the deceased filed a complaint [5] for damages arising
from culpa contractual against petitioner. In its answer,[6] the petitioner claimed that the incident was
purely accidental and that it has always exercised extraordinary diligence in its 50 years of operation.
After several re-settings,[7] pre-trial was set on April 10, 1997. [8] For failure to appear on the said
date, petitioner was declared as in default. [9] However, on petitioners motion[10] to lift the order of
default, the same was granted by the trial court.[11]
At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the
deceased was a passenger of the Victory Liner Bus which fell on the ravine and that she was issued
Passenger Ticket No. 977785. Respondents, for their part, did not accept petitioners proposal to pay
P50,000.00.[12]
After respondent Rosalito Gammad completed his direct testimony, cross-examination was
scheduled for November 17, 1997[13] but moved to December 8, 1997, [14] because the parties and the
counsel failed to appear. On December 8, 1997, counsel of petitioner was absent despite due notice
and was deemed to have waived right to cross-examine respondent Rosalito. [15]
Petitioners motion to reset the presentation of its evidence to March 25, 1998 [16] was granted.
However, on March 24, 1998, the counsel of petitioner sent the court a telegram [17]requesting

postponement but the telegram was received by the trial court on March 25, 1998, after it had issued
an order considering the case submitted for decision for failure of petitioner and counsel to appear. [18]
On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive
portion of which reads:
WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in
favor of the plaintiffs and against the defendant Victory Liner, Incorporated, ordering the latter to pay
the following:
1. Actual Damages -------------------- P 122,000.00
2. Death Indemnity --------------------- 50,000.00
3. Exemplary and Moral Damages----- 400,000.00
4. Compensatory Damages ---------- 1,500,000.00
5. Attorneys Fees ------------ 10% of the total amount granted
6. Cost of the Suit.
SO ORDERED.[19]
On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with
modification as follows:
[T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby
adjudged in favor of plaintiffs-appellees:
1. Actual Damages in the amount of P88,270.00;
2. Compensatory Damages in the amount of P1,135,536,10;
3. Moral and Exemplary Damages in the amount of P400,000.00; and
4. Attorneys fees equivalent to 10% of the sum of the actual, compensatory, moral, and
exemplary damages herein adjudged.
The court a quos judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED.
SO ORDERED.[20]
Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration
praying that the case be remanded to the trial court for cross- examination of respondents witness
and for the presentation of its evidence; or in the alternative, dismiss the respondents complaint.
[21]
Invoking APEX Mining, Inc. v. Court of Appeals,[22] petitioner argues, inter alia, that the decision
of the trial court should be set aside because the negligence of its former counsel, Atty. Antonio B.
Paguirigan, in failing to appear at the scheduled hearings and move for reconsideration of the orders
declaring petitioner to have waived the right to cross-examine respondents witness and right to
present evidence, deprived petitioner of its day in court.
On August 21, 2003, the Court of Appeals denied petitioners motion for reconsideration. [23]
Hence, this petition for review principally based on the fact that the mistake or gross negligence of
its counsel deprived petitioner of due process of law. Petitioner also argues that the trial courts award
of damages were without basis and should be deleted.
The issues for resolution are: (1) whether petitioners counsel was guilty of gross negligence; (2)
whether petitioner should be held liable for breach of contract of carriage; and (3) whether the award
of damages was proper.
It is settled that the negligence of counsel binds the client. This is based on the rule that any act
performed by a counsel within the scope of his general or implied authority is regarded as an act of his
client. Consequently, the mistake or negligence of counsel may result in the rendition of an
unfavorable judgment against the client. However, the application of the general rule to a given case
should be looked into and adopted according to the surrounding circumstances obtaining. Thus,
exceptions to the foregoing have been recognized by the court in cases where reckless or gross
negligence of counsel deprives the client of due process of law, or when its application will result in
outright deprivation of the clients liberty or property or where the interests of justice so require, and
accord relief to the client who suffered by reason of the lawyers gross or palpable mistake or
negligence.[24]
The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed
an Answer and Pre-trial Brief for petitioner. Although initially declared as in default, Atty. Paguirigan
successfully moved for the setting aside of the order of default. In fact, petitioner was represented by

Atty. Paguirigan at the pre-trial who proposed settlement for P50,000.00. Although Atty. Paguirigan
failed to file motions for reconsideration of the orders declaring petitioner to have waived the right to
cross-examine respondents witness and to present evidence, he nevertheless, filed a timely appeal
with the Court of Appeals assailing the decision of the trial court. Hence, petitioners claim that it was
denied due process lacks basis.
Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default
for not appearing at the pre-trial, three notices (dated October 23, 1996, [25] January 30, 1997,[26] and
March 26, 1997,[27]) requiring attendance at the pre-trial were sent and duly received by petitioner.
However, it was only on April 27, 1997, after the issuance of the April 10, 1997 order of default for
failure to appear at the pre-trial when petitioner, through its finance and administrative manager,
executed a special power of attorney[28] authorizing Atty. Paguirigan or any member of his law firm to
represent petitioner at the pre-trial. Petitioner is guilty, at the least, of contributory negligence and
fault cannot be imputed solely on previous counsel.
The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar.
In APEX, the negligent counsel not only allowed the adverse decision against his client to become
final and executory, but deliberately misrepresented in the progress report that the case was still
pending with the Court of Appeals when the same was dismissed 16 months ago. [29]These
circumstances are absent in this case because Atty. Paguirigan timely filed an appeal from the
decision of the trial court with the Court of Appeals.
In Gold Line Transit, Inc. v. Ramos,[30] the Court was similarly confronted with the issue of
whether or not the client should bear the adverse consequences of its counsels negligence. In that
case, Gold Line Transit, Inc. (Gold Line) and its lawyer failed to appear at the pre-trial despite notice
and was declared as in default. After the plaintiffs presentation of evidence ex parte, the trial court
rendered decision ordering Gold Line to pay damages to the heirs of its deceased passenger. The
decision became final and executory because counsel of Gold Line did not file any appeal. Finding that
Goldline was not denied due process of law and is thus bound by the negligence of its lawyer, the
Court held as follows
This leads us to the question of whether the negligence of counsel was so gross and reckless that
petitioner was deprived of its right to due process of law. We do not believe so. It cannot be denied
that the requirements of due process were observed in the instant case. Petitioner was never deprived
of its day in court, as in fact it was afforded every opportunity to be heard. Thus, it is of record that
notices were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint,
an answer to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its
opportunity to participate in the trial of the case and to adduce evidence in its behalf because of
negligence.
In the application of the principle of due process, what is sought to be safeguarded against is not the
lack of previous notice but the denial of the opportunity to be heard. The question is not whether
petitioner succeeded in defending its rights and interests, but simply, whether it had the opportunity
to present its side of the controversy. Verily, as petitioner retained the services of counsel of its choice,
it should, as far as this suit is concerned, bear the consequences of its choice of a faulty option. Its plea
that it was deprived of due process echoes on hollow ground and certainly cannot elicit approval nor
sympathy.
To cater to petitioners arguments and reinstate its petition for relief from judgment would put a
premium on the negligence of its former counsel and encourage the non-termination of this case by
reason thereof. This is one case where petitioner has to bear the adverse consequences of its counsels
act, for a client is bound by the action of his counsel in the conduct of a case and he cannot thereafter
be heard to complain that the result might have been different had his counsel proceeded differently.
The rationale for the rule is easily discernible. If the negligence of counsel be admitted as a reason for
opening cases, there would never be an end to a suit so long as a new counsel could be hired every
time it is shown that the prior counsel had not been sufficiently diligent, experienced or learned. [31]
Similarly, in Macalalag v. Ombudsman,[32] a Philippine Postal Corporation employee charged
with dishonesty was not able to file an answer and position paper. He was found guilty solely on the
basis of complainants evidence and was dismissed with forfeiture of all benefits and disqualification
from government service. Challenging the decision of the Ombudsman, the employee contended that
the gross negligence of his counsel deprived him of due process of law. In debunking his contention,
the Court said
Neither can he claim that he is not bound by his lawyers actions; it is only in case of gross or palpable
negligence of counsel when the courts can step in and accord relief to a client who would have
suffered thereby. If every perceived mistake, failure of diligence, lack of experience or insufficient
legal knowledge of the lawyer would be admitted as a reason for the reopening of a case, there would
be no end to controversy. Fundamental to our judicial system is the principle that every litigation

must come to an end. It would be a clear mockery if it were otherwise. Access to the courts is
guaranteed, but there must be a limit to it.
Viewed vis--vis the foregoing jurisprudence, to sustain petitioners argument that it was denied
due process of law due to negligence of its counsel would set a dangerous precedent. It would enable
every party to render inutile any adverse order or decision through the simple expedient of alleging
gross negligence on the part of its counsel. The Court will not countenance such a farce which
contradicts long-settled doctrines of trial and procedure.[33]
Anent the second issue, petitioner was correctly found liable for breach of contract of carriage. A
common carrier is bound to carry its passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a
contract of carriage, it is presumed that the common carrier was at fault or was negligent when a
passenger dies or is injured. Unless the presumption is rebutted, the court need not even
make an express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier exercised extraordinary
diligence.[34]
In the instant case, there is no evidence to rebut the statutory presumption that the proximate
cause of Marie Graces death was the negligence of petitioner. Hence, the courts below correctly ruled
that petitioner was guilty of breach of contract of carriage.
Nevertheless, the award of damages should be modified.
Article 1764[35] in relation to Article 2206[36] of the Civil Code, holds the common carrier in breach
of its contract of carriage that results in the death of a passenger liable to pay the following: (1)
indemnity for death, (2) indemnity for loss of earning capacity, and (3) moral damages.
In the present case, respondent heirs of the deceased are entitled to indemnity for the death of
Marie Grace which under current jurisprudence is fixed at P50,000.00. [37]
The award of compensatory damages for the loss of the deceaseds earning capacity should be
deleted for lack of basis. As a rule, documentary evidence should be presented to substantiate the
claim for damages for loss of earning capacity. By way of exception, damages for loss of earning
capacity may be awarded despite the absence of documentary evidence when (1) the deceased is selfemployed earning less than the minimum wage under current labor laws, and judicial notice may be
taken of the fact that in the deceaseds line of work no documentary evidence is available; or (2) the
deceased is employed as a daily wage worker earning less than the minimum wage under current
labor laws.[38]
In People v. Oco,[39] the evidence presented by the prosecution to recover damages for loss of
earning capacity was the bare testimony of the deceaseds wife that her husband was earning
P8,000.00 monthly as a legal researcher of a private corporation. Finding that the deceased was
neither self-employed nor employed as a daily-wage worker earning less than the minimum wage
under the labor laws existing at the time of his death, the Court held that testimonial evidence alone is
insufficient to justify an award for loss of earning capacity.
Likewise, in People v. Caraig,[40] damages for loss of earning capacity was not awarded because
the circumstances of the 3 deceased did not fall within the recognized exceptions, and except for the
testimony of their wives, no documentary proof about their income was presented by the prosecution.
Thus
The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were
not self-employed or employed as daily-wage workers earning less than the minimum wage under the
labor laws existing at the time of their death. Placido Agustin was a Social Security System
employee who received a monthly salary of P5,000. Roberto Raagas was the President
of Sinclair Security and Allied Services, a family owned corporation, with a monthly
compensation of P30,000. Melencio Castro Jr. was a taxi driver of New Rocalex with an
average daily earning of P500 or a monthly earning of P7,500. Clearly, these cases do not
fall under the exceptions where indemnity for loss of earning capacity can be given despite lack of
documentary evidence. Therefore, for lack of documentary proof, no indemnity for loss of earning
capacity can be given in these cases. (Emphasis supplied)
Here, the trial court and the Court of Appeals computed the award of compensatory damages for
loss of earning capacity only on the basis of the testimony of respondent Rosalito that the deceased
was 39 years of age and a Section Chief of the Bureau of Internal Revenue, Tuguergarao District Office
with a salary of P83,088.00 per annum when she died. [41] No other evidence was presented. The
award is clearly erroneous because the deceaseds earnings does not fall within the exceptions.
However, the fact of loss having been established, temperate damages in the amount of
P500,000.00 should be awarded to respondents. Under Article 2224 of the Civil Code, temperate or
moderate damages, which are more than nominal but less than compensatory damages, may be

recovered when the court finds that some pecuniary loss has been suffered but its amount can not,
from the nature of the case, be proved with certainty.
In Pleno v. Court of Appeals,[42] the Court sustained the trial courts award of P200,000.00 as
temperate damages in lieu of actual damages for loss of earning capacity because the income of the
victim was not sufficiently proven, thus
The trial court based the amounts of damages awarded to the petitioner on the following
circumstances:
As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur and
the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an
industrious and resourceful person with several projects in line, and were it not for the incident,
might have pushed them through. On the day of the incident, Pleno was driving homeward with
geologist Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual
income however has not been sufficiently established so that this Court cannot award actual damages,
but, an award of temperate or moderate damages may still be made on loss or impairment of earning
capacity. That Pleno sustained a permanent deformity due to a shortened left leg and that he also
suffers from double vision in his left eye is also established. Because of this, he suffers from some
inferiority complex and is no longer active in business as well as in social life. In similar cases as in
Borromeo v. Manila Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L-11037, Dec.
29, 1960, and in Araneta, et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of
damages were given.
We rule that the lower courts awards of damages are more consonant with the factual circumstances
of the instant case. The trial courts findings of facts are clear and well-developed. Each item of
damages is adequately supported by evidence on record.
Article 2224 of the Civil Code was likewise applied in the recent cases of People v.
Singh[43] and People v. Almedilla,[44] to justify the award of temperate damages in lieu of damages for
loss of earning capacity which was not substantiated by the required documentary proof.
Anent the award of moral damages, the same cannot be lumped with exemplary damages because
they are based on different jural foundations. [45] These damages are different in nature and require
separate determination.[46] In culpa contractual or breach of contract, moral damages may be
recovered when the defendant acted in bad faith or was guilty of gross negligence (amounting to bad
faith) or in wanton disregard of contractual obligations and, as in this case, when the act of breach of
contract itself constitutes the tort that results in physical injuries. By special rule in Article 1764 in
relation to Article 2206 of the Civil Code, moral damages may also be awarded in case the death of a
passenger results from a breach of carriage. [47] On the other hand, exemplary damages, which are
awarded by way of example or correction for the public good may be recovered in contractual
obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.
[48]

Respondents in the instant case should be awarded moral damages to compensate for the grief
caused by the death of the deceased resulting from the petitioners breach of contract of carriage.
Furthermore, the petitioner failed to prove that it exercised the extraordinary diligence required for
common carriers, it is presumed to have acted recklessly. [49] Thus, the award of exemplary damages is
proper. Under the circumstances, we find it reasonable to award respondents the amount of
P100,000.00 as moral damages and P100,000.00 as exemplary damages. These amounts are not
excessive.[50]
The actual damages awarded by the trial court reduced by the Court of Appeals should be further
reduced. In People v. Duban,[51] it was held that only substantiated and proven expenses or those that
appear to have been genuinely incurred in connection with the death, wake or burial of the victim will
be recognized. A list of expenses (Exhibit J), [52] and the contract/receipt for the construction of the
tomb (Exhibit F)[53] in this case, cannot be considered competent proof and cannot replace the official
receipts necessary to justify the award. Hence, actual damages should be further reduced to
P78,160.00,[54] which was the amount supported by official receipts.
Pursuant to Article 2208[55] of the Civil Code, attorneys fees may also be recovered in the case at
bar where exemplary damages are awarded. The Court finds the award of attorneys fees equivalent to
10% of the total amount adjudged against petitioner reasonable.
Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,[56] it was held that when an
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in the concept of actual and
compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.

Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit. (Emphasis
supplied).
In the instant case, petitioner should be held liable for payment of interest as damages for breach
of contract of carriage. Considering that the amounts payable by petitioner has been determined with
certainty only in the instant petition, the interest due shall be computed upon the finality of this
decision at the rate of 12% per annum until satisfaction, per paragraph 3 of the aforecited rule. [57]
WHEREFORE, in view of all the foregoing, the petition is PARTIALLY GRANTED. The April 11,
2003 decision of the Court of Appeals in CA-G.R. CV No. 63290, which modified the decision of the
Regional Trial Court of Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED with
MODIFICATION. As modified, petitioner Victory Liner, Inc., is ordered to pay respondents the
following: (1) P50,000.00 as indemnity for the death of Marie Grace Pagulayan-Gammad; (2)
P100,000.00 as moral damages; (3) P100,000.00 as exemplary damages; (4) P78,160.00 as actual
damages; (5) P500,000.00 as temperate damages; (6) 10% of the total amount as attorneys fees; and
the costs of suit.
Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12%
per annum computed from the finality of this decision until fully paid.
[G.R. No. 147246. August 19, 2003]
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF APPEALS and
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents.
REPEATED

G.R. No. 150403

January 25, 2007

CEBU
SALVAGE
CORPORATION, Petitioner,
vs.
PHILIPPINE HOME ASSURANCE CORPORATION, Respondent.
DECISION
CORONA, J.:
May a carrier be held liable for the loss of cargo resulting from the sinking of a ship it does not own?
This is the issue presented for the Courts resolution in this petition for review on certiorari 1 assailing
the March 16, 2001 decision2 and September 17, 2001 resolution3 of the Court of Appeals (CA) in CAG.R. CV No. 40473 which in turn affirmed the December 27, 1989 decision 4 of the Regional Trial
Court (RTC), Branch 145, Makati, Metro Manila.5
The pertinent facts follow.
On November 12, 1984, petitioner Cebu Salvage Corporation (as carrier) and Maria Cristina
Chemicals Industries, Inc. [MCCII] (as charterer) entered into a voyage charter 6 wherein petitioner
was to load 800 to 1,100 metric tons of silica quartz on board the M/T Espiritu Santo 7 at Ayungon,
Negros Occidental for transport to and discharge at Tagoloan, Misamis Oriental to consignee
Ferrochrome Phils., Inc.8
Pursuant to the contract, on December 23, 1984, petitioner received and loaded 1,100 metric tons of
silica quartz on board the M/T Espiritu Santo which left Ayungon for Tagoloan the next day. 9 The
shipment never reached its destination, however, because the M/T Espiritu Santo sank in the
afternoon of December 24, 1984 off the beach of Opol, Misamis Oriental, resulting in the total loss of
the cargo.10
MCCII filed a claim for the loss of the shipment with its insurer, respondent Philippine Home
Assurance Corporation.11 Respondent paid the claim in the amount of P211,500 and was subrogated to
the rights of MCCII.12Thereafter, it filed a case in the RTC 13 against petitioner for reimbursement of
the amount it paid MCCII.

After trial, the RTC rendered judgment in favor of respondent. It ordered petitioner to pay
respondent P211,500 plus legal interest, attorneys fees equivalent to 25% of the award and costs of
suit.
On appeal, the CA affirmed the decision of the RTC. Hence, this petition.
Petitioner and MCCII entered into a "voyage charter," also known as a contract of affreightment
wherein the ship was leased for a single voyage for the conveyance of goods, in consideration of the
payment of freight.14 Under a voyage charter, the shipowner retains the possession, command and
navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return
for his payment of freight.15 An owner who retains possession of the ship remains liable as carrier and
must answer for loss or non-delivery of the goods received for transportation. 16
Petitioner argues that the CA erred when it affirmed the RTC finding that the voyage charter it
entered into with MCCII was a contract of carriage. 17 It insists that the agreement was merely a
contract of hire wherein MCCII hired the vessel from its owner, ALS Timber Enterprises (ALS). 18 Not
being the owner of the M/T Espiritu Santo, petitioner did not have control and supervision over the
vessel, its master and crew.19 Thus, it could not be held liable for the loss of the shipment caused by
the sinking of a ship it did not own.
We disagree.
Based on the agreement signed by the parties and the testimony of petitioners operations manager, it
is clear that it was a contract of carriage petitioner signed with MCCII. It actively negotiated and
solicited MCCIIs account, offered its services to ship the silica quartz and proposed to utilize the M/T
Espiritu Santo in lieu of the M/T Seebees or the M/T Shirley (as previously agreed upon in the voyage
charter) since these vessels had broken down.20
There is no dispute that petitioner was a common carrier. At the time of the loss of the cargo, it was
engaged in the business of carrying and transporting goods by water, for compensation, and offered
its services to the public.21
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence over the goods they transport according to the circumstances of each
case.22 In the event of loss of the goods, common carriers are responsible, unless they can prove that
this was brought about by the causes specified in Article 1734 of the Civil Code. 23 In all other cases,
common carriers are presumed to be at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence.24
Petitioner was the one which contracted with MCCII for the transport of the cargo. It had control over
what vessel it would use. All throughout its dealings with MCCII, it represented itself as a common
carrier. The fact that it did not own the vessel it decided to use to consummate the contract of carriage
did not negate its character and duties as a common carrier. The MCCII (respondents subrogor)
could not be reasonably expected to inquire about the ownership of the vessels which petitioner
carrier offered to utilize. As a practical matter, it is very difficult and often impossible for the general
public to enforce its rights of action under a contract of carriage if it should be required to know who
the actual owner of the vessel is.25 In fact, in this case, the voyage charter itself denominated
petitioner as the "owner/operator" of the vessel.26
Petitioner next contends that if there was a contract of carriage, then it was between MCCII and ALS
as evidenced by the bill of lading ALS issued.27
Again, we disagree.
The bill of lading was merely a receipt issued by ALS to evidence the fact that the goods had been
received for transportation. It was not signed by MCCII, as in fact it was simply signed by the
supercargo of ALS.28 This is consistent with the fact that MCCII did not contract directly with ALS.
While it is true that a bill of lading may serve as the contract of carriage between the parties, 29 it
cannot prevail over the express provision of the voyage charter that MCCII and petitioner executed:
[I]n cases where a Bill of Lading has been issued by a carrier covering goods shipped aboard a vessel
under a charter party, and the charterer is also the holder of the bill of lading, "the bill of lading
operates as the receipt for the goods, and as document of title passing the property of the goods, but
not as varying the contract between the charterer and the shipowner." The Bill of Lading becomes,
therefore, only a receipt and not the contract of carriage in a charter of the entire vessel, for the
contract is the Charter Party, and is the law between the parties who are bound by its terms and
condition provided that these are not contrary to law, morals, good customs, public order and public
policy. 30

Finally, petitioner asserts that MCCII should be held liable for its own loss since the voyage charter
stipulated that cargo insurance was for the charterers account. 31 This deserves scant consideration.
This simply meant that the charterer would take care of having the goods insured. It could not
exculpate the carrier from liability for the breach of its contract of carriage. The law, in fact, prohibits
it and condemns it as unjust and contrary to public policy.32
To summarize, a contract of carriage of goods was shown to exist; the cargo was loaded on board the
vessel; loss or non-delivery of the cargo was proven; and petitioner failed to prove that it exercised
extraordinary diligence to prevent such loss or that it was due to some casualty or force majeure. The
voyage charter here being a contract of affreightment, the carrier was answerable for the loss of the
goods received for transportation.33
The idea proposed by petitioner is not only preposterous, it is also dangerous. It says that a carrier
that enters into a contract of carriage is not liable to the charterer or shipper if it does not own the
vessel it chooses to use. MCCII never dealt with ALS and yet petitioner insists that MCCII should sue
ALS for reimbursement for its loss. Certainly, to permit a common carrier to escape its responsibility
for the goods it agreed to transport (by the expedient of alleging non-ownership of the vessel it
employed) would radically derogate from the carrier's duty of extraordinary diligence. It would also
open the door to collusion between the carrier and the supposed owner and to the possible shifting of
liability from the carrier to one without any financial capability to answer for the resulting damages. 34
WHEREFORE, the petition is hereby DENIED.

[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 to force 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 Insurancedoctrine.
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 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 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.

THIRD DIVISION

[G.R. No. 135377. October 7, 2003]

DSR-SENATOR LINES AND C.F. SHARP AND COMPANY,

vs. FEDERAL PHOENIX ASSURANCE CO., INC., respondent.

INC., petitioners,

DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari[1] assailing the Decision[2] dated June 5, 1998 of the
Court of Appeals in CA-G.R. CV No. 50833 which affirmed the Decision of the Regional Trial Court
(RTC), Manila City, Branch 16, in Civil Case No. 94-69699, Federal Phoenix Assurance Company,
Inc. vs. DSR-Senator Lines and C.F. Sharp & Co., Inc., for damages arising from the loss of cargo
while in transit.
Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp and
Company, Inc. (C.F. Sharp), the General Ship Agent of DSR-Senator Lines, a foreign shipping
corporation, for transportation and delivery to the consignee, Al-Mohr International Group, in
Riyadh, Saudi Arabia. C.F. Sharp issued International Bill of Lading No. SENU MNL-26548 [3] for the
cargo with an invoice value of $34,579.60. Under the Bill of Lading, the port of discharge for the cargo
was at the Khor Fakkan port and the port of delivery was Riyadh, Saudi Arabia, viaPort
Dammam. The cargo was loaded in M/S Arabian Senator.
Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the cargo against
all risks in the amount of P941,429.61.[4]
On June 7, 1993, M/S Arabian Senator left the Manila South Harbor for Saudi Arabia with the
cargo on board. When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board DSRSenator Lines feeder vessel, M/V Kapitan Sakharov, bound for Port Dammam, Saudi
Arabia. However, while in transit, the vessel and all its cargo caught fire.
On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V Kapitan Sakharov with its
cargo was gutted by fire and sank on or about July 4, 1993. On December 16, 1993, C.F. Sharp issued a
certification to that effect.

Consequently, Federal Phoenix Assurance paid Berde Plants P941,429.61 corresponding to the
amount of insurance for the cargo. In turn Berde Plants executed in its favor a Subrogation
Receipt[5] dated January 17, 1994.
On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment
of P941,429.61 on the basis of the Subrogation Receipt. C.F. Sharp denied any liability on the ground
that such liability was extinguished when the vessel carrying the cargo was gutted by fire.
Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16, Manila a
complaint for damages against DSR-Senator Lines and C.F. Sharp, praying that the latter be ordered
to pay actual damages of P941,429.61, compensatory damages of P100,000.00 and costs.
On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix Assurance, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the
defendants who are hereby ordered jointly and severally to pay plaintiff:
I. The amount of P941,439.61 (should be P941,429.61[6]) with legal interest of 6% per annum
from the date of the letter of demand of February 8, 1993 (EXH. L) and 12% per annum
from the date the judgment becomes final and executory until its satisfaction (Eastern
Shipping Lines vs. Court of Appeals, G.R. No. 97412, July 12, 1994);
II. The amount of P15,000.00 by way of reasonable attorneys fees; and
III. To pay costs.
The counterclaim of defendants is DISMISSED.
SO ORDERED.[7]
On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming the RTC
Decision, thus:
In the present recourse, the appellant carrier was presumed to have acted negligently for the fire that
gutted the feeder vessel and the consequent loss or destruction of the cargo. Hence, the appellant
carrier is liable for appellees claim under the New Civil Code of the Philippines.
Contrary to C.F. Sharp and Co., Inc.s pose, its liability as ship agent continued and remained until the
cargo was delivered to the consignee. The status of the appellant as ship agent subsisted and its
liability as a ship agent was co-terminous with and subsisted as long as the cargo was not delivered to
the consignee under the terms of the Bill of Lading.
IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED. The Decision
appealed from is affirmed. With costs against the appellants.
SO ORDERED.[8]
On September 7, 1998, the Court of Appeals denied the motion for reconsideration of DSRSenator Lines and C.F. Sharp, prompting them to file with this Court the instant petition.
We find the petition bereft of merit.
Article 1734 of the Civil Code provides:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Fire is not one of those enumerated under the above provision which exempts a carrier from
liability for loss or destruction of the cargo.

In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court,[9] we ruled that since the peril
of fire is not comprehended within the exceptions in Article 1734, then the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law.
Even if fire were to be considered a natural disaster within the purview of Article 1734, it is
required under Article 1739[10] of the same Code that the natural disaster must have been the
proximate and only cause of the loss, and that the carrier has exercised due diligence to
prevent or minimize the loss before, during or after the occurrence of the disaster.
We have held that a common carriers duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally placed in the possession
of, and received by, the carrier for transportation until delivered to or until the lapse of a reasonable
time for their acceptance by the person entitled to receive them. When the goods shipped either are
lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe
that diligence, and there need not be an express finding of negligence to hold it liable. [11]
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. Accordingly, they are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated. There are very few instances when the
presumption of negligence does not attach and these instances are enumerated in Article 1734. In
those cases where the presumption is applied, the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption.[12]
Respondent Federal Phoenix Assurance raised the presumption of negligence against
petitioners. However, they failed to overcome it by sufficient proof of extraordinary diligence.
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals
dated June 5, 1998, in CA-G.R. CV No. 50833 is hereby AFFIRMED.

FIRST DIVISION

[G.R. No. 104685. March 14, 1996]

SABENA BELGIAN WORLD AIRLINES, petitioner, vs. HON. COURT OF APPEALS and
MA. PAULA SAN AGUSTIN, respondents.
DECISION
VITUG, J.:
The appeal before the Court involves the issue of an airlines liability for lost luggage. The petition
for review assails the decision of the Court Appeals, [1] dated 27 February 1992, affirming an award of
damages made by the trial court in a complaint filed by private respondent against petitioner.
The factual background of the case, narrated by the trial court and reproduced at length by the
appellate court, is hereunder quoted:
On August 21, 1987, plaintiff was a passenger on board Flight SN 284 of defendant airline originating
from Casablanca to Brussels, Belgium on her way back to Manila. Plaintiff checked in her luggage
which contained her valuables, namely: jewelries valued at $2,350.00; clothes $1,500.00; shoes/bag
$150; accessories $75; luggage itself $10.00; or a total of $4,265.00, for which she was issued Tag No.
71423. She stayed overnight in Brussels and her luggage was left on board Flight SN 284.
Plaintiff arrived at Manila International Airport on September 2, 1987 and immediately submitted her
Tag No. 71423 to facilitate the release of her luggage hut the luggage was missing. She was advised to
accomplish and submit a property Irregularity Report which she submitted and filed on the same day.
She followed up her claim on September 14, 1987 but the luggage remained to be missing.
On September 15, 1987, she filed her formal complaint with the office of Ferge Massed, defendants
Local Manager, demanding immediate attention (Exh. A).

On September 30, 1987, on the occasion of plaintiffs following up of her luggage claim, she was
furnished copies of defendants telexes with an information that the Brussels Office of defendant
found the luggage and that they have broken the locks for identification (Exhibit B). Plaintiff was
assured by the defendant that it has notified its Manila Office that the luggage will be shipped to
Manila on October 27, 1987. But unfortunately plaintiff was informed that the luggage was lost for the
second time (Exhibits C and C-1).
At the time of the filling of the complaint, the luggage with its content has not been found.
Plaintiff demanded from the defendant the money value of the luggage and its contents amounting to
$4,265.00 or its exchange value, but defendant refused to settle the claim.
Defendant asserts in its Answer and its evidence tend to show that while it admits that the plaintiff
was a passenger on board Flight No. SN 284 with a piece of checked in luggage bearing Tag No.
71423, the loss of the luggage was due to plaintiffs sole if not contributory negligence; that she did not
declare the valuable items in her checked-in luggage at the flight counter when she checked in for her
flight from Casablanca to Brussels so that either the representative of the defendant at the counter
would have advised her to secure an insurance on the alleged valuable items and required her to pay
additional charges, or would have refused acceptance of her baggage as required by the generally
accepted practices of international carriers; that Section 9(a), Article IX of General Conditions of
carriage requiring passengers to collect their checked baggage at the place of stopover, plaintiff
neglected to claim her baggage at the Brussels Airport; that plaintiff should have retrieved her
undeclared valuables from her baggage at the Brussels Airport since her flight from Brussels to
Manila will still have to visit for confirmation inasmuch as only her flight from Casablanca to Brussels
was confirmed; that defendant incorporated in all Sabena Plane Tickets, including Sabena Ticket No.
082422-72502241 issued to plaintiff in Manila on August 21, 1987, a warning that Items of value
should be carried on your person and that some carriers assume no liability for fragile, valuable or
perishable articles and that further information may he obtained from the carrier for guidance; that
granting without conceding that defendant is liable, its liability is limited only to US $20.00 per kilo
due to plaintiffs failure to declare a higher value on the contents of her checked in luggage and pay
additional charges thereon.[2]
The trial court rendered judgment ordering petitioner Sabena Belgian World Airlines to pay
private respondent Ma. Paula San Agustin
(a) x x x US$4,265.00 or its legal exchange in Philippine pesos;
(b) x x x P30,000.00 as moral damages;
(c) x x x P10,000.00 as exemplary damages;
(d) x x x P10,000.00 attorneys fees; and
(e) (t)he costs of the suit.[3]
Sabena appealed the decision of the Regional Trial Court to the Court of Appeals. The appellate
court, in its decision of 27 February 1992, affirmed in toto the trial courts judgment.
Petitioner airline company, in contending that the alleged negligence of private respondent
should be considered the primary cause for the loss of her luggage, avers that, despite her awareness
that the flight ticket had been confirmed only for Casablanca and Brussels, and that her flight from
Brussels to Manila had yet to be confirmed, she did not retrieve the luggage upon arrival in
Brussels. Petitioner insists that private respondent, being a seasoned international traveler, must have
likewise been familiar with the standard provisions contained in her flight ticket that items of value
are required to be hand-carried by the passenger and that the liability of the airline or loss, delay or
damage to baggage would be limited, in any event, to only US$20.00 per kilo unless a higher value is
declared in advance and corresponding additional charges are paid thereon. At the Casablanca
International Airport, private respondent, in checking in her luggage, evidently did not declare its
contents or value. Petitioner cites Section 5(c), Article IX, of the General Conditions of Carriage,
signed at Warsaw, Poland, on 02 October 1929, as amended by the Hague Protocol of 1955, generally
observed by International carriers, stating, among other things, that:
Passengers shall not include in his checked baggage, and the carrier may refuse to carry as checked
baggage, fragile or perishable articles, money, jewelry, precious metals, negotiable papers, securities
or other valuables.[4]
Fault or negligence consists in the omission of that diligence which is demanded by the nature of
an obligation and corresponds with the circumstances of the person, of the time, and of the

place. When the source of an obligation is derived from a contract, the mere breach or non-fulfillment
of the prestation gives rise to the presumption of fault on the part of the obligor. This rule is not
different in the case of common carriers in the carriage of goods which, indeed, are bound to observe
not just the due diligence of a good father of a family but that of extraordinary care in the vigilance
over the goods. The appellate court has aptly observed:
x x x Art. 1733 of the [Civil] Code provides that from the very nature of their business and by reasons
of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over
the goods transported by them. This extraordinary responsibility, according to Art. 1736, lasts from
the time the goods are unconditionally placed in the possession of and received by the carrier until
they are delivered actually or constructively to the consignee or person who has the right to receive
them. Art. 1737 states that the common carriers duty to observe extraordinary diligence in the
vigilance over the goods transported by them remains in full force and effect even when they are
temporarily unloaded or stored in transit. And Art. 1735 establishes the presumption that 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 had observed extraordinary diligence as required in
Article 1733.
The only exceptions to the foregoing extraordinary responsibility of the common carrier is when the
loss, destruction, or deterioration of the goods is due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Not one of the above excepted causes obtains in this case.[5]
The above rules remain basically unchanged even when the contract is breached by
tort[6] although noncontradictory principles on quasi-delict may then be assimilated as also forming
part of the governing law. Petitioner is not thus entirely off track when it has likewise raised in its
defense the tort doctrine of proximate cause. Unfortunately for petitioner, however, the doctrine
cannot, in this particular instance, support its case. Proximate cause is that which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces injury and without which
the result would not have occurred. The exemplification by the Court in one case [7] is simple and
explicit; viz:
(T)he proximate legal cause is that acting first and producing the injury, either immediately or by
setting other events in motion, all constituting a natural and Continuous chain of events, each having
a close causal Connection with its immediate predecessor, the final event in the chain immediately
affecting the injury as a natural and probable result of the cause which first acted, under such
circumstances that the person responsible for the first event should, as an ordinarily prudent, and
intelligent person, have reasonable ground to expect at the moment of his act or default that an injury
to some person might probably result therefrom.
It remained undisputed that private respondents luggage was lost while it was in the custody of
petitioner. It was supposed to arrive on the same flight that private respondent took in returning to
Manila on 02 September 1987. When she discovered that the luggage was missing, she promptly
accomplished and filed a Property Irregularity Report. She followed up her claim on 14 September
1987, and filed, on the following day, a formal letter-complaint with petitioner. She felt relieved when,
on 23 October 1987, she was advised that her luggage had finally been found, with its contents intact
when examined, and that she could expect it to arrive on 27 October 1987. She then waited anxiously
only to be told later that her luggage had been lost for the second time. Thus, the appellate court,
given all the facts before it, sustained the trial court in finding petitioner ultimately guilty of gross
negligence in the handling of private respondents luggage. The loss of said baggage not only once by
twice, said the appellate court, underscores the wanton negligence and lack of care on the part of the
carrier.
The above findings, which certainly cannot be said to be without basis, foreclose whatever rights
petitioner might have had to the possible limitation of liabilities enjoyed by international air carriers
under the Warsaw Convention (Convention for the Unification of Certain Rules Relating to
International Carriage by Air, as amended by the Hague Protocol of 1955, the Montreal Agreement of
1966, the Guatemala Protocol of 1971 and the Montreal Protocols of 1975). In Alitalia vs. Intermediate

Appellate Court,[8] now Chief Justice Andres R. Narvasa, speaking for the Court, has explained it well;
he said:
The Warsaw Convention however denies to the carrier availment of the provisions which exclude or
limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in
accordance with the law of the court seized of the case, is considered to be equivalent to wilful
misconduct, or if the damage is (similarly) caused x x x by any agent of the carrier acting within the
scope of his employment. The Hague Protocol amended the Warsaw Convention by removing the
provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself
completely, and declaring the stated limits of liability not applicable if it is proved that the damage
resulted from an act or omission of the carrier, its servants or agents, done with intent to cause
damage or recklessly and with knowledge that damage would probably result. The same deletion was
effected by the Montreal Agreement of 1966, with the result that a passenger could recover unlimited
damages upon proof of wilful misconduct.
The Convention does not thus operate as an exclusive enumeration of the instances of an airlines
liability, or as an absolute limit of the extent of that liability. Such a proposition is not borne out by
the language of the Convention, as this Court has now, and at an earlier time, pointed out. Moreover,
slight reflection readily leads to the conclusion that it should be deemed a limit of liability only in
those cases where the cause of the death or injury to person, or destruction, loss or damage to
property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith,
recklessness or otherwise improper conduct on the part of any official or employee for which the
carrier is responsible, and there is otherwise no special or extraordinary form of resulting injury. The
Contentions provisions, in short, do not regulate or exclude liability for other breaches of contract by
the carrier or misconduct of its officers and employees, or for some particular or exceptional type of
damage. Otherwise, an air carrier would be exempt from any liability for damages in the event of its
absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd. Nor may it for a
moment be supposed that if a member of the aircraft complement should inflict some physical injury
on a passenger, or maliciously destroy or damage the latters property, the Convention might
successfully be pleaded as the sole gauge to determine the carriers liability to the passenger. Neither
may the Convention be invoked to justify the disregard of some extraordinary sort of damage
resulting to a passenger and preclude recovery therefor beyond the limits set by said Convention. It is
in this sense that the Convention has been applied, or ignored, depending on the peculiar facts
presented by each case.
The Court thus sees no error in the preponderant application to the instant case by the appellate
court, as well as by the trial court, of the usual rules on the extent of recoverable damages beyond the
Warsaw limitations. Under domestic law and jurisprudence (the Philippines being the country of
destination), the attendance of gross negligence (given the equivalent of fraud or bad faith) holds the
common carrier liable for all damages which can be reasonably attributed, although unforeseen, to
the non-performance of the obligation,[9] including moral and exemplary damages.[10]
WHEREFORE, the decision appealed from is AFFIRMED. Costs against petitioner.

SECOND DIVISION
REGIONAL CONTAINER LINES
(RCL) OF SINGAPORE and
EDSA SHIPPING AGENCY,
Petitioners,

G.R. No. 168151

Present:
QUISUMBING, J., Chairperson,
CARPIO-MORALES,
BRION,
DEL CASTILLO, and
ABAD, JJ.

versus -

THE
NETHERLANDS Promulgated:
INSURANCE CO. (PHILIPPINES),
INC.,
September 4, 2009
Respondent.
x -------------------------------------------------------------------------------------- x
DECISION
BRION, J.:
For our resolution is the petition for review on certiorari filed by petitioners Regional
Container Lines of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul and set
aside the decision[1] and resolution[2] of the Court of Appeals (CA) dated May 26, 2004 and May 10,
2005, respectively, in CA-G.R. CV No. 76690.
RCL is a foreign corporation based in Singapore. It does business in the Philippines through its agent,
EDSA Shipping, a domestic corporation organized and existing under Philippine laws. Respondent
Netherlands Insurance Company (Philippines), Inc. (Netherlands Insurance) is likewise a domestic
corporation engaged in the marine underwriting business.

FACTUAL ANTECEDENTS
The pertinent facts, based on the records are summarized below.

On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be shipped
from Singapore to Manila for Temic Telefunken Microelectronics Philippines(Temic). U-Freight
Singapore PTE Ltd.[3] (U-Freight Singapore), a forwarding agent based in Singapore, contracted the
services of Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport the subject cargo. The cargo was
packed, stored, and sealed by Pacific Eagle in its Refrigerated Container No. 6105660 with Seal No.
13223. As the cargo was highly perishable, the inside of the container had to be kept at a temperature
of 0 Celsius. Pacific Eagle then loaded the refrigerated container on board the M/V Piya Bhum, a
vessel owned by RCL, with which Pacific Eagle had a slot charter agreement. RCL duly issued its own
Bill of Lading in favor of Pacific Eagle.
To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open
Policy in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note MRN-21 14022, to
cover all losses/damages to the shipment.
On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated
container, it was plugged to the power terminal of the pier to keep its temperature constant. Fidel
Rocha (Rocha), Vice-President for Operations of Marines Adjustment Corporation, accompanied by
two surveyors, conducted a protective survey of the cargo. They found that based on the temperature
chart, the temperature reading was constant from October 18, 1995 to October 25, 1995 at 0
Celsius. However, at midnight of October 25, 1995 when the cargo had already been unloaded from
the ship the temperature fluctuated with a reading of 33 Celsius. Rocha believed the fluctuation was
caused by the burnt condenser fan motor of the refrigerated container.
On November 9, 1995, Temic received the shipment. It found the cargo completely damaged.
Temic filed a claim for cargo loss against Netherlands Insurance, with supporting claims documents.
The Netherlands Insurance paid Temic the sum of P1,036,497.00 under the terms of the Marine Open
Policy. Temic then executed a loss and subrogation receipt in favor of Netherlands Insurance.
Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a complaint
for subrogation of insurance settlement with the Regional Trial Court, Branch 5, Manila, against the
unknown owner of M/V Piya Bhum and TMS Ship Agencies (TMS), the latter thought to be the local
agent of M/V Piya Bhums unknown owner.[4] The complaint was docketed as Civil Case No. 96-78612.
Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA
Shipping, RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean (Phils.), Inc. (UOcean), as additional defendants. A third amended complaint was later made, impleading Pacific
Eagle in substitution of Eagle Liner Shipping Agencies.
TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers with
cross-claim and compulsory counterclaim to the second amended complaint. U-Ocean likewise filed
an answer with compulsory counterclaim and cross-claim. During the pendency of the case, U-Ocean,
jointly with U-Freight Singapore, filed another answer with compulsory counterclaim. Only Pacific
Eagle and TMS filed their answers to the third amended complaint.
The defendants all disclaimed liability for the damage caused to the cargo, citing several reasons why
Netherland Insurances claims must be rejected. Specifically, RCL and EDSA Shipping denied
negligence in the transport of the cargo; they attributed any negligence that may have caused the loss
of the shipment to their co-defendants. They likewise asserted that no valid subrogation exists, as the
payment made by Netherlands Insurance to the consignee was invalid. By way of affirmative defenses,

RCL and EDSA Shipping averred that the Netherlands Insurance has no cause of action, and is not the
real party-in-interest, and that the claim is barred by laches/prescription.
After Netherlands Insurance had made its formal offer of evidence, the defendants including
RCL and EDSA Shipping sought leave of court to file their respective motions to dismiss based on
demurrer to evidence.
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed to prove
any valid subrogation, and (2) failed to establish that any negligence on their part or that the loss was
sustained while the cargo was in their custody.
On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612 on
demurrer to evidence. The trial court ruled that while there was valid subrogation, the defendants
could not be held liable for the loss or damage, as their respective liabilities ended at the time of the
discharge of the cargo from the ship at the Port of Manila.
Netherlands Insurance seasonably appealed the order of dismissal to the CA.
On May 26, 2004, the CA disposed of the appeal as follows:
WHEREFORE, in view of the foregoing, the dismissal of the complaint against
defendants Regional Container Lines and Its local agent, EDSA
Shipping Agency, is REVERSED and SET ASIDE. The dismissal of the complaint
against the other defendants is AFFIRMED. Pursuant to Section 1, Rule 33 of the 1997
Rules of Civil Procedure, defendants Regional Container Lines and EDSA Shipping
Agency are deemed to have waived the right to present evidence.
As such, defendants Regional Container Lines and EDSA Shipping Agency are
ordered to reimburse plaintiff in the sum of P1,036,497.00 with
interest from date hereof until fully paid.
No costs.
SO ORDERED. [Emphasis supplied.]

The CA dismissed Netherland Insurances complaint against the other defendants after finding that
the claim had already been barred by prescription.[5]
Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a motion for
reconsideration, but the CA maintained its original conclusions.
The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping
liable as common carriers under the theory of presumption of negligence.

THE COURTS RULING

The present case is governed by the following provisions of the Civil Code:
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, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of
the passengers is further set forth in articles1755 and 1756.
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)
2)
3)
4)
5)

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

Act of the public enemy in war, whether international or civil;
Act of omission of the shipper or owner of the goods;
The character of the goods or defects in the packing or in the containers;
Order or act of competent public authority.

ART. 1735. In all cases other that 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 by article
1733.
ART. 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received
by the carrier for transportation until the sane are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a
right to receive them, without prejudice to the provisions of articles 1738.
ART. 1738. The extraordinary liability of the common carrier continues to be operative even
during the time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them.
ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers,
the common carrier must exercise due diligence to forestall or lessen the
loss.

In Central Shipping Company, Inc. v. Insurance Company of North America, [6] we reiterated the
rules for the liability of a common carrier for lost or damaged cargo as follows:
(1)

Common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case;
(2)
In the event of loss, destruction, or deterioration of the insured goods, common
carriers are responsible, unless they can prove that such loss, destruction, or
deterioration was brought about by, among others, flood, storm, earthquake, lightning,
or other natural disaster or calamity; and
(3)
In all other cases not specified under Article 1734 of the Civil Code, common carriers
are presumed to have been at fault or to have acted negligently, unless they observed
extraordinary diligence.[7]
In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or damage
to the goods in question. They contend that the cause of the damage to the cargo was the fluctuation
of the temperature in the reefer van, which fluctuation occurred after the cargo had already been
discharged from the vessel; no fluctuation, they point out, arose when the cargo was still on
board M/V Piya Bhum. As the cause of the damage to the cargo occurred after the same was already
discharged from the vessel and was under the custody of the arrastre operator (International
Container Terminal Services, Inc. or ICTSI), RCL and EDSA Shipping posit that the presumption of
negligence provided in Article 1735 of the Civil Code should not apply. What applies in this case is
Article 1734, particularly paragraphs 3 and 4 thereof, which exempts the carrier from liability for loss
or damage to the cargo when it is caused either by an act or omission of the shipper or by the
character of the goods or defects in the packing or in the containers. Thus, RCL and EDSA Shipping
seek to lay the blame at the feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.
A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported. [8] When the goods shipped are either lost or
arrived in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable. [9]

To overcome the presumption of negligence, the common carrier must establish

by adequate proof that it exercised extraordinary diligence over the goods. It must do
more than merely show that some other party could be responsible for the damage. [10]
In the present case, RCL and EDSA Shipping failed to prove that they did exercise that degree of
diligence required by law over the goods they transported. Indeed, there is sufficient evidence
showing that the fluctuation of the temperature in the refrigerated container van, as recorded in the
temperature chart, occurred after the cargo had been discharged from the vessel and was already
under the custody of the arrastre operator, ICTSI. This evidence, however, does not disprove that the
condenser fan which caused the fluctuation of the temperature in the refrigerated container was not
damaged while the cargo was being unloaded from the ship. It is settled in maritime law
jurisprudence thatcargoes while being unloaded generally remain under the custody of
the carrier;[11] RCL and EDSA Shipping failed to dispute this.
RCL and EDSA Shipping could have offered evidence before the trial court to show that the damage to
the condenser fan did not occur: (1) while the cargo was in transit; (2) while they were in the act of
discharging it from the vessel; or (3) while they were delivering it actually or constructively to the
consignee. They could have presented proof to show that they exercised extraordinary care and
diligence in the handling of the goods, but they opted to file a demurrer to evidence. As the order
granting their demurrer was reversed on appeal, the CA correctly ruled that they are
deemed to have waived their right to present evidence, [12] and the presumption of
negligence must stand.
It is for this reason as well that we find RCL and EDSA Shippings claim that the loss or damage to the
cargo was caused by a defect in the packing or in the containers. To exculpate itself from liability for
the loss/damage to the cargo under any of the causes, the common carrier is burdened to prove any of
the causes in Article 1734 of the Civil Code claimed by it by a preponderance of evidence. If the carrier
succeeds, the burden of evidence is shifted to the shipper to prove that the carrier is negligent. [13] RCL
and EDSA Shipping, however, failed to satisfy this standard of evidence and in fact offered no
evidence at all on this point; a reversal of a dismissal based on a demurrer to evidence bars the
defendant from presenting evidence supporting its allegations.
WHEREFORE, we DENY the petition for review on certiorari filed by the Regional Container Lines
of Singapore and EDSA Shipping Agency. The decision of the Court of Appeals dated May 26, 2004 in
CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the petitioners.

SECOND DIVISION
G.R. No. 196112, February 26, 2014
GMA
NETWORK,
INC., Petitioner, v. NATIONAL
COMMISSION,Respondent.

TELECOMMUNICATIONS

DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated October 12, 2010 and a
Resolution3 dated March 9, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112437 which
affirmed the Orders dated May 25, 2009 4 and January 8, 20105 of respondent National
Telecommunications Commission in BMC Case No. 93-538, imposing a fine against petitioner GMA
Network, Inc. for operating a radio station with an expired provisional authority.
The Facts
Petitioner GMA Network, Inc. (GMA), formerly known as Republic Broadcasting System, Inc., is a
Filipino-owned domestic corporation engaged in the business of radio and television broadcasting,
which has been granted a legislative franchise to construct, install, operate and maintain radio and
television broadcasting stations in the Philippines for a period of 25 years under Republic Act No.
(RA)
7252,6enacted
on
March
20,
1992.7crallawlibrary
On the other hand, respondent National Telecommunications Commission (NTC) is a government
agency which, under Executive Order No. (EO) 5468 dated July 23, 1979, has been authorized to, inter
alia, (a) [i]ssue Certificate[s] of Public Convenience for the operation of communications utilities
and services, radio communications systems, wire or wireless telephone or telegraph systems, radio
and television broadcasting system and other similar public utilities, and (b) [g]rant permits for the
use of radio frequencies for wireless telephone and telegraph systems and radio communication
systems including amateur radio stations and radio and television broadcasting
systems.9crallawlibrary
GMA, by virtue of its legislative franchise, filed with the NTC an application for the issuance of a
Certificate of Public Convenience (CPC) to install, operate and maintain a 5-kilowatt amplitude

modulation (AM) radio station in Puerto Princesa City, Palawan, docketed as BMC Case No. 93-538.
Pending approval, the NTC issued an Order 10 dated January 14, 1997, provisionally authorizing GMA
to install, operate and maintain said radio station. The provisional authority (PA) was valid for 18
months from date, or until July 14, 1998, and expressly stated that it may be subject to amendment,
alteration, suspension, revocation or cancellation when public welfare, morals and national security
so requires or when grantee operates beyond its authorization granted. As manifested in its
Compliance11dated January 27, 1997, GMA accepted the terms and conditions stated in the PA.
GMA failed to renew its PA upon its expiration on July 14, 1998. Nevertheless, it continued its
broadcast operations on the basis of temporary permits issued by the NTC, the first of which,
numbered BSD-0356-98, was issued on April 14, 1998 for the period April 2, 1998 to April 1,
2001,12 and the second, numbered BSD-0195-2001, on May 21, 2001 for the period April 2, 2001 to
April
1,
2004.13crallawlibrary
On September 13, 2002, some four (4) years after the expiration of its PA, GMA filed with the NTC
anEx-Parte Motion for Issuance of Certificate of Public Convenience 14 (Ex-Parte Motion), claiming:
(a) full compliance with the terms and conditions of its PA; and (b) its current operation of said radio
station by virtue of temporary permit number BSD-0195-2001. Meanwhile, GMA continued to
operate its radio station on the strength of NTC-issued temporary permits, the third of which,
numbered BSD-0302-2004, was issued on June 23, 2004 for the period April 2, 2004 to April 1,
2007,15 and the fourth, numbered BSD-0197-2007, on March 27, 2007 for the period April 2, 2007 to
April
1,
2010.16crallawlibrary
In an Order17 dated February 26, 2009, the NTC set the Ex-Parte Motion for clarificatory hearing and
also directed GMA to submit a written explanation (within 10 days from receipt) why it should not be
administratively sanctioned for the motions late filing and for operating its radio station with an
expired
PA.
In its Compliance18 dated March 12, 2009, GMA explained that its failure to timely renew its PA was
without deliberate intent but by mere inadvertence caused by the confusion in the turn-over of the
custody of its documents from its previous lawyer, and that it immediately filed the Ex-Parte Motion
upon discovering its omission. Further, it alleged that notwithstanding the non-renewal of its PA, it
had fully complied with the terms and conditions thereof, and that its continued operation was
actually authorized by the NTC by virtue of the four (4) temporary permits covering the period 1998
to 2010. Finally, invoking the 60-day prescriptive period under Section 28 of Commonwealth Act No.
146,19 as amended, otherwise known as the Public Service Act (Public Service Act), it argued that the
NTC could no longer sanction the late filing of its Ex-Parte Motion considering the lapse of more than
six
(6)
years
from
its
filing
on
September
13,
2002. 20crallawlibrary
In an Order21 dated May 25, 2009, the NTC renewed GMAs PA for three (3) years, or until July 14,
2012, but, pursuant to Section 21 of the Public Service Act, imposed upon it a fine of P152,100.00 for
operating its radio station with an expired PA from July 14, 1998 to September 13, 2002, or for 1521
days
(the
fine
having
been
pegged
at
the
rate
of
P100
per
day).
Consequently, GMA filed a Motion for Partial Reconsideration 22 from the imposition of the aforesaid
fine, but the NTC, in an Order23 dated January 8, 2010, merely reduced its amount to P76,050.00.
Dissatisfied, GMA elevated the matter to the CA, 24 contending that: (a) the 60-day prescriptive period
provided under Section 28 of the Public Service Act already barred the NTC from imposing said fine;
(b) the fine imposed amounts to more than P25,000.00 and, hence, contrary to the policy embodied
in Section 23 of the Public Service Act; and (c) the imposition of said fine was improper considering
that the NTC had already authorized it to operate its radio station through temporary permits
The CA Ruling
In a Decision25 dated October 12, 2010, the CA dismissed the appeal, finding no merit in GMAs
contention that the violation committed had already prescribed pursuant to Section 28 of the Public
Service Act. Citing the 1962 case of Sambrano v. PSC and Phil. Rabbit Bus Lines, Inc. 26 (Sambrano),
it held that the abovementioned 60-day prescriptive period is only available as a defense in criminal
proceedings, and not to those which are administrative in character. 27 Hence, since the assailed fine
was imposed by the NTC to administratively sanction GMA for its non-compliance with the
conditions of its PA pursuant to Section 21 of the Public Service Act, 28 the 60-day prescriptive period
cannot be raised by GMA as a defense. Further, the CA found that the NTCs imposition of the assailed
fine at the reduced rate of P50.00 per day was well within the limit of Section 21 of the Public Service
Act, noting too that the fine was, at best, minimal and conservative in light of the duration of GMA
violation.29 It appears though that the CA did not address GMAs argument anent the fact that its
continued
operation
was
based
on
temporary
permits
issued
by
the
NTC.

Feeling aggrieved, GMA moved for reconsideration which was, however, denied in a
Resolution30 dated March 9, 2011, hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not the CA erred in upholding the P76,050.00 fine
imposed by the NTC upon GMA.
The Courts Ruling
The

petition

lacks

A.

merit.
Prescriptibility

While it was clearly established that GMA violated the terms and conditions of its PA when it
continued to operate its radio station despite the PAs expiration, 31 it, however, invokes the 60-day
prescriptive period under Section 28 of the Public Service Act which states
that:chanRoblesVirtualawlibrary
Section 28. Violations of the orders, decisions, and regulations of the Commission and
the terms and conditions of any certificates issued by the Commission shall prescribe
after sixty days and violations of the provisions of this Act shall prescribe after one hundred and
eighty days. (Emphasis and underscoring supplied)
It asseverates that the NTCs attempt to penalize it for supposedly operating with an expired PA
should be deemed barred by the afore-cited limitation since the NTCs action came only after the lapse
of almost 10 years from the time its alleged violation took place - that is, after the subject PA expired
on
July
14,
1998.32crallawlibrary
The

Court

disagrees.

The NTCs authority to impose fines for a public service utilitys violation or failure to comply with the
terms and conditions of any certificate/s issued by it is expressly sanctioned under Section 21 of the
Public Service Act which reads as follows:chanRoblesVirtualawlibrary
Section 21. Every public service violating or failing to comply with the terms and
conditions of any certificate or any orders, decisions or regulations of the Commission
shall be subject to a fine of not exceeding two hundred pesos per day for every day
during which such default or violation continues; and the Commission is hereby
authorized or empowered to impose such fine, after due notice and hearing.
The fines so imposed shall be paid to the Government of the Philippines through the Commission,
and failure to pay the fine in any case within the time specified in the order or decision of the
Commission shall be deemed good and sufficient reason for the suspension of the certificate of said
public service until payment shall be made. The remedy provided in this section shall not be a bar to,
or affect any other remedy provided in this Act but shall be cumulative and additional to such remedy
or remedies. (Emphasis supplied)
In Globe Telecom, Inc. v. NTC,33 the Court intimated that the NTCs imposition of a fine pursuant to
Section 21 of the Public Service Act is made in an administrative proceeding, and thus, must
comply with the requirements of notice and hearing. Also, in the same case, the Court classified the
fine imposed under the same provision to be one which is regulatory and punitive in
character, viz.:34crallawlibrary
Section 21 requires notice and hearing because fine is a sanction, regulatory and even punitive in
character. Indeed, the requirement is the essence of due process. Notice and hearing are the
bulwark of administrative due process, the right to which is among the primary rights that must
be respected even in administrative proceedings. The right is guaranteed by the Constitution
itself and does not need legislative enactment. The statutory affirmation of the requirement serves
merely to enhance the fundamental precept. The right to notice and hearing is essential to due process
and its non-observance will, as a rule, invalidate the administrative proceedings.
In citing Section 21 as the basis of the fine, NTC effectively concedes the necessity of prior notice and
hearing. Yet the agency contends that the sanction was justified by arguing that when it took
cognizance of Smarts complaint for interconnection, it may very well look into the issue of whether
the parties had the requisite authority to operate such services. As a result, both parties were
sufficiently notified that this was a matter that NTC could look into in the course of the proceedings.
The
parties
subsequently
attended
at
least
five
hearings
presided
by
NTC.
That particular argument of the NTC has been previously disposed of. But it is essential to emphasize
the need for a hearing before a fine may be imposed, as it is clearly a punitive measure undertaken by
an administrative agency in the exercise of its quasi-judicial functions. Inherently, notice and hearing

are indispensable for the valid exercise by an administrative agency of its quasi-judicial functions.
(Emphases and underscoring supplied; citations omitted)
In this relation, the Court, in Sambrano, ruled that the 60-day prescriptive period provided under
Section 28 of the Public Service Act can be availed of as defenses only in criminal
proceedings filed under Chapter IV thereof, and not in proceedings that pertain to the
regulatory or administrative aspects of a public service utilitys observance of the terms
and conditions of his permit to operate, viz.:35crallawlibrary
This Court has already held, in Collector of Internal Revenue et al. vs. Buan, G. R. L-11438; and
Sambrano v. Public Service Commission, G.R. L-11439 and L-11542, decided on July 31, 1958,
that the 60-day prescriptive period fixed by section 28 of the Public Service Law is
available as a defense only in criminal or penal proceedings filed under Chapter IV of
the Act. Consequently, the Public Service Commission is not barred from receiving
evidence of the prescribed violations for the purpose of determining whether an
operator has or has not faithfully kept the conditions of his certificate of permit,
whether he failed or not to render the services he is required to furnish to the
customers, and whether or not the infractions are sufficient cause to cancel or modify
the certificate. Proceedings of this kind are held primarily to ensure adequate and
efficient service as well as to protect the public against the operators malfeasances or
abuses; they are not penal in character. True, the cancellation of the certificate may mean for
an operator actual financial hardship; yet the latter is merely incidental to the protection of the
traveling public. Hence, in refusing to admit evidence of prescribed violations as part of the
complainants case against the Philippine Rabbit Lines for a modification or cancellation of the latters
permit,
we
hold
that
the
Commission
committed
error.
x

The order appealed from is modified in the sense that the respondent Commission shall admit
evidence of violations committed by the respondent Philippine Rabbit Bus Lines, Inc., even if no
complaint against such violations were filed within 60 days from their commission. x x x. (Emphasis
supplied)
It is well to note that the criminal proceedings under Chapter IV of the Public Service Act, as
mentioned in the Sambrano ruling, pertain to those found under Sections 23, 24, 25, and 26 36 thereof
as these provisions pertain to fines imposed in the discretion of the court - which means they are
imposed in criminal court proceedings - as contradistinguished from Section 21 which may be
imposed by the NTC (then, by the Public Service Commission), after due notice and hearing,
In view of the foregoing, the Court thus finds GMAs reliance on the 60-day prescriptive period under
Section 28 of the Public Service Act to be misplaced considering that the fine it assails was imposed in
an administrative and not a criminal proceeding. Akin to the action taken by the Public Service
Commission in the Sambrano case, the fine imposed by the NTC was made in line with its authority
to enforce the rules and regulations concerning the conduct and operation of GMA as a public service
utility, which was particularly meted out to ensure its compliance with the terms and conditions of its
PA. There being no cogent reason to depart from established jurisprudence on the matter, the Court
therefore holds that the NTCs action in this case had not been barred under the parameters of Section
28
of
the
Public
Service
Act.
B.

Unconscionability

Granting that the NTC was not time-barred to impose the fine, GMA asserts that the amount so
imposed (i.e., P76,050.00 in total, at the reduced rate of P50.00 per day for 1,521 days) is
unconscionable as it contravenes Section 23 of the Public Service Act which states
that:chanRoblesVirtualawlibrary
Section 23. Any public service corporation that shall perform, commit or do any act or thing forbidden
or prohibited or shall neglect, fail or omit to do or perform any act or thing herein to be done or
performed, shall be punished by a fine not exceeding twenty-five thousand pesos, or by
imprisonment not exceeding five years, or both, in the discretion of the court.
The
argument
is
untenable.
The applicable provision is Section 21 of the Public Service Act as it specifically governs the NTCs
imposition of a fine not exceeding P200.00 per day for every day during which the public service
utilitys violation or non-compliance with the terms and conditions of the certificate/s issued by the
NTC continues. On the other hand, Section 23 of the Public Service Act deals with a public service
corporations performance, commission or doing of any forbidden or prohibited act under the same
law, as well as its neglect, failure or omission to do or perform an act or thing required thereunder. As
earlier mentioned, the proceedings under Section 23 pertain to criminal proceedings conducted in
court, whereby the fine imposed, if so determined, is made in the courts discretion, whereas Section
21 pertains to administrative proceedings conducted by the NTC on the grounds stated thereunder. As
the present case evidently involves the latter violation, Section 21 and not Section 23 of the Public

Service Act applies. Thus, finding that the fine imposed by the NTC at the reduced rate of P50.00 per
day is consistent with the P200.00 per day limitation under Section 21 of the Public Service Act, the
fine of P76,500.00 for GMAs failure to comply with the terms and conditions of its PA for a period of
1,521 days was proper. The conscionability of the amount imposed should not be at issue as it is the
law itself which had provided the allowable threshold for the amount therefor.
C.

Effect

of

Temporary

Permits

Lastly, GMA avers that it cannot be said to have operated its radio station illegally and without
authority from the NTC because the latter had successively issued temporary permits which
encompass the period during which GMA allegedly operated the same station on an expired PA. The
temporary permits expressly state:chanRoblesVirtualawlibrary
REPUBLIC
BROADCASTING
SYSTEM,
INC.
is hereby granted a Temporary Permit to operate a BROADCASTING STATION located at Brgy. San
Pedro, Puerto Princesa, Palawan.
GMA argues, therefore, that having been authorized to operate by the NTC itself through the latters
continued issuance of temporary permits, the imposition of the fine becomes highly iniquitous if not
legally
unfounded.37crallawlibrary
The

Court

finds

no

merit

in

this

contention.

GMA cannot rely on the temporary permits to justify its continued operation on an expired PA. As the
NTC itself discloses, a temporary permit is not intended to be a substitute for a PA which must be
constantly renewed despite the issuance of a temporary permit. As clarified by the NTC itself in its
Comment:38crallawlibrary
[A] P.A. refers to an authority given to an entity qualified to operate a public utility for a
limited period during the pendency of its application for, or before the issuance of its
Certificate of Public Convenience (CPC). It has a general scope because it is akin to a
provisional CPC in that it gives a public utility provider power to operate as such and be bound by the
laws and rules governing public utilities, pending the issuance of its actual CPC.
On the other hand, a [t]emporary [p]ermit is a document containing the call sign,
authorized power, frequency/channel, class station, hours of operation, points of
communication and equipment particulars granted to an authorized public utility. Its
scope is more specific than a P.A. because it contains details and specifications under
which a public utility x x x should operate x x x pursuant to a previously updated
P.A. (Emphases and underscoring supplied)
As may be gleaned from the NTCs statement, the operational validity of a temporary permit flows
only from a previously updated PA. This means that there should be an effective PA before a
temporary permit is issued. The latter is a specific issuance which proceeds from a pre-requisite PA.
While GMA may have been able to secure the successive issuance of temporary permits from the NTC
to cover even the PAs expired period, this does not detract from the apparent irregularity of the
procedure. The fact remains that GMA operated its radio station between the time that its PA expired
on July 14, 1998 and the application for its renewal was filed on April 13, 2002. Without an updated
PA
therefor,
GMA
should
not
have
been
issued
temporary
permits.
GMA must be reminded that the NTC, insofar as the regulation of the telecommunications industry is
concerned, has exclusive jurisdiction to establish and prescribe rules, regulations, standards and
specifications in all cases related to the issued Certificate of Public Convenience and administer and
enforce the same.39 As such, and considering further its expertise on the matter, its interpretation of
the rules and regulations it itself promulgates are traditionally accorded by the Court with great
weight and respect. As enunciated in Eastern Telecommunications Phils., Inc. v. International
Communication Corporation:40crallawlibrary
The NTC, being the government agency entrusted with the regulation of activities
coming under its special and technical forte, and possessing the necessary rule-making power
to implement its objectives, is in the best position to interpret its own rules, regulations and
guidelines. The Court has consistently yielded and accorded great respect to the
interpretation by administrative agencies of their own rules unless there is an error of law, abuse of
power, lack of jurisdiction or grave abuse of discretion clearly conflicting with the letter and spirit of
the law. (Emphases and underscoring supplied)
Equally significant is the principle that the State cannot be put in estoppel by the mistakes or errors of
its officials or agents.41 Hence, whatever irregularity had attended the issuance of the temporary
permits in this case does not render correct what appears to be erroneous procedure. The NTC itself
recognizes this when it stated in its Comment that:42crallawlibrary
Technically speaking, [GMA] should not have been issued a Temporary Permit. The Temporary
Permits relied upon by [GMA] were issued to it on the assumption that its P.A. was up to date. Had
[NTC] known that [GMA] had an expired P.A., it would not have granted [GMA] a Temporary Permit

to operate its subject radio broadcasting station. Before [GMA] could legally operate its subject radio
station, it should have both an updated P.A. and a Temporary Permit for such purpose.
Verily, the Court agrees with the NTCs submission that although GMA was granted numerous
temporary permits, it does not remove the fact that it was operating on an expired PA, which
infraction is subject to the penalty of fine under Section 21 of the Public Service Act. 43 The Court,
however, expresses that the NTC should be more circumspect with the enforcement of its internal
procedures if only to prevent any future incident similar to the present case. The ideal of public
accountability befittingly demands that administrative agencies, such as the NTC, devise appropriate
governance systems to ensure that its rules and regulations are followed and complied, and deviations
therefrom deterred and quelled. Truth be told, it is through an honest and effective bureaucracy that
the
government
gains
the
peoples
trust
and
deference.
All told, the fine against GMA in the amount of P76,500.00 for its failure to comply with the terms
and conditions of its PA stands, without prejudice to any separate administrative proceeding which
may be initiated against any public officer responsible for the aforementioned irregularity.
WHEREFORE, the petition is DENIED.

FIRST DIVISION
G.R. No. 181293, February 23, 2015
ANA THERESIA RISA HONTIVEROS-BARAQUEL, DANIEL L. EDRALIN, VICTOR M.
GONZALES, SR., JOSE APOLLO R. ADO, RENE D. SORIANO, ALLIANCE OF
PROGRESSIVE LABOR, BUKLURAN NG MANGGAGAWANG PILIPINO, LAHING
PILIPINO MULTI-PURPOSE TRANSPORT SERVICE COOPERATIVE, PNCC SKYWAY
CORPORATION EMPLOYEES UNION (PSCEU), AND PNCC TRAFFIC MANAGEMENT &
SECURITY
DEPARTMENT
WORKERS
ORGANIZATION
(PTMSDWO), Petitioners, v. TOLL REGULATORY BOARD, THE SECRETARY OF THE
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS (DOTC), PNCC
SKYWAY CORPORATION, PHILIPPINE NATIONAL CONSTRUCTION CORPORATION,
SKYWAY O & M CORPORATION, AND CITRA METRO MANILA TOLLWAYS
CORP., Respondents.
DECISION
SERENO, C.J.:
This is an original petition for certiorari and prohibition under Rule 65 of the Rules of Court, with a
prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order,
seeking the annulment of the following:
1. The Amendment to the Supplemental Toll Operation Agreement executed on 18 July 2007
between the Republic of the Philippines, the Philippine National Construction Corporation,
and Citra Metro Manila Tollways Corporation;ChanRoblesVirtualawlibrary
2. The Memorandum dated 20 July 2007 of the Secretary of Transportation and
Communications, approving the Amendment to the Supplemental Toll Operation
Agreement;ChanRoblesVirtualawlibrary

3. The Memorandum of Agreement executed on 21 December 2007 between the Philippine

National Construction Corporation, PNCC Skyway Corporation, and Citra Metro Manila
Tollways Corporation; and
4. The Toll Operation Certificate issued by the Toll Regulatory Board on 28 December 2007 in
favor of Skyway O & M Corporation.
The annulment of the above is sought for being unconstitutional, contrary to law, and grossly
disadvantageous to the government. Petitioners also seek to prohibit Skyway O & M Corporation from
assuming
operations
and
maintenance
responsibilities
over
the
Skyway
toll
facilities.chanroblesvirtuallawlibrary
ANTECEDENT FACTS
The Toll Regulatory Board (TRB) was created on 31 March 1977 by Presidential Decree No. (P.D.)
11121in order to supervise and regulate, on behalf of the government, the collection of toll fees and the
operation
of
toll
facilities
by
the
private
sector.
On the same date, P.D. 11132 was issued granting to the Construction and Development Corporation of
the Philippines (now Philippine National Construction Corporation or PNCC) the right, privilege, and
authority to construct, operate, and maintain toll facilities in the North and South Luzon Toll
Expressways
for
a
period
of
30
years
starting
1
May
1977.
TRB and PNCC later entered into a Toll Operation Agreement, 3 which prescribed the operating
conditions
of
the
right
granted
to
PNCC
under
P.D.
1113.
P.D. 1113 was amended by P.D. 1894, 4 which granted PNCC the right, privilege, and authority to
construct, maintain, and operate the North Luzon, South Luzon and Metro Manila Expressways,
together with the toll facilities appurtenant thereto. The term of 30 years provided under P. D. 1113
starting from 1 May 1977 remained the same for the North and the South Luzon Expressways, while
the franchise granted for the Metro Manila Expressway (MME) provided a term of 30 years
commencing
from
the
date
of
completion
of
the
project.
On 22 September 1993, PNCC entered into an agreement 5 with PT Citra Lamtoro Gung Persada
(CITRA), a limited liability company organized and established under the laws of the Republic of
Indonesia, whereby the latter committed to provide PNCC with a pre-feasibility study on the proposed
MME project. The agreement was supplemented 6 on 14 February 1994 with a related undertaking on
the part of CITRA. CITRA was to provide a preliminary feasibility study on the Metro Manila Skyways
(MMS) project, a system of elevated roadway networks passing through the heart of the Metropolitan
Manila area. In order to accelerate the actual implementation of both the MME and the MMS
projects, PNCC and CITRA entered into a second agreement. 7 Through that agreement, CITRA
committed to finance and undertake the preparation, updating, and revalidation of previous studies
on
the
construction,
operation,
and
maintenance
of
the
projects.
As a result of the feasibility and related studies, PNCC and CITRA submitted, through the TRB, a
Joint Investment Proposal (JIP) to the Republic of the Philippines. 8 The JIP embodied the
implementation schedule for the financing, design and construction of the MMS in three stages: the
South Metro Manila Skyway, the North Metro Manila Skyway, and the Central Metro Manila
Skyway.9cralawred
The TRB reviewed, evaluated and approved the JIP, particularly as it related to Stage 1, Phases 1 and
2;
and
Stage
2,
Phase
1
of
the
South
Metro
Manila
Skyway.
On 30 August 1995, PNCC and CITRA entered into a Business and Joint Venture Agreement 10 and
created the Citra Metro Manila Tollways Corporation (CMMTC). CMMTC was a joint venture
corporation organized under Philippine laws to serve as a channel through which CITRA shall
participate
in
the
construction
and
development
of
the
project.
On 27 November 1995, the Republic of the Philippines through the TRB as Grantor, CMMTC as
Investor, and PNCC as Operator executed a Supplemental Toll Operation Agreement
(STOA)11 covering Stage 1, Phases 1 and 2; and Stage 2, Phase 1 of the South Metro Manila Skyway.
Under the STOA, the design and construction of the project roads became the primary and exclusive
privilege and responsibility of CMMTC. The operation and maintenance of the project roads became
the primary and exclusive privilege and responsibility of the PNCC Skyway Corporation (PSC), a
wholly owned subsidiary of PNCC, which undertook and performed the latters obligations under the
STOA.

CMMTC completed the design and construction of Stage 1 of the South Metro Manila Skyway, which
was
operated
and
maintained
by
PSC.12cralawred
On 18 July 2007, the Republic of the Philippines, through the TRB, CMMTC, and PNCC executed the
assailed Amendment to the Supplemental Toll Operation Agreement (ASTOA). 13 The ASTOA
incorporated the amendments, revisions, and modifications necessary to cover the design and
construction of Stage 2 of the South Metro Manila Skyway. Also under the ASTOA, Skyway O & M
Corporation (SOMCO) replaced PSC in performing the operations and maintenance of Stage 1 of the
South
Metro
Manila
Skyway.
Pursuant to the authority granted to him under Executive Order No. (E.O.) 497 14 dated 24 January
2006, Department of Transportation and Communications (DOTC) Secretary Leandro Mendoza
approved the ASTOA through the challenged Memorandum dated 20 July 2007. 15cralawred
On 21 December 2007, PNCC, PSC, and CMMTC entered into the assailed Memorandum of
Agreement (MOA)16 providing for the successful and seamless assumption by SOMCO of the
operations and maintenance of Stage 1 of the South Metro Manila Skyway. Under the MOA, PSC
received the amount of ?320 million which was used for the settlement of its liabilities arising from
the
consequent
retrenchment
or
separation
of
its
affected
employees.
The TRB issued the challenged Toll Operation Certificate (TOC) 17 to SOMCO on 28 December 2007,
authorizing the latter to operate and maintain Stage 1 of the South Metro Manila Skyway effective
10:00
p.m.
on
31
December
2007.
Meanwhile, on 28 December 2007, petitioner PNCC Traffic Management and Security Department
Workers Organization (PTMSDWO) filed a Notice of Strike against PSC on the ground of unfair labor
practice, specifically union busting.18 The Secretary of Labor and Employment19 assumed jurisdiction
over the dispute in an Order dated 31 December 2007 and set the initial hearing of the case on 2
January
2008.20cralawred
On 3 January 2008, petitioners PTMSDWO and PNCC Skyway Corporation Employees Union
(PSCEU) filed before the Regional Trial Court of Paraaque City, Branch 258 (RTC), a complaint
against respondents TRB, PNCC, PSC, CMMTC, and SOMCO. The complaint was for injunction and
prohibition with a prayer for a writ of preliminary injunction and/or a temporary restraining order,
and sought to prohibit the implementation of the ASTOA and the MOA, as well as the assumption of
the toll operations by SOMCO.21 Petitioners PSCEU and PTMSDWO also sought the subsequent
nullification of the ASTOA and the MOA for being contrary to law and for being grossly
disadvantageous to the government.22 They later filed an Amended Complaint23 dated 8 January
2008, additionally praying that PSC be allowed to continue the toll operations. With the exception of
TRB,
all
defendants
therein
filed
their
Opposition.
On 23 January 2008, the RTC issued an Order24 denying the prayer for the issuance of a temporary
restraining order and/or writ of preliminary injunction. According to the RTC, petitioners were
seeking to enjoin a national government infrastructure project. Under Republic Act No. (R.A.)
8975,25 lower courts are prohibited from issuing a temporary restraining order or preliminary
injunction against the government or any person or entity acting under the governments direction
to restrain the execution, implementation, or operation of any such contract or project.
Furthermore, the RTC ruled that it could no longer issue a temporary restraining order or preliminary
injunction, considering that the act sought to be restrained had already been consummated. 26 The
ASTOA, the MOA, and the assumption of the toll operations by SOMCO took effect at 10:00 p.m. on
31 December 2007, while petitioners PSCEU and PTMSDWO sought to prohibit their implementation
only
on
3
January
2008.
In view of its denial of the ancillary prayer, the RTC required defendants to file their respective
Answers
to
the
Amended
Complaint. 27cralawred
On 28 January 2008, petitioners PSCEU and PTMSDWO filed a Notice of Dismissal with Urgent ExParte Motion for the Issuance of Order Confirming the Dismissal, 28 considering that no Answers had
yet been filed. On the basis thereof, the RTC dismissed the case without prejudice on 29 January
2008.29cralawred
On 4 February 2008, petitioners filed the instant Petition 30 before this Court. On 13 February 2008,
we
required
respondents
to
comment
on
the
same. 31cralawred
Meanwhile, defendants PNCC32 and PSC33 filed their respective Motions for Partial Reconsideration of
the Order of the RTC dismissing the case without prejudice. Both argued that the RTC should have
dismissed the case with prejudice. They pointed out that petitioners PSCEU and PTMSDWO had
acted in bad faith by filing the complaint before the RTC, despite the pendency of a labor case over

which the Secretary of Labor and Employment had assumed jurisdiction. Defendant CMMTC joined
PNCC and PSC in moving for a partial reconsideration of the RTC Order. 34cralawred
The RTC denied the Motions for Partial Reconsideration in an Order dated 13 June 2008. 35cralawred
Before this Court, SOMCO,36 PSC,37 PNCC,38 CMMTC,39 and TRB40 filed their respective Comments on
the Petition.
THE PARTIES POSITIONS
Petitioners argue that the franchise for toll operations was exclusively vested by P.D. 1113 in PNCC,
which exercised the powers under its franchise through PSC in accordance with the STOA. By
agreeing to the arrangement whereby SOMCO would replace PSC in the toll operations and
management, PNCC seriously breached the terms and conditions of its undertaking under the
franchise and effectively abdicated its rights and privileges in favor of SOMCO.
Furthermore, the TOC granted to SOMCO was highly irregular and contrary to law, because 1) it did
not indicate the conditions that shall be imposed on SOMCO as provided under P.D. 1112; 41 2) none of
the requirements on public bidding, negotiations, or even publication was complied with before the
issuance of the TOC to SOMCO; 3) applying the stricter grandfather rule, SOMCO does not qualify
as a facility operator as defined under R.A. 6957,42 as amended by R.A. 7718;43 and 4) there were no
public notices and hearings conducted wherein all legitimate issues and concerns about the transfer of
the
toll
operations
would
have
been
properly
ventilated.
Petitioners also claim that the approval by the DOTC Secretary of the ASTOA could not take the place
of the presidential approval required under P.D. 1113 44 and P.D. 189445 concerning the franchise
granted
to
PNCC.
Finally, petitioners claim that the assumption of the toll operations by SOMCO was grossly
disadvantageous to the government, because 1) for a measly capital investment of P2.5 million,
SOMCO stands to earn P400 million in gross revenues based on official and historical records; 2) with
its measly capital, SOMCO would not be able to cover the direct overhead for personal services in the
amount of P226 million as borne out by Commission on Audit reports; 3) the net revenue from toll
operations would go to private shareholders of SOMCO, whereas all earnings of PSC when it was still
in charge of the toll operations went to PNCC the mother company whose earnings, as an acquiredasset corporation, formed part of the public treasury; 4) the new arrangement would result in the
poor delivery of toll services by SOMCO, which had no proven track record; 5) PSC received only
P320 million as settlement for the transfer of toll operations to SOMCO.
All respondents counter that petitioners do not have the requisite legal standing to file the petition.
According to respondents, petitioner Hontiveros-Baraquel filed the instant petition as a legislator in
her capacity as party-list representative of Akbayan. As such, she was only allowed to sue to question
the validity of any official action when it infringed on her prerogative as a legislator. 46 Presently, she
has cited no such prerogative, power, or privilege that is adversely affected by the assailed
acts.47cralawred
While suing as citizens, the individual petitioners have not shown any personal or substantial interest
in the case indicating that they sustained or will sustain direct injury as a result of the implementation
of the assailed acts.48 The maintenance of the suit by petitioners as taxpayers has no merit either
because the assailed acts do not involve the disbursement of public funds. 49 Finally, the bringing of
the suit by petitioners as peoples organizations does not automatically confer legal standing,
especially since petitioner-organizations do not even allege that they represent their members, 50 nor
do they cite any particular constitutional provision that has been violated or disregarded by the
assailed acts.51 In fact, the suit raises only issues of contract law, and none of the petitioners is a party
or
is
privy
to
the
assailed
agreements
and
issuances. 52cralawred
Respondents also argue that petitioners violate the hierarchy of courts. In particular, it is alleged that
while lower courts are prohibited from issuing temporary restraining orders or preliminary
injunctions against national government projects under R.A. 8975, the law does not preclude them
from assuming jurisdiction over complaints that seek the nullification of a national government
project
as
ultimate
relief.53cralawred
As a final procedural challenge to the petition, respondents aver that petitioners are guilty of forum
shopping. When petitioners filed the instant petition, the case before the RTC seeking similar reliefs
was still pending, as respondents PNCC, PSC and CMMTC had moved for the partial reconsideration
of the RTCs Order of dismissal within the reglementary period. 54 Furthermore, the instant case and
the one before the RTC were filed while petitioners labor grievances seeking similar reliefs were also
being
heard
before
the
Department
of
Labor
and
Employment. 55cralawred

On the merits of the arguments in the petition, respondents argue that nothing in the ASTOA, the
approval thereof by the DOTC Secretary, the MOA, or the TOC was violative of the Constitution.
It is argued that the authority to operate a public utility can be granted by administrative agencies
when authorized by law.56 Under P.D. 1112, the TRB is empowered to grant authority and enter into
contracts for the construction, operation, and maintenance of a toll facility, 57 such as the ASTOA in
this case. Also, the ASTOA was an amendment, not to the legislative franchise of PNCC, but to the
STOA previously executed between the Republic of the Philippines through the TRB, PNCC, and
CMMTC.58 In fact, PNCCs franchise was never sold, transferred, or otherwise assigned to SOMCO 59 in
the same way that PSCs previous assumption of the operation and maintenance of the South Metro
Manila Skyway did not amount to a sale, transfer or assignment of PNCCs franchise. 60cralawred
There can be no valid objection to the approval of the ASTOA by the DOTC Secretary, because he was
authorized by the President to do so by virtue of E.O. 497. 61 Also, the phrase subject to the approval
of the President of the Philippines in P.D. 1112 and 1113 does not in any way mean that the
presidential approval must be obtained prior to the execution of a contract, or that the approval be
made personally by the President. 62 The presidential approval may be obtained under the doctrine of
qualified
political
agency.63cralawred
Respondents argue that there is no merit in the claim that the TOC granted to SOMCO was highly
irregular and contrary to law. First, the TOC clearly states that the toll operation and maintenance by
SOMCO shall be regulated by the Republic of the Philippines in accordance with P.D. 1112, the STOA,
the toll operations and maintenance rules and regulations, and lawful orders, instructions, and
conditions that may be imposed from time to time. 64 Second, there is no need to comply with the
public bidding and negotiation requirements, because the South Metro Manila Skyway is an ongoing
project, not a new one.65 Furthermore, the STOA, which was the basis for the ASTOA, was concluded
way
before
the
effectivity
of
R.A.
9184 66 in
2003.67cralawred
Third, SOMCO is a Filipino corporation with substantial 72% Filipino ownership. 68 Fourth, the law
requires prior notice and hearing only in an administrative bodys exercise of quasi-judicial
functions.69In this case, the transfer of the toll operations and maintenance to SOMCO was a
contractual
arrangement
entered
into
in
accordance
with
law. 70cralawred
Finally, the assumption of the toll operation and maintenance by SOMCO is not disadvantageous to
the government. Petitioners belittle the P2.5 million capitalization of SOMCO, considering that PSCs
capitalization at the time it was incorporated was merely P500,000. 71cralawred
Respondents claim that under the ASTOA, PNCC shall get a direct share in the toll revenues without
any corollary obligation, unlike the arrangement in the STOA whereby PNCCs 10% share in the toll
revenues was intended primarily for the toll operation and maintenance by PSC. 72cralawred
Finally, respondents assert that there is no reason to fear that the assumption by SOMCO would result
in poor delivery of toll services. CITRA and the other shareholders of SOMCO are entities with
experience and proven track record in toll operations. 73 Also, SOMCO hired or absorbed more than
300
PSC
employees,74 who
brought
with
them
their
work
expertise
and
experience.chanroblesvirtuallawlibrary
ISSUES
The

instant

case

shall

be

resolved

on

the

basis

of

the

following

issues:

Procedural:
I.
II.

Whether petitioners have standing;

Whether petitioners are guilty of forum-shopping;

Substantive:
III.

Whether the TRB has the power to grant authority to operate a toll facility;

IV.

Whether the TOC issued to SOMCO was valid;

V.
VI.

Whether the approval of the ASTOA by the DOTC Secretary was valid; and
Whether the assumption of toll operations by SOMCO is disadvantageous to the government.

Our Ruling
I
Not
personality to sue.

all

petitioners

have

Standing is a constitutional law concept allowing suits to be brought not necessarily by parties
personally injured by the operation of a law or official action, but by concerned citizens, taxpayers, or
voters who sue in the public interest. 75 Determining the standing of concerned citizens, taxpayers, or
voters requires a partial consideration of the substantive merit of the constitutional question, 76 or at
least
a
preliminary
estimate
thereof.77cralawred
In this case, petitioners raise the power of Congress to grant franchises as a constitutional question.
They allege that the execution of the ASTOA and the MOA, the approval of the ASTOA by the DOTC
Secretary and the issuance of the TOC infringed on the constitutional power of Congress, which has
the sole authority to grant franchises for the operation of public utilities.
This Court has had a few occasions to rule that a franchise from Congress is not required before each
and every public utility may operate. 78 Unless there is a law that specifically requires a franchise for
the operation of a public utility, particular agencies in the executive branch may issue authorizations
and licenses for the operation of certain classes of public utilities. 79 In the instant case, there is no law
that states that a legislative franchise is necessary for the operation of toll facilities.
In PAL v. Civil Aeronautics Board,80 this Court enunciated:chanRoblesvirtualLawlibrary
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.81cralawlawlibrary
It is thus clear that Congress does not have the sole authority to grant franchises for the operation of
public utilities. Considering the foregoing, we find that the petition raises no issue of constitutional
import. More particularly, no legislative prerogative, power, or privilege has been impaired. Hence,
legislators have no standing to file the instant petition, for they are only allowed to sue to question the
validity of any official action when it infringes on their prerogatives as members of
Congress.82 Standing is accorded to them only if there is an unmistakable showing that the challenged
official act affects or impairs their rights and prerogatives as legislators. 83cralawred
In line with our ruling in Kilosbayan, Inc. v. Morato,84 the rule concerning a real party in interest
which is applicable to private litigation rather than the liberal rule on standing, should be applied to
petitioners.
A real party in interest is one who stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit. 85 Ones interest must be personal and not one based on a desire
to vindicate the constitutional right of some third and unrelated party. 86 The purposes of the rule are
to prevent the prosecution of actions by persons without any right or title to or interest in the case; to
require that the actual party entitled to legal relief be the one to prosecute the action; to avoid a
multiplicity of suits; and to discourage litigation and keep it within certain bounds, pursuant to sound
public
policy.87cralawred
At bottom, what is being questioned in the petition is the relinquishment by PSC of the toll operations
in favor of SOMCO, effectively leading to the cessation of the formers business. In this case, we find
that among petitioners, the only real parties in interest are the labor unions PSCEU and PTMSDWO.
PSCEU and PTMSDWO filed the petition not as a representative suit on behalf of their members who
are rank-and-file employees of PSC, but as peoples organizations invested with a public duty to
defend the rule of law.88 PSCEU and PTMSDWO cite Kilosbayan v. Ermita89 as authority to support
their
standing
to
file
the
instant
suit.
It is well to point out that the Court, in Ermita, accorded standing to peoples organizations to file the

suit, because the matter involved therein was the qualification of a person to be appointed as a
member of this Court an issue of utmost and far-reaching constitutional importance. 90 As
discussed,
the
instant
petition
raises
no
genuine
constitutional
issues.
Nevertheless, for a different reason, we accord standing to PSCEU and PTMSDWO to file the instant
suit. With the transfer of toll operations to SOMCO and the resulting cessation of PSCs business
comes the retrenchment and separation of all its employees. The existence of petitioner labor unions
would terminate with the dissolution of its employer and the separation of its members. This is why
the petition also prays that this Court issue an order that would smoothly preserve the toll operations
services of respondent PNCC and/or respondent PSC under its legislative franchise. 91 We have
recognized that the right of self-preservation is inherent in every labor union or any organization for
that matter.92 Thus, PSCEU and PTMSDWO, as real parties in interest, have the personality to
question the assumption of the toll operations by SOMCO.
II
PSCEU
and
guilty of forum-shopping.

PTMSDWO

are

not

Forum shopping refers to the act of availing of several remedies in different courts and/or
administrative agencies, either simultaneously or successively, when these remedies are substantially
founded on the same material facts and circumstances and raise basically the same issues either
pending in or already resolved by some other court or administrative agency. 93 What is pivotal in
determining whether forum shopping exists is the vexation caused to the courts and litigants and the
possibility of conflicting decisions being rendered by different courts and/or administrative agencies
upon
the
same
issues.94cralawred
The elements of forum shopping are as follows: a) identity of parties or at least such parties that
represent the same interests in both actions; b) identity of rights asserted and the relief prayed for,
the relief founded on the same facts; and c) identity of the two preceding particulars, such that any
judgment rendered in one action will amount to res judicata in the other. 95cralawred
Respondents argue that petitioners PSCEU and PTMSDWO committed forum shopping by filing the
complaint for injunction and prohibition before the RTC during the pendency of NCMB-NCR-NS-12188-07 entitled In Re: Labor Dispute at PNCC Skyway Corporation. It was a case they also filed, over
which
the
Secretary
of
Labor
and
Employment
has
assumed
jurisdiction.
The case involves a Notice of Strike filed against PSC on the ground of unfair labor practice. While the
specific act in question is not specified, the prohibited acts constituting unfair labor
practice96 essentially relate to violations concerning the workers right to self-organization. 97 When
compared with the complaint filed with the RTC for injunction and prohibition seeking to prohibit the
implementation of the ASTOA and the MOA, as well as the assumption of the toll operations by
SOMCO for being unconstitutional, contrary to law and disadvantageous to the government, it is
easily discernible that there is no identity of rights asserted and relief prayed for. These cases are
distinct
and
dissimilar
in
their
nature
and
character.
For the sake of argument, let us assume that, in order to hurt the unions, PSC feigned a cessation of
business that led to the retrenchment and separation of all employees. That is an unfair labor practice.
In that complaint, the unions cannot be expected to ask for, or the Secretary of Labor and
Employment to grant, the annulment of the ASTOA and the MOA and the continuation of toll
operations by PSC. The Secretary would only focus on the legality of the retrenchment and separation,
and on the presence or absence of bad faith in PSCs cessation of business. On the other hand, the
complaint before the RTC would require it to focus on the legality of the ASTOA, the MOA and the
transfer of toll operations. Ultimately, even if the Secretary of Labor and Employment makes a finding
of unfair labor practice, this determination would not amount to res judicata as regards the case
before
the
RTC.
We also reject the claim of respondents that petitioners PSCEU and PTMSDWO committed forum
shopping by filing the instant petition before this Court while the motion for partial reconsideration of
the RTCs Order of dismissal without prejudice was still pending. Section 1, Rule 17 of the Rules of
Court states:chanRoblesvirtualLawlibrary
SECTION 1. Dismissal upon notice by plaintiff. A complaint may be dismissed by the plaintiff by
filing a notice of dismissal at any time before service of the answer or of a motion for summary
judgment. Upon such notice being filed, the court shall issue an order confirming the dismissal.
Unless otherwise stated in the notice, the dismissal is without prejudice, except that a notice operates
as an adjudication upon the merits when filed by a plaintiff who has once dismissed in a competent
court an action based on or including the same claim.cralawlawlibrary

In this case, petitioners PSCEU and PTMSDWO had filed a notice of dismissal of the complaint before
the RTC on 28 January 2008, before respondents filed their Answers. The following day, the RTC
issued an order confirming the dismissal. Under the above-cited rule, this confirmation is the only
qualification imposed on the right of a party to dismiss the action before the adverse party files an
answer.98 In this case, the dismissal of the action therefore became effective upon that confirmation
by the RTC despite the subsequent filing of the motions for partial reconsideration.
Thus, when the instant petition was filed on 4 February 2008, the complaint before the RTC was no
longer pending. The complaint was dismissed without prejudice by virtue of the notice of dismissal
filed by petitioners PSCEU and PTMSDWO. Consequently, there was not even any need for
petitioners to mention the prior filing and dismissal of the complaint in the certificate of non-forum
shopping
in
the
instant
petition, 99 but
they
did
so
anyway.100cralawred
Parenthetically, in their motions for partial reconsideration, respondents PNCC and PSC insisted that
the dismissal should have been with prejudice, because petitioners allegedly acted in bad faith in filing
the notice of dismissal, were guilty of forum shopping, and did not notify respondents of their
intention to file a notice of dismissal. With regard to the first and the third allegation, petitioners may
ask for dismissal at any time before the filing of the answer as a matter of right, even if the notice cites
the most ridiculous of grounds for dismissal. 101 As to the second, we have already ruled that there
was no forum shopping as regards the successive filings of the labor case and the complaint before the
RTC.chanroblesvirtuallawlibrary
III
TRB
has
the
authority to operate a toll facility.

power

to

grant

This matter has already been settled by the Court in Francisco, Jr. v. TRB, 102 which ruled
thus:chanRoblesvirtualLawlibrary
It is abundantly clear that Sections 3 (a) and (e) of P.D. 1112 in relation to Section 4 of P.D. 1894 have
invested the TRB with sufficient power to grant a qualified person or entity with authority to
construct, maintain, and operate a toll facility and to issue the corresponding toll operating permit or
TOC.
Sections 3 (a) and (e) of P.D. 1112 and Section 4 of P.D. 1894 amply provide the power to grant
authority to operate toll facilities:chanRoblesvirtualLawlibrary
Section 3. Powers and Duties of the Board. The Board shall have in addition to its general powers of
administration
the
following
powers
and
duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in behalf of the
Republic of the Philippines with persons, natural or juridical, for the construction, operation and
maintenance of toll facilities such as but not limited to national highways, roads, bridges, and public
thoroughfares. Said contract shall be open to citizens of the Philippines and/or to corporations or
associations qualified under the Constitution and authorized by law to engage in toll
operations;ChanRoblesVirtualawlibrary
x

(e) To grant authority to operate a toll facility and to issue therefore the necessary Toll Operation
Certificate subject to such conditions as shall be imposed by the Board including inter alia the
following:
(1)

That the Operator shall desist from collecting toll upon the expiration of the Toll Operation
Certificate.
(2) That the entire facility operated as a toll system including all operation and maintenance
equipment directly related thereto shall be turned over to the government immediately upon the
expiration of the Toll Operation Certificate.
(3) That the toll operator shall not lease, transfer, grant the usufruct of, sell or assign the rights or
privileges acquired under the Toll Operation Certificate to any person, firm, company,
corporation or other commercial or legal entity, nor merge with any other company or
corporation organized for the same purpose, without the prior approval of the President of the
Philippines. In the event of any valid transfer of the Toll Operation Certificate, the Transferee
shall be subject to all the conditions, terms, restrictions and limitations of this Decree as fully
and completely and to the same extent as if the Toll Operation Certificate has been granted to the
same person, firm, company, corporation or other commercial or legal entity.
(4) That in time of war, rebellion, public peril, emergency, calamity, disaster or disturbance of peace
and order, the President of the Philippines may cause the total or partial closing of the toll

facility or order to take over thereof by the Government without prejudice to the payment of just
compensation.
(5) That no guarantee, Certificate of Indebtedness, collateral, securities, or bonds shall be issued by
any government agency or government-owned or controlled corporation on any financing
program of the toll operator in connection with his undertaking under the Toll Operation
Certificate.
(6) The Toll Operation Certificate may be amended, modified or revoked whenever the public
interest so requires.
(a) The Board shall promulgate rules and regulations governing the procedures for the grant of
Toll Certificates. The rights and privileges of a grantee under a Toll Operation Certificate
shall be defined by the Board.
(b) To issue rules and regulations to carry out the purposes of this Decree.
SECTION 4. The Toll Regulatory Board is hereby given jurisdiction and supervision over the
GRANTEE with respect to the Expressways, the toll facilities necessarily appurtenant thereto and,
subject to the provisions of Section 8 and 9 hereof, the toll that the GRANTEE will charge the users
thereof.
By explicit provision of law, the TRB was given the power to grant administrative
franchise for toll facility projects.103 (Emphases supplied)cralawlawlibrary
We cannot abide by the contention of petitioners that the franchise for toll operations was exclusively
vested in PNCC, which effectively breached its franchise when it transferred the toll operations to
SOMCO. First, there is nothing in P.D. 1113 or P.D. 1894 that states that the franchise granted to
PNCC
is
to
the
exclusion
of
all
others.
Second, if we were to go by the theory of petitioners, it is only the operation and maintenance of the
toll facilities that is vested with PNCC. This interpretation is contrary to the wording of P.D. 1113 and
P.D. 1894 granting PNCC the right, privilege and authority to construct, operate and maintain the
North Luzon, South Luzon and Metro Manila Expressways and their toll facilities.
It appears that petitioners have confused the franchise granted under P.D. 1113 and P.D. 1894 with
particular provisions in the STOA. To clarify, the operation and maintenance of the project roads were
the primary and exclusive privilege and responsibility of PNCC through PSC under the STOA. On the
other hand, the design and construction of the project roads were the primary and exclusive privilege
and responsibility of CMMTC. However, with the execution of the ASTOA, the parties agreed that
SOMCO shall replace PSC in undertaking the operations and maintenance of the project roads. Thus,
the exclusivity clause was a matter of agreement between the parties, which amended it in a later
contract;
it
was
not
a
matter
provided
under
the
law.
Third, aside from having been granted the power to grant administrative franchises for toll facility
projects, TRB is also empowered to modify, amend, and impose additional conditions on the franchise
of PNCC in an appropriate contract, particularly when public interest calls for it. This is provided
under Section 3 of P.D. 1113 and Section 6 of P.D. 1894, to wit:chanRoblesvirtualLawlibrary
SECTION 3. This franchise is granted subject to such conditions as may be imposed by the [Toll
Regulatory] Board in an appropriate contract to be executed for this purpose, and with the
understanding and upon the condition that it shall be subject to amendment, alteration or repeal
when
public
interest
so
requires.chanrobleslaw
x

SECTION 6. This franchise is granted subject to such conditions, consistent with the provisions of this
Decree, as may be imposed by the Toll Regulatory Board in the Toll Operation Agreement and such
other modifications or amendments that may be made thereto, and with the understanding and upon
the condition that it shall be subject to amendment or alteration when public interest so
dictates.cralawlawlibrary
Section 6 of P.D. 1894 specifically mentions the Toll Operation Agreement. The STOA was one such
modification or amendment of the franchise of PNCC. So was the ASTOA, which further modified the
franchise. PNCC cannot be said to have breached its franchise when it transferred the toll operations
to SOMCO. PNCC remained the franchise holder for the construction, operation, and maintenance of
the project roads; it only opted to partner with investors in the exercise of its franchise leading to the
organization
of
companies
such
as
PSC
and
SOMCO.
Again, considering that PNCC was granted the right, privilege, and authority to construct, operate,
and maintain the North Luzon, South Luzon, and Metro Manila Expressways and their toll facilities,
we have not heard petitioners decrying the breach by PNCC of its franchise when it agreed to make
CMMTC responsible for the design and construction of the project roads under the STOA.

IV
The TOC issued to SOMCO was not irregular.
Petitioners argue that the conditions provided under Section 3(e) of P.D. 1112 104 were not imposed on
SOMCO, because these do not appear on the face of the TOC. Petitioners are mistaken.
The TOC, as a grant of authority from the government, is subject to the latters control insofar as the
grant affects or concerns the public.105 Like all other franchises or licenses issued by the government,
the TOC is issued subject to terms, conditions, and limitations under existing laws and agreements.
This rule especially holds true in this instance since the TRB has the power to issue the necessary
Toll Operation Certificate subject to such conditions as shall be imposed by the Board including inter
alia those specified under Section 3(e) of P.D. 1112. Thus, impliedly written into every TOC are the
conditions
prescribed
therein.
In any case, part of the TOC issued to SOMCO reads:chanRoblesvirtualLawlibrary
Pursuant to Section 3(e) of Presidential Decree No. 1112 or the Toll Operation Decree, Skyway O & M
Corporation is hereby given authority to operate and maintain Stage 1 of the South Metro Manila
Skyway
effective
as
of
10:00
p.m.
of
31
December
2007.
This authorization is issued upon the clear understanding that the operation and maintenance of
Stage 1 of the South Metro Manila Skyway as a toll facility and the collection of toll fees shall be
closely supervised and regulated by the Grantor, by and through the Board of Directors, in accordance
with the terms and conditions set forth in the STOA, as amended, the rules and regulations duly
promulgated by the Grantor for toll road operations and maintenance, as well as the lawful orders,
instructions and conditions which the Grantor, through the TRB, may impose from time to time in
view of the public nature of the facility.cralawlawlibrary
As regards the allegation that none of the requirements for public bidding was observed before the
TOC was issued to SOMCO, this matter was also squarely answered by the Court in Francisco, Jr. v.
TRB,106to wit:chanRoblesvirtualLawlibrary
Where, in the instant case, a franchisee undertakes the tollway projects of construction, rehabilitation
and expansion of the tollways under its franchise, there is no need for a public bidding. In pursuing
the projects with the vast resource requirements, the franchisee can partner with other investors,
which it may choose in the exercise of its management prerogatives. In this case, no public bidding is
required upon the franchisee in choosing its partners as such process was done in the exercise of
management prerogatives and in pursuit of its right of delectus personae. Thus, the subject tollway
projects were undertaken by companies, which are the product of the joint ventures between PNCC
and its chosen partners.107cralawlawlibrary
Under the STOA in this case, PNCC partnered with CMMTC in Stages 1 and 2 of the South Metro
Manila Skyway. The STOA gave birth to PSC, which was put in charge of the operation and
maintenance of the project roads. The ASTOA had to be executed for Stage 2 to accommodate changes
and modifications in the original design. The ASTOA then brought forth the incorporation of SOMCO
to replace PSC in the operations and maintenance of Stage 1 of the South Metro Manila Skyway.
Clearly, no public bidding was necessary because PNCC, the franchisee, merely exercised its
management prerogative when it decided to undertake the construction, operation, and maintenance
of the project roads through companies which are products of joint ventures with chosen partners.
Petitioners also insist that SOMCO is not qualified to operate a toll facility, because it does not meet
the nationality requirement for a corporation when scrutinized under the grandfather rule. Other
than advancing this argument, however, petitioners have not shown how SOMCO fails to meet the
nationality requirement for a public utility operator. Petitioners only aver in their petition that 40% of
SOMCO is owned by CMMTC, a foreign company, while the rest is owned by the following: a) Toll
Road Operation and Maintenance Venture Corporation (TROMVC), almost 40% of which is owned by
a Singaporean company; b) Assetvalues Holding Company, Inc. (AHCI), of which almost 40% is
Dutch-owned; and c) Metro Strategic Infrastructure Holdings, Inc. (MSIHI), 40% of which is owned
by Metro Pacific Corporation, whose ownership or nationality was not specified. 108cralawred
Section 11, Article XII of the Constitution provides that [n]o franchise, certificate, or any other form
of authorization for the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens x x x. Clearly, under the Constitution, a
corporation at least 60% of whose capital is owned by Filipinos is of Philippine nationality.
Considering this constitutional provision, petitioners silence on the ownership of the remaining 60%
of
the
corporations
cited
is
very
telling.

In order to rebut petitioners allegations, respondents readily present matrices showing the
itemization of percentage ownerships of the subscribed capital stock of SOMCO, as well as that of
TROMVC, AHCI, and MSIHI. Respondents attempt to show that all these corporations are of
Philippine nationality, with 60% of their capital stock owned by Filipino citizens. We need not
reproduce the itemization here. Suffice it to say that in their Consolidated Reply, 109 petitioners did not
refute the unanimous claim of respondents. It is axiomatic that one who alleges a fact has the burden
of proving it. On this matter, we find that petitioners have failed to prove their allegation that SOMCO
is not qualified to operate a toll facility for failure to meet the nationality requirement under the
Constitution.
Finally, no public notices and hearings were necessary prior to the issuance of the TOC to SOMCO.
For the same reason that a public bidding is not necessary, PNCC cannot be required to call for public
hearings concerning matters within its prerogative. At any rate, we have studied P.D. 1112 and the
Implementing Rules and Regulations Authorizing the Establishment of Toll Facilities and found no
provision requiring the issuance of public notices and the conduct of public hearings prior to the
issuance of a TOC.chanroblesvirtuallawlibrary
V
Approval
DOTC
the President.

of
Secretary

the

was

ASTOA

by
approval

the
by

The doctrine of qualified political agency declares that, save in matters on which the Constitution or
the circumstances require the President to act personally, executive and administrative functions are
exercised through executive departments headed by cabinet secretaries, whose acts are presumptively
the acts of the President unless disapproved by the latter. 110 As explained in Villena v. Executive
Secretary,111 this doctrine is rooted in the Constitution:chanRoblesvirtualLawlibrary
x x x With reference to the Executive Department of the government, there is one purpose which is
crystal-clear and is readily visible without the projection of judicial searchlight, and that is, the
establishment of a single, not plural, Executive. The first section of Article VII of the Constitution,
dealing with the Executive Department, begins with the enunciation of the principle that The
executive power shall be vested in a President of the Philippines. This means that the President of the
Philippines is the Executive of the Government of the Philippines, and no other. The heads of the
executive departments occupy political positions and hold office in an advisory capacity, and, in the
language of Thomas Jefferson, should be of the President's bosom confidence, and, in the language
of Attorney-General Cushing, are subject to the direction of the President. Without minimizing the
importance of the heads of the various departments, their personality is in reality but the projection of
that of the President. Stated otherwise, and as forcibly characterized by Chief Justice Taft of the
Supreme Court of the United States, each head of a department is, and must be, the Presidents alter
ego in the matters of that department where the President is required by law to exercise authority.
Secretaries of departments, of course, exercise certain powers under the law but the law cannot
impair or in any way affect the constitutional power of control and direction of the President. As a
matter of executive policy, they may be granted departmental autonomy as to certain matters but this
is by mere concession of the executive, in the absence of valid legislation in the particular field. If the
President, then, is the authority in the Executive Department, he assumes the corresponding
responsibility. The head of a department is a man of his confidence; he controls and directs his acts;
he appoints him and can remove him at pleasure; he is the executive, not any of his secretaries. 112 x x x
(Citations omitted)cralawlawlibrary
Applying the doctrine of qualified political agency, we have ruled that the Secretary of Environment
and Natural Resources can validly order the transfer of a regional office by virtue of the power of the
President to reorganize the national government. 113 In Constantino v. Cuisia,114 the Court upheld the
authority of the Secretary of Finance to execute debt-relief contracts. The authority emanates from the
power of the President to contract foreign loans under Section 20, Article VII of the Constitution.
InAngeles v. Gaite,115 the Court ruled that there can be no issue with regard to the Presidents act of
limiting his power to review decisions and orders of the Secretary of Justice, especially since the
decision or order was issued by the secretary, the Presidents own alter ego. 116cralawred
There can be no question that the act of the secretary is the act of the President, unless repudiated by
the latter. In this case, approval of the ASTOA by the DOTC Secretary had the same effect as approval
by the President. The same would be true even without the issuance of E.O. 497, in which the
President, on 24 January 2006, specifically delegated to the DOTC Secretary the authority to approve
contracts
entered
into
by
the
TRB.
Petitioners are unimpressed. They cite Section 8 of P.D. 1113 and Section 13 of P.D. 1894 as
follows:chanRoblesvirtualLawlibrary

SECTION 8. The GRANTEE shall not lease, transfer, grant the usufruct of, sell or assign this franchise
nor the rights or privileges acquired hereby, to any person, firm, company, corporation or other
commercial or legal entity, nor merge with any other company or corporation without the prior
approval of the President of the Philippines. In the event that this franchise is sold, transferred
or assigned, the transferee shall be subject to all the conditions, terms, restrictions and limitations of
this Decree as fully and completely and to the same extents as if the franchise has been granted to the
same person, firm, company, corporation or other commercial or legal entity. (Emphasis supplied)
SECTION 13. The GRANTEE shall not lease, transfer, grant the usufruct of, sell or assign this
franchise nor the rights or privileges required hereby, to any person, firm, company, corporation or
other legal entity, nor merge with any other company or corporationwithout the prior approval of
the
President
of
the
Philippines.
In the event that this franchise is sold, transferred or assigned, the transferee shall be subject to all the
conditions, terms, restrictions and limitations of this Decree as fully and completely and to the same
extent as if the franchise has been granted to the said person, firm, company, corporation or other
legal
entity.
(Emphasis
supplied)
cralawlawlibrary
Petitioners insist that based on the above provisions, it is the President who should give personal
approval considering that the power to grant franchises was exclusively vested in Congress. Hence, to
allow the DOTC Secretary to exercise the power of approval would supposedly dilute that legislative
prerogative.
The argument of petitioners is founded on the assumption that PNCC in some way leased, transferred,
granted the usufruct of, sold, or assigned to SOMCO its franchise or the rights or privileges PNCC had
acquired by it. Here lies the error in petitioners stand. First, as discussed above, the power to grant
franchises or issue authorizations for the operation of a public utility is not exclusively exercised by
Congress. Second, except where the situation falls within that special class that demands the exclusive
and personal exercise by the President of constitutionally vested power, 117 the President acts through
alter
egos
whose
acts
are
as
if
the
Chief
Executives
own.
Third, no lease, transfer, grant of usufruct, sale, or assignment of franchise by PNCC or its merger
with
another
company
ever
took
place.
The creation of the TRB and the grant of franchise to PNCC were made in the light of the recognition
on the part of the government that the private sector had to be involved as an alternative source of
financing for the pursuance of national infrastructure projects. As the franchise holder for the
construction, maintenance and operation of infrastructure toll facilities, PNCC was equipped with the
right and privilege, but not necessarily the means, to undertake the project. This is where joint
ventures
with
private
investors
become
necessary.
A joint venture is an association of companies jointly undertaking a commercial endeavor, with all of
them contributing assets and sharing risks, profits, and losses. 118 It is hardly distinguishable from a
partnership considering that their elements are similar and, thus, generally governed by the law on
partnership.119cralawred
In joint ventures with investor companies, PNCC contributes the franchise it possesses, while the
partner contributes the financing both necessary for the construction, maintenance, and operation
of the toll facilities. PNCC did not thereby lease, transfer, grant the usufruct of, sell, or assign its
franchise or other rights or privileges. This remains true even though the partnership acquires a
distinct and separate personality from that of the joint venturers or leads to the formation of a new
company that is the product of such joint venture, such as PSC and SOMCO in this case.
Hence, when we say that the approval by the DOTC Secretary in this case was approval by the
President, it was not in connection with the franchise of PNCC, as required under Section 8 of P.D.
1113 and Section 13 of P.D. 1894. Rather, the approval was in connection with the powers of the TRB
to enter into contracts on behalf of the government as provided under Section 3(a) of P.D. 1112, which
states:chanRoblesvirtualLawlibrary
SECTION 3. Powers and Duties of the Board. The Board shall have in addition to its general powers
of
administration
the
following
powers
and
duties:
(a) Subject to the approval of the President of the Philippines, to enter into contracts in
behalf of the Republic of the Philippines with persons, natural or juridical, for the construction,
operation and maintenance of toll facilities such as but not limited to national highways, roads,
bridges, and public thoroughfares. Said contract shall be open to citizens of the Philippines and/or to
corporations or associations qualified under the Constitution and authorized by law to engage in toll

operations;
cralawlawlibrary

(Emphasis

VI
Petitioners
have
not
transfer
of
toll
operations
grossly disadvantageous to the government.

supplied)

shown
to

that
SOMCO

the
was

In support of their contention that the transfer of toll operations from PSC to SOMCO was grossly
disadvantageous to the government, petitioners belittle the initial capital investment, private
ownership,
and
track
record
of
SOMCO.
When one uses the term grossly disadvantageous to the government, the allegations in support
thereof must reflect the meaning accorded to the phrase. Gross means glaring, reprehensible,
culpable, flagrant, and shocking.120 It requires that the mere allegation shows that the disadvantage on
the
part
of
the
government
is
unmistakable,
obvious,
and
certain.
In this case, we find that the allegations of petitioners are nothing more than speculations,
apprehensions, and suppositions. They speculate that with its measly capital investment, SOMCO
would not be able to cover the overhead expenses for personal services alone. They fear that the
revenue from toll operations would go to private pockets in exchange for a small settlement amount
to be given to PSC. Given that SOMCO has no proven track record, petitioners deduce that its
assumption of the toll operations would lead to poor delivery of toll services to the public.
The aim in the establishment of toll facilities is to draw from private resources the financing of
government infrastructure projects. Naturally, these private investors would want to receive
reasonable return on their investments. Thus, the collection of toll fees for the use of public
improvements has been authorized, subject to supervision and regulation by the national
government.121 As regards the P320 million settlement given to PSC, the amount was to be used
principally for the payment of its liabilities of PSC arising from the retrenchment of its employees. We
note that under the MOA, the residual assets of PSC shall still be offered for sale to CMMTC, subject
to valuation.122 Thus, it would be inaccurate to say that PSC would receive only P320 million for the
entire
arrangement.
It is quite understandable that SOMCO does not yet have a proven track record in toll operations,
considering that it was only the ASTOA and the MOA that gave birth to it. We are not prepared to rule
that this lack of track record would result in poor delivery of toll services, especially because most of
the former employees of PSC have been rehired by SOMCO, an allegation of respondents that was
never refuted by petitioners. Neither are we prepared to take the amount of SOMCOs initial capital
investment against it, as it is considerably higher than ?500,000, the authorized capital stock of PSC
as of 2002.123cralawred
A FINAL NOTE
R.A. 8975 prohibits lower courts from issuing any temporary restraining order, preliminary
injunction, or preliminary mandatory injunction against the government or any of its subdivisions,
officials or any person or entity, whether public or private, acting under the governments direction
to restrain, prohibit or compel acts related to the implementation and completion of government
infrastructure
projects.
The rationale for the law is easily discernible. Injunctions and restraining orders tend to derail the
expeditious and efficient implementation and completion of government infrastructure projects;
increase construction, maintenance and repair costs; and delay the enjoyment of the social and
economic benefits therefrom. Thus, unless the matter is of extreme urgency involving a constitutional
issue, judges of lower courts who shall issue injunctive writs or restraining orders in violation of the
law
shall
be
administratively
liable.
The law is clear that what is prohibited is merely the issuance of provisional orders enjoining the
implementation of a national government project. R.A. 8975 does not bar lower courts from assuming
jurisdiction over complaints that seek the nullification or implementation of a national government
infrastructure
project
as
ultimate
relief.124cralawred
There is no question that the ultimate prayer in the instant case is the nullification of a national
government project considering that the ASTOA involved the design and construction of Stage 2 of
the South Metro Manila Skyway, as well as the operation and maintenance of Stage 1 thereof. The
prayer is grounded on the contracts alleged unconstitutionality, violation of the law, and gross
disadvantage to the government. Such principal action and relief were within the jurisdiction of the
RTC, which acted correctly when it ordered respondents to file their respective answers to the

complaint, even while it denied the prayer for the issuance of a writ of preliminary injunction and/or
temporary
restraining
order
in
observance
of
R.A.
8975.
It was therefore error on the part of petitioners to come directly before this Court for the sole reason
that the lower courts will not be able to grant the prayer for the issuance of a writ of preliminary
injunction and/or temporary restraining order to enjoin the assumption of toll operations by SOMCO.
The error even takes on a whole new meaning, because SOMCO assumed responsibility for the
operations and maintenance of the South Metro Manila Skyway at 10:00 p.m. on 31 December 2007.
On the other hand, the complaint before the RTC seeking to enjoin the assumption by SOMCO was
filed only on 3 January 2008, while the instant petition was filed on 4 February 2008.
As we held in Aznar Brothers Realty, Inc. v. CA,125 injunction does not lie when the act sought to be
enjoined has already become a fait accompli or an accomplished or consummated act.
Parties must observe the hierarchy of courts before seeking relief from this Court. Observance thereof
minimizes the imposition on the already limited time of this Court and prevents delay, intended or
otherwise, in the adjudication of cases.126 We do not appreciate the litigants practice of directly
seeking recourse before this Court, relying on the gravitas of a personality yet making serious claims
without
the
proof
to
support
them.
WHEREFORE, the petition is DISMISSED. The prayer for the issuance of a writ of preliminary
injunction and/or temporary restraining order is DENIED.