1. G.R. No.

L-8095

March 31, 1915

F.C. FISHER, plaintiff,

vs.
YANGCO STEAMSHIP COMPANY, J.S. STANLEY, as Acting
Collector of Customs of the Philippine Islands, IGNACIO
VILLAMOR, as Attorney-General of the Philippine Islands,
and W.H. BISHOP, as prosecuting attorney of the city of
Manila, respondents.
FACTS:
F.C. Fisher is a stockholder in the Yangco Steamship
Company, the owner of a large number of steam vessels, duly
licensed to engage in the coastwise trade of the Philippine
Islands;
On or about June 10, 1912, the directors of the company
adopted a resolution which was ratified and affirmed by the
shareholders of the company, "expressly declaring and providing
that the classes of merchandise to be carried by the company in
its business as a common carrier do not include dynamite,
powder or other explosives, and expressly prohibiting the
officers, agents and servants of the company from offering to
carry, accepting for carriage said dynamite, powder or other
explosives;"
Respondent Acting Collector of Customs demanded
and required of the company the acceptance and carriage of
such explosives; that he has refused and suspended the
issuance of the necessary clearance documents of the vessels
of the company unless and until the company consents to accept
such explosives for carriage;
Plaintiff believes that should the company decline to
accept such explosives for carriage, the respondents intend to
institute proceedings under the penal provisions Act No. 98 of
the Philippine Commission against the company, its managers,
agents and servants, to enforce the requirements of the Acting
Collector of Customs as to the acceptance of such explosives
for carriage;
Plaintiff believes that the Acting Collector of Customs
erroneously construes the provisions of Act No. 98 in holding that
they require the company to accept such explosives for carriage
notwithstanding the resolution.
Questions involved cannot be raised by the refusal of
the company to comply with the demands of the Acting Collector
of Customs, without the risk of irreparable loss and damage
resulting from his refusal to facilitate the documentation of the
company's vessels, and without assuming the company to test
the questions involved by refusing to accept such explosives for
carriage.
Petitioner prays a writ of prohibition be issued
perpetually restraining the respondent Yangco Steamship
Company, its appraisers, agents, servants or other
representatives from accepting to carry and from carrying, in
steamers of said company dynamite, powder or other explosive
substance, in accordance with the resolution of the board of
directors and of the shareholders of said company.
That a writ of prohibition be issued enjoining the
respondent J.S. Stanley as Acting Collector of Customs of the
Philippine Islands, from obligating the said Yangco Steamship
Company, by any means whatever, to carry dynamite, powder or
other explosive substance.

ISSUE: W/N Fisher can lawfully refuse to accept dynamite,

powder or other explosives for carriage
HELD: NO. 1) The duties and liabilities of common carriers in
this jurisdiction are defined and fully set forth in Act No. 98 of the
Philippine Commission.
SEC. 2. It shall be unlawful for any common carrier engaged in
the transportation of passengers or property as above set forth
to make or give any unnecessary or unreasonable preference
or advantage to any particular person, company, firm,
corporation or locality, or any particular kind of traffic in any
respect whatsoever, or to subject any particular person,
company, firm, corporation or locality, or any particular kind of
traffic, to undue or unreasonable prejudice or discrimination
whatsoever, and such unjust preference or discrimination is
also hereby prohibited and declared to be unlawful.
SEC. 3. No common carrier engaged in the carriage of
passengers or property as aforesaid shall, under any pretense
whatsoever, fail or refuse to receive for carriage to carry any
person or property offering for carriage
The nature of the business of a common carrier as a
public employment is such that it is clearly within the power
of the state to impose such just and reasonable regulations
thereon in the interest of the public as the legislator may
deem proper. Common carriers exercise a sort of public office,
and have duties to perform in which the public is interested.
Their business is, therefore, affected with a public interest, and is
subject of public regulation. When private property is "affected
with a public interest it ceases to be juris privati only." Property
becomes clothed with a public interest when used in a manner to
make it of public consequence and affect the community at large.
Common carriers in this jurisdiction cannot lawfully
decline to accept a particular class of goods for carriage, to
the prejudice of the traffic in those goods, unless it appears
that for some sufficient reason the discrimination against
the traffic in such goods is reasonable and necessary. Mere
whim or prejudice will not suffice. The grounds for the
discrimination must be substantial ones, such as will justify the
courts in holding the discrimination to have been reasonable and
necessary under all circumstances of the case.
The mere fact that violent and destructive
explosions can be obtained by the use of dynamite under
certain conditions would not be sufficient in itself to justify
the refusal of a vessel to accept it for carriage, if it can be
proven that in the condition in which it is offered for carriage
there is no real danger to the carrier, nor reasonable ground
to fear that his vessel or those on board his vessel will be
exposed to unnecessary and unreasonable risk in
transporting it.
The traffic in dynamite, gunpowder and other explosives
is vitally essential to the material and general welfare of the
people of these Islands. If dynamite, gunpowder and other
explosives are to continue in general use throughout the
Philippines, they must be transported by water from port to port
in the various islands which make up the Archipelago.

II. [G.R. No. 143360. September 5, 2002]

EQUITABLE LEASING CORPORATION, petitioner, vs.
LUCITA SUYOM, MARISSA ENANO, MYRNA TAMAYO and
FELIX OLEDAN, respondents.
FACTS: On July 17, 1994, a Fuso Road Tractor driven by Raul
Tutor rammed into the house cum store of Myrna Tamayo
located at Pier 18, Vitas, Tondo, Manila. A portion of the
house was destroyed. Pinned to death under the engine of the
tractor were Respondents son, daughter and Felmarie
Oledan. Injured were herein respondents.
Tutor was charged with and later convicted of reckless
imprudence resulting in multiple homicide and multiple
physical injuries. Upon verification with LTO, the copy of
COR showed that the registered owner of the tractor was
Equitable Leasing Corporation/leased to Edwin Lim. In
1995, respondents filed against Raul Tutor, Ecatine Corporation
(Ecatine) and Equitable Leasing Corporation (Equitable) for
damages.
The trial court, upon motion of plaintiffs counsel, issued an
Order dropping Raul Tutor, Ecatine and Edwin Lim from the
Complaint, because they could not be located and served with
summonses. Petitioner also alleged that the vehicle had
already been sold to Ecatine and that the former was no
longer in possession and control thereof at the time of the
incident. It also claimed that Tutor was an employee, not of
Equitable, but of Ecatine.
RTC ordered petitioner to pay actual and moral damages
and attorneys fees to respondents. It held that since the Deed
of Sale between petitioner and Ecatine had not been
registered with the Land Transportation Office (LTO), the
legal owner was still Equitable.
CA affirmed RTCs decision stating that the Certificate of
Registration on file with the LTO still remained in petitioners
name. In order that a transfer of ownership of a motor vehicle
can bind third persons, it must be duly recorded in the LTO.

ISSUE: W/N Equitable is liable for damages.

HELD: YES. We hold petitioner liable for the deaths and the
injuries complained of, because it was the registered owner of
the tractor at the time of the accident on July 17, 1994.
Regardless of sales made of a motor vehicle, the
registered owner is the lawful operator insofar as the public and
third persons are concerned; consequently, it is directly and
primarily responsible for the consequences of its operation. In
contemplation of law, the owner/operator of record is the
employer of the driver, the actual operator and employer
being considered as merely its agent. The same principle
applies even if the registered owner of any vehicle does not use
it for public service.
Since Equitable remained the registered owner of the
tractor, it could not escape primary liability for the deaths and the
injuries arising from the negligence of the driver.
The finance-lease agreement between Equitable on the one
hand and Lim or Ecatine on the other has already been
superseded by the sale. In any event, it does not bind third
persons.

x x x. The main aim of motor vehicle registration is to

identify the owner so that if any accident happens, or that
any damage or injury is caused by the vehicle on the public
highways, responsibility therefor can be fixed on a definite
individual, the registered owner. The motor vehicle registration is
primarily ordained, in the interest of the determination of
persons responsible for damages or injuries caused on
public highways.
Thus, Equitable, the registered owner of the tractor, is -- for
purposes of the law on quasi delict -- the employer of Raul Tutor,
the driver of the tractor. Ecatine, Tutors actual employer, is
deemed as merely an agent of Equitable.
We must stress that the failure of Equitable and/or Ecatine
to register the sale with the LTO should not prejudice
respondents, who have the legal right to rely on the legal
principle that the registered vehicle owner is liable for the
damages caused by the negligence of the driver. Petitioner
cannot hide behind its allegation that Tutor was the employee of
Ecatine. This will effectively prevent respondents from
recovering their losses on the basis of the inaction or fault of
petitioner in failing to register the sale. The non-registration is
the fault of petitioner, which should thus face the legal
consequences thereof.

The plaintiffs have filed this case both against Oscar

Sabiniano as driver, and against Gualberto Duavit as owner of
the jeep.
III. G.R. No. 82318 May 18, 1989
GILBERTO M. DUAVIT, petitioner,
vs.
THE HON. COURT OF APPEALS, Acting through the Third
Division, as Public Respondent, and ANTONIO SARMIENTO,
SR. & VIRGILIO CATUAR respondents.
FACTS: From the evidence adduced by the plaintiffs, consisting
of the testimonies of witnesses, it appears that on July 28, 1971
plaintiffs Antonio Sarmiento, Sr. and Virgilio Catuar were
aboard a jeep with plate number 77-99-F-I Manila, owned by
plaintiff, Ruperto Catuar was driving the said jeep on Ortigas
Avenue, San Juan, Rizal.
Plaintiff's jeep, at the time, was running moderately
at 20 to 35 kilometers per hour and while approaching
Roosevelt Avenue, Virgilio Catuar slowed down; that
suddenly, another jeep with plate number 99-97-F-J Manila
1971 driven by defendant Oscar Sabiniano hit and bumped
plaintiff's jeep on the portion near the left rear wheel, and as
a result of the impact plaintiff's jeep fell on its right and skidded
by about 30 yards
As a result, plaintiffs jeep was damaged, particularly the
windshield, the differential, the part near the left rear wheel and
the top cover of the jeep; that plaintiff Virgilio Catuar was
thrown to the middle of the road; his wrist was broken and
he sustained contusions on the head; that likewise plaintiff
Antonio Sarmiento, Sr. was trapped inside the fallen jeep,
and one of his legs was fractured.
Evidence also shows that the plaintiff Virgilio Catuar
spent a total of P2,464.00 for repairs of the jeep; that while
plaintiff Catuar was not confined in the hospital, his wrist was in a
plaster cast for a period of one month, and the contusions on his
head were under treatment for about two (2) weeks; that for
hospitalization, medicine and allied expenses, plaintiff Catuar
spent P5,000.00.
Plaintiff Antonio Sarmiento, Sr. sustained injuries on his
leg; that at first, he was taken to the National Orthopedic Hospital
(Exh. K but later he was confined at the Makati Medical Center
from July 29, to August 29, 1971 and then from September 15 to
25, 1971; that his leg was in a plaster cast for a period of eight
(8) months; and that for hospitalization and medical attendance,
plaintiff Antonio Sarmiento, Sr. spent no less than P13,785.25.
Proofs were adduced also to show that plaintiff Antonio
Sarmiento Sr. is employed as Assistant Accountant of the
Canlubang Sugar Estate with a salary of P1,200.00 a month;
that as sideline he also works as accountant of United Haulers
Inc. with a salary of P500.00 a month; and that as a result of this
incident, plaintiff Sarmiento was unable to perform his normal
work for a period of at least 8 months. On the other hand,
evidence shows that the other plaintiff Virgilio Catuar is a Chief
Clerk in Canlubang Sugar Estate with a salary of P500.00 a
month, and as a result of the incident, he was incapacitated to
work for a period of one (1) month.

Defendant Gualberto Duavit, while admitting ownership

of the other jeep denied that the other defendant (Oscar
Sabiniano) was his employee. Duavit claimed that he has not
been an employer of defendant Oscar Sabiniano at any time up
to the present.
Defendant Sabiniano admitted that he took the jeep
from the garage of defendant Duavit without the consent or
authority of the latter. He testified further, that Duavit even filed
charges against him for theft of the jeep, but which Duavit did not
push through as his (Sabiniano's) parents apologized to Duavit
on his behalf.
Sabiniano claims that it was plaintiffs vehicle which hit
and bumped their jeep, taking all necessary precaution while
driving and the accident occurred due to the negligence of
Virgilio Catua.
RTC found Oscar Sabiniano negligent in driving the
vehicle but found no employer-employee relationship between
him and the petitioner because the latter was then a government
employee and he took the vehicle without the authority and
consent of the owner.
CA held petitioner jointly and severally liable with
Sabiniano. The appellate court in part ruled that it is immaterial
whether or not the driver was actually employed by the operator
of record or registered owner, and it is even not necessary to
prove who the actual owner of the vehicle and who the employer
of the driver is.
ISSUE: W/N the owner of a private vehicle which figured in
an accident can be held liable under Article 2180 of the Civil
Code when the said vehicle was neither driven by an
employee of the owner nor taken with the consent of the
latter.
HELD: NO. An owner of a vehicle cannot be held liable for an
accident involving the said vehicle if the same was driven without
his consent or knowledge and by a person not employed by him.
Herein petitioner does not deny ownership of the vehicle
involved in tire mishap but completely denies having employed
the driver Sabiniano or even having authorized the latter to drive
his jeep. The jeep was virtually stolen from the petitioner's
garage. To hold, therefore, the petitioner liable for the accident
caused by the negligence of Sabiniano who was neither his
driver nor employee would be absurd as it would be like holding
liable the owner of a stolen vehicle for an accident caused by the
person who stole such vehicle.

IV. G.R. No. 98275 November 13, 1992

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

FACTS: The question of petitioner's responsibility for damages

when on March 6, 1983, an accident occurred involving
petitioner's Isuzu ten-wheeler truck then driven by Rogelio
Villar y Amare, the driver of the Isuzu 10- wheeler truck, was
at fault when the mishap occurred in as much as he was found
guilty beyond reasonable doubt of reckless imprudence
resulting in triple homicide with multiple physical injuries
with damage to property (3 persons).
BA Finance was adjudged liable for damages in as
much as the truck was registered in its name during the
incident in question, following the doctrine laid down by this
Court in Perez and Erezo.
In the same breadth, Rock Component Philippines,
Inc. was ordered to reimburse petitioner for any amount that
the latter may be adjudged liable to pay herein private
respondents as expressly stipulated in the contract of lease
between petitioner and Rock Component Philippines, Inc.
Moreover, the RTC applied Article 2194 of the new Civil
Code on solidary accountability of join tortfeasors insofar as the
liability of the driver, herein petitioner and Rock Component
Philippines was concerned.CA affirmed.
Petitioner contended that it was not the employer of
the negligent driver who was under the control an supervision
of Lino Castro at the time of the accident, apart from the fact that
the Isuzu truck was in the physical possession of Rock
Component Philippines by virtue of the lease agreement.

ISSUE: W/N petitioner can be held responsible to the victim

albeit the truck was leased to Rock Component Philippines
when the incident occurred
: W/N BA Finance can escape liability by proving the
actual/real owner of the truck.

HELD: .1. YES. The registered owner of a certificate of public

convenience is liable to the public for the injuries or damages
suffered by passengers or third persons caused by the operation
of said vehicle, even though the same had been transferred to a
third person.

The principle upon which this doctrine is based is that in

dealing with vehicles registered under the Public Service
Law, the public has the right to assume or presumed that
the registered owner is the actual owner thereof, for it would
be difficult with the public to enforce the actions that they may
have for injuries caused to them by the vehicles being negligently
operated if the public should be required to prove who actual the
owner is.
Under the same principle the registered owner of any
vehicle, even if not used for a public service, should primarily
responsible to the public or to the third persons for injuries
caused the latter while the vehicle is being driven on the
highways or streets.
2. NO. There is a presumption that the owner of the
guilty vehicle is the defendant-appellant as he is the registered
owner in the Motor Vehicle Office. The law does not allow him to
do so. It does not relieve him directly of the responsibility that the
law fixes and places upon him as an incident or consequence of
registration. Were a registered owner allowed to evade
responsibility by proving who the supposed transferee or
owner is, it would be easy for him, by collusion with others
or otherwise, to escape said responsibility and transfer the
same to an indefinite person, or to one who possesses no
property with which to respond financially for the damage or
injury done.
The Revised Motor Vehicle Law (Act No. 3992, as amended)
provides that the vehicle may be used or operated upon any
public highway unless the same is properly registered. It has
been stated that the system of licensing and the requirement that
each machine must carry a registration number,
conspicuously displayed, is one of the precautions taken to
reduce the danger of injury of pedestrians and other
travelers from the careless management of automobiles,
and to furnish a means of ascertaining the identity of
persons violating the laws and ordinances.
Registration is required not to make said registration the
operative act by which ownership in vehicles is transferred, as in
land registration cases, because the administrative proceeding of
registration does not bear any essential relation to the contract of
sale between the parties but to permit the use and operation of
the vehicle upon any public highway.
The main aim of motor vehicle registration is to
identify the owner so that if any accident happens, or that
any damage or injury is caused by the vehicle on the public
highways, responsibility therefor can be fixed on a definite
individual, the registered owner.
In synthesis, we hold that the registered owner, the
defendant-appellant herein, is primarily responsible for the
damage caused to the vehicle of the plaintiff-appellee, but he
(defendant-appellant) has a right to be indemnified by the real or
actual owner of the amount that he may be required to pay as
damage for the injury caused to the plaintiff-appellant.
If the foregoing words of wisdom were applied in solving
the circumstance whereof the vehicle had been alienated or sold
to another, there certainly can be no serious exception against
utilizing the same rationale to the antecedents of this case where
the subject vehicle was merely leased by petitioner to Rock
Component Philippines, Inc., with petitioner retaining
ownership over the vehicle.

makes the Public Service Act inapplicable. However, the registered

owner of the vehicle driven by a negligent driver may still be held
liable under applicable jurisprudence involving laws on
compulsory motor vehicle registration and the liabilities of
employers .

V. G.R. No. 162267

July 4, 2008

PCI LEASING AND FINANCE, INC., petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC., respondent.
FACTS: On October 19, 1990 at about 10:30 p.m., a Mitsubishi
Lancer car with Plate Number PHD-206 owned by United
Coconut Planters Bank was traversing the Laurel Highway,
Barangay Balintawak, Lipa City.

The registered owner of a motor vehicle is primarily and

directly responsible for the consequences of its operation, including
the negligence of the driver, with respect to the public and all third
persons.
In this case, there is not even a sale of the vehicle
involved, but a mere lease, which remained unregistered up to
the time of the occurrence of the quasi-delict that gave rise to
the case. Since a lease, unlike a sale, does not even involve a
transfer of title or ownership, but the mere use or enjoyment of
property, there is more reason, therefore, in this instance to uphold
the policy behind the law, which is to protect the unwitting public and
provide it with a definite person to make accountable for losses or
injuries suffered in vehicular accidents.

The car was insured with UCPB General Insurance Inc.,

then driven by Flaviano Isaac with Conrado Geronimo, the Asst.
Manager of said bank, was hit and bumped by an 18-wheeler
Fuso Tanker Truck with Plate No. PJE-737 and Trailer Plate No.
NVM-133, owned by defendants-appellants PCI Leasing &
Finance, Inc. allegedly leased to and operated by defendantappellant Superior Gas & Equitable Co., Inc. (SUGECO) and
driven by its employee, defendant appellant Renato Gonzaga.

This is and has always been the rationale behind

compulsory motor vehicle registration under the Land
Transportation and Traffic Code and similar laws, which, as early
as Erezo, has been guiding the courts in their disposition of cases
involving motor vehicular incidents. It is also important to emphasize
that such principles apply to all vehicles in general, not just
those offered for public service or utility.

The impact caused heavy damage to the Mitsubishi Lancer

car resulting in an explosion of the rear part of the car. The driver
and passenger suffered physical injuries. However, the driver
defendant-appellant Gonzaga continued on its way to its
destination and did not bother to bring his victims to the
hospital.

2. NO. The new law, R.A. No. 8556, notwithstanding

developments in foreign jurisdictions, do not supersede or repeal the
law on compulsory motor vehicle registration. No part of the law
expressly repeals Section 5(a) and (e) of R.A. No. 4136, as
amended, otherwise known as the Land Transportation and Traffic
Code, to wit:

Plaintiff-appellee paid the assured UCPB the amount

of P244,500.00 representing the insurance coverage of the
damaged car.
As the 18-wheeler truck is registered under the name of
PCI Leasing, repeated demands were made by plaintiff-appellee
for the payment of the aforesaid amounts. However, no payment
was made. Thus, plaintiff-appellee filed the instant case thereafter.
PCI Leasing and Finance, Inc., averred that it could not
be held liable for the collision, since the driver of the truck,
Gonzaga, was not its employee, but that of its co-defendant
Superior Gas & Equitable Co., Inc. (SUGECO). In fact, it was
SUGECO, and not petitioner, that was the actual operator of the
truck, pursuant to a Contract of Lease signed by petitioner and
SUGECO. Petitioner, however, admitted that it was the owner of
the truck in question.
RTC ordered PCI to pay UCPB. CA affirmed.
ISSUE: W/N PCI, as registered owner of a motor vehicle that
figured in a quasi-delict may be held liable, jointly and severally,
with the driver thereof, for the damages caused to third parties.
: W/N PCI, as a financing company, is absolved from liability by
the enactment of Republic Act (R.A.) No. 8556, or the Financing
Company Act of 1998.
HELD: YES. Petitioner claims that the CAs reliance on the Public
Service Act is misplaced, since the said law applies only to cases
involving common carriers, or those which have franchises to
operate as public utilities. In contrast, the case before this Court
involves a private commercial vehicle for business use, which is not
offered for service to the general public.
Petitioners contention has partial merit, as indeed, the
vehicles involved in the case at bar are not common carriers, which

Sec. 5. Compulsory registration of motor vehicles. (a) All

motor vehicles and trailer of any type used or operated on or
upon any highway of the Philippines must be registered with the
Bureau of Land Transportation (now the Land Transportation
Office, per Executive Order No. 125, January 30, 1987, and
Executive Order No. 125-A, April 13, 1987) for the current year
in accordance with the provisions of this Act.
Xxxx
(e) Encumbrances of motor vehicles. Mortgages, attachments,
and other encumbrances of motor vehicles,in order to be valid
against third parties must be recorded in the Bureau (now the
Land Transportation Office). Voluntary transactions or voluntary
encumbrances shall likewise be properly recorded on the face
of all outstanding copies of the certificates of registration of the
vehicle concerned.
Cancellation or foreclosure of such mortgages, attachments,
and other encumbrances shall likewise be recorded, and in the
absence of such cancellation, no certificate of registration shall
be issued without the corresponding notation of mortgage,
attachment and/or other encumbrances.
Thus, the rule remains the same: a sale, lease, or
financial lease, for that matter, that is not registered with the
Land Transportation Office, still does not bind third persons
who are aggrieved in 5ortuous incidents, for the latter need
only to rely on the public registration of a motor vehicle as
conclusive evidence of ownership. The non-registration of the
lease contract between petitioner and its lessee precludes the
former from enjoying the benefits under Section 12 of R.A. No. 8556.
They may resort to third-party complaints against their
lessees or whoever are the actual operators of their vehicles. In the
case at bar, there is, in fact, a provision in the lease contract
between petitioner and SUGECO to the effect that the latter
shall indemnify and hold the former free and harmless from any

liabilities, damages, suits, claims or judgments arising from

the latters use of the motor vehicle. Whether petitioner would act
against SUGECO based on this provision is its own option.
Petitioner pays the price for its failure to obey the law on
compulsory registration of motor vehicles for registration is a prerequisite for any person to even enjoy the privilege of putting a
vehicle on public roads.

VI. G.R. No. 125817

January 16, 2002

registered owner of the vehicle as his principal, equity

demanded that the present case be made an exception.

ABELARDO LIM and ESMADITO GUNNABAN, petitioners,

vs.
COURT OF APPEALS and DONATO H.
GONZALES, respondents.

ISSUE: W/N the new owner of a passenger jeepney (Donato)

who continue to operate the same under the kabit system
and in the course thereof meets an accident has the legal
personality to bring action for damages

FACTS: Sometime in 1982 private respondent Donato

Gonzales purchased an Isuzu passenger jeepney from
Gomercino Vallarta, holder of a certificate of public
convenience for the operation of public utility vehicles
plying the Monumento-Bulacan route.

HELD: YES. Thrust of the law in enjoining the kabit system is not
so much as to penalize the parties but to identify the person
upon whom responsibility may be fixed in case of an accident
with the end view of protecting the riding public.

While private respondent Gonzales continued offering

the jeepney for public transport services he did not have the
registration of the vehicle transferred in his name nor did he
secure for himself a certificate of public convenience for its
operation. Thus Vallarta remained on record as its
registered owner and operator.
On 22 July 1990, while the jeepney was running
northbound along the North Diversion Road somewhere in
Meycauayan, Bulacan, it collided with a ten-wheeler-truck
owned by petitioner Abelardo Lim and driven by his copetitioner Esmadito Gunnaban. Gunnaban owned
responsibility for the accident, explaining that while he was
traveling towards Manila the truck suddenly lost its brakes. To
avoid colliding with another vehicle, he swerved to the left
until he reached the center island. However, as the center
island eventually came to an end, he veered farther to the left
until he smashed into a Ferroza automobile, and later, into
private respondent's passenger jeepney driven by one Virgilio
Gonzales. The impact caused severe damage to both the
Ferroza and the passenger jeepney and left one (1) passenger
dead and many others wounded.
Petitioner Lim shouldered the costs for hospitalization of
the wounded, compensated the heirs of the deceased
passenger, and had the Ferroza restored to good condition. He
also negotiated with private respondent and offered to have the
passenger jeepney repaired at his shop. Private respondent
demanded a brand-new jeep or the amount of P236,000.00.
Lim increased his bid to P40,000.00 but private respondent
was unyielding. Under the circumstances, negotiations had to
be abandoned; hence, the filing of the complaint for damages by
private respondent against petitioners.
Lim denied liability by contending that he exercised due
diligence in the selection and supervision of his employees. He
further asserted that as the jeepney was registered in Vallartas
name, it was Vallarta and not private respondent who was the
real party in interest. For his part, petitioner Gunnaban averred
that the accident was a fortuitous event which was beyond his
control.
RTC ruled in favour of Gonzales stating that as vendee
and current owner of the passenger jeepney private
respondent stood for all intents and purposes as the real
party in interest. Even Vallarta himself supported private
respondent's assertion of interest over the jeepney for, when he
was called to testify, he dispossessed himself of any claim or
pretension on the property. On the other hand, petitioner Lim's
liability for Gunnaban's negligence was premised on his want of
diligence in supervising his employees. It was admitted during
trial that Gunnaban doubled as mechanic of the ill-fated truck
despite the fact that he was neither tutored nor trained to handle
such task.
CA affirmed and concluded that while an operator
under the kabit system could not sue without joining the

The kabit system is an arrangement whereby a

person who has been granted a certificate of public
convenience allows other persons who own motor vehicles
to operate them under his license, sometimes for a fee or
percentage of the earnings. Although the parties to such an
agreement are not outrightly penalized by law, the kabit system
is invariably recognized as being contrary to public policy and
therefore void and inexistent under Art. 1409 of the Civil Code.
In the present case it is at once apparent that the evil
sought to be prevented in enjoining the kabit system does not
exist. First, neither of the parties to the pernicious kabit system is
being held liable for damages. Second, the case arose from the
negligence of another vehicle in using the public road to whom
no representation, or misrepresentation, as regards the
ownership and operation of the passenger jeepney was made
and to whom no such representation, or misrepresentation, was
necessary. Thus it cannot be said that private respondent
Gonzales and the registered owner of the jeepney were in
estoppel for leading the public to believe that the jeepney
belonged to the registered owner. Third, the riding public was not
bothered nor inconvenienced at the very least by the illegal
arrangement. On the contrary, it was private respondent himself
who had been wronged and was seeking compensation for the
damage done to him.

VII. G.R. No. L-65510

March 9, 1987

TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner, vs.

HONORABLE INTERMEDIATE APPELLATE COURT * AND
PEDRO N. NALE, respondents.
FACTS: On May 9, 1975, the Pedro Nale bought from the Teja
Mktg. a motorcycle with complete accessories and a sidecar
in the total consideration of P8,000.00. Out of the total purchase
price the defendant gave a downpayment of P1,700.00 with a
promise that he would pay plaintiff the balance within sixty
days. The defendant, however, failed to comply with his promise
and so upon his own request, the period of paying the balance
was extended to one year in monthly installments until
January 1976 when he stopped paying anymore.
The plaintiff made demands but just the same the
defendant failed to comply with the same thus forcing the plaintiff
file this action.The records of the LTC show that the motorcycle
sold to the defendant was first mortgaged to the Teja
Marketing by Angel Jaucian though the Teja Marketing and
Angel Jaucian are one and the same. Hence, it was made to
appear that way only as the defendant had no franchise of his
own and he attached the unit to the plaintiff's MCH Line.
The agreement also of the parties here was for the
plaintiff to undertake the yearly registration of the motorcycle with
the Land Transportation Commission. Pursuant to this
agreement the defendant on February 22, 1976 gave the plaintiff
P90.00, the P8.00 would be for the mortgage fee and the P82.00
for the registration fee of the motorcycle. The plaintiff, however
failed to register the motorcycle on that year.
On his part the defendant did not dispute the sale and
the outstanding balance of P1,700. 00 still payable to the plaintiff.
The defendant was persuaded to buy from the plaintiff the
motorcycle with the side car because of the condition that the
plaintiff would be the one to register every year the motorcycle
with the Land Transportation Commission.
In 1976, however, the plaintfff failed to register both the
chattel mortgage and the motorcycle with the LTC
notwithstanding the fact that the defendant gave him P90.00 for
mortgage fee and registration fee and had the motorcycle
insured with La Perla Compana de Seguros (Exhibit "6") as
shown also by the Certificate of cover (Exhibit "3"). Because of
this failure of the plaintiff to comply with his obligation to register
the motorcycle the defendant suffered damages when he failed
to claim any insurance indemnity which would amount to no less
than P15,000.00 for the more than two times that the motorcycle
figured in accidents aside from the loss of the daily income of
P15.00 as boundary fee beginning October 1976 when the
motorcycle was impounded by the LTC for not being registered.
The defendant disputed the claim of the plaintiff that he
was hiding from the plaintiff the motorcycle resulting in its not
being registered. The truth being that the motorcycle was being
used for transporting passengers and it kept on travelling from
one place to another.
The motor vehicle sold to him was mortgaged by the
plaintiff with the Rural Bank of Camaligan without his consent
and knowledge and the defendant was not even given a copy of
the mortgage deed. The defendant claims that it is not true that
the motorcycle was mortgaged because of re-discounting for
rediscounting is only true with Rural Banks and the Central Bank.
The defendant puts the blame on the plaintiff for not registering
the motorcycle with the LTC and for not giving him the
registration papers inspite of demands made.

... it also appears and the Court so finds that defendant

purchased the motorcycle in question, particularly for the
purpose of engaging and using the same in the transportation
business and for this purpose said trimobile unit was attached to
the plaintiffs transportation line who had the franchise, so much
so that in the registration certificate, the plaintiff appears to be
the owner of the unit. Furthermore, it appears to have been
agreed, further between the plaintiff and the defendant, that
plaintiff would undertake the yearly registration of the unit in
question with the LTC. Thus, for the registration of the unit for the
year 1976, per agreement, the defendant gave to the plaintiff the
amount of P82.00 for its registration, as well as the insurance
coverage of the unit.
City Court ordered the defendant to pay plaintiff the
sum of P1,700.00 representing the unpaid balance of the
purchase price. CFI affirmed.
CA dismissed on the ground of pari delicto since the
purchase of the motorcycle for operation as a trimobile under the
franchise of the private respondent Jaucian, pursuant to what is
commonly known as the "kabit system", without the prior
approval of the Board of Transportation (formerly the Public
Service Commission) was an illegal transaction involving the
fictitious registration of the motor vehicle in the name of the
private respondent so that he may traffic with the privileges of his
franchise, or certificate of public convenience, to operate a
tricycle service, the parties being in pari delicto, neither of them
may bring an action against the other to enforce their illegal
contract [Art.
ISSUE: W/N CA erred in applying the doctrine of "pari
delicto."
HELD: NO. Unquestionably, the parties herein operated under
an arrangement, commonly known as the "kabit system"
whereby a person who has been granted a certificate of
public convenience allows another person who owns motor
vehicles to operate under such franchise for a fee.
A certificate of public convenience is a special privilege
conferred by the government. Abuse of this privilege by the
grantees thereof cannot be countenanced. The "kabit system"
has been Identified as one of the root causes of the prevalence
of graft and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense,
the kabit system is invariably recognized as being contrary to
public policy and, therefore, void and in existent under Article
1409 of the Civil Code. It is a fundamental principle that the court
will not aid either party to enforce an illegal contract, but will
leave both where it finds them.
The defect of in existence of a contract is permanent
and cannot be cured by ratification or by prescription. The mere
lapse of time cannot give efficacy to contracts that are null and
void.

VIII. G.R. No. L-64693 April 27, 1984

LITA ENTERPRISES, INC., petitioner,
vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE
APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA
P. GARCIA, respondents.
FACTS: Sometime in 1966, the spouses Nicasio M. Ocampo
and Francisca Garcia, herein private respondents, purchased
in installment from the Delta Motor Sales Corporation five
(5) Toyota Corona Standard cars to be used as taxicabs.
Since they had no franchise to operate taxicabs, they contracted
with petitioner Lita Enterprises, Inc., through its representative,
Manuel Concordia, for the use of the latter's certificate of public
convenience in consideration of an initial payment of P1,000.00
and a monthly rental of P200.00 per taxicab unit.
To effectuate Id agreement, the aforesaid cars were
registered in the name of petitioner Lita Enterprises, Inc,
Possession, however, remained with tile spouses Ocampo
who operated and maintained the same under the name
Acme Taxi, petitioner's trade name.
About a year later, one of said taxicabs driven by their
employee, Emeterio Martin, collided with a motorcycle whose
driver, one Florante Galvez, died from the head injuries
sustained therefrom. Criminal and civil cases were eventually
filed against the driver Emeterio Martin, and against Lita
Enterprises, Inc., as registered owner of the taxicab in the latter
case. Lita Enterprises, Inc. was adjudged liable for damages in
the amount of P25,000.00 and P7,000.00 for attorney's fees.
Hence, 2 of the vehicles of respondent spouses were levied
upon and sold at public auction.
Thereafter, in March 1973, respondent Nicasio
Ocampo decided to register his taxicabs in his name. He
requested the manager of petitioner Lita Enterprises, Inc. to turn
over the registration papers to him, but the latter allegedly
refused. RTC ordered Lita Enterprises to transfer the registration
certificate of the 3 Toyota cars not levied upon. CA affirmed with
modifications. In the event the condition of the three Toyota
rears will no longer serve the purpose of the deed of conveyance
because of their deterioration, or because they are no longer
serviceable, or because they are no longer available, then Lita
Enterprises, Inc. is ordered to pay the plaintiffs their FMV.
ISSUE: W/N Lita Enterprises is liable to the heir of victim
who died as a result of gross negligence of Ocampo and
Garcias driver while driving the taxicabs.
HELD: YES. The parties herein operated under an arrangement,
comonly known as the "kabit system", whereby a person who
has been granted a certificate of convenience allows
another person who owns motors vehicles to operate under
such franchise for a fee.
A certificate of public convenience is a special privilege
conferred by the government . Abuse of this privilege by the
grantees thereof cannot be countenanced. The "kabit system"
has been Identified as one of the root causes of the prevalence
of graft and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense,
the "kabit system" is invariably recognized as being contrary to
public policy and, therefore, void and inexistent under Article
1409 of the Civil Code, It is a fundamental principle that the court
will not aid either party to enforce an illegal contract, but will
leave them both where it finds them. Article 1412 of the Civil
Code denies them such aid.

The defect of inexistence of a contract is permanent and

incurable, and cannot be cured by ratification or by prescription.

IX. G.R. No. 95536 March 23, 1992

ANICETO G. SALUDO, JR., MARIA SALVACION SALUDO,
LEOPOLDO G. SALUDO and SATURNINO G.
SALUDO, petitioners,
vs.
HON. COURT OF APPEALS, TRANS WORLD AIRLINES, INC.,
and PHILIPPINE AIRLINES, INC., respondents.
FACTS: Crispina Galdo Saludo, mother of the petitioners, died in
Chicago, Illinois. Pomierski and Son Funeral Home of Chicago,
made the necessary preparations and arrangements for the
shipment of the remains from Chicago to the Philippines. Pomierski
brought the remains to Continental Mortuary Air Services (CMAS) at
the Chicago Airport which made the necessary arrangements such
as flights, transfers, etc. CMAS booked the shipment with PAL thru
the carriers agent Air Care International. PAL Airway Bill Ordinary
was issued wherein the requested routing was from Chicago to San
Francisco on board Trans World Airline (TWA) and from San
Francisco to Manila on board PAL.
Salvacion (one of the petitioners), upon arrival at San
Francisco, went to the TWA to inquire about her mothers remains.
But she was told they did not know anything about it. She then called
Pomierski that her mothers remains were not at the West Coast
terminal. Pomierski immediately called CMAS which informed that
the remains were on a plane to Mexico City, that there were two
bodies at the terminal, and somehow they were switched. CMAS
called and told Pomierski that they were sending the remains back to
California via Texas.
Petitioners filed a complaint against TWA and PAL fir the
misshipment and delay in the delay of the cargo containing the
remains of the late Crispina Saludo. Petitioners alleged that private
respondents received the casketed remains of Crispina on October
26, 1976, as evidenced by the issuance of PAL Airway Bill by Air
Care and from said date, private respondents were charged with the
responsibility to exercise extraordinary diligence so much so that the
alleged switching of the caskets on October 27, 1976, or one day
after the private respondents received the cargo, the latter must
necessarily be liable.
ISSUE: W/N there was delivery of the cargo upon mere issuance
of the airway bill
: W/N the delay in the delivery of the casketed remains of
petitioners mother was due to the fault of respondent airline
companies
HELD: NO to both, but TWA was held to pay petitioners nominal
damages of P40,000 for its violation of the degree of diligence
required by law to be exercised by every common carrier.
Ordinarily, a receipt is not essential to a complete
delivery of goods to the carrier for transportation but, when
issued, is competent and prima facie, but not conclusive,
evidence of delivery to the carrier.
A bill of lading, when properly executed and delivered
to a shipper, is evidence that the carrier has received the goods
described therein for shipment. Except as modified by statute, it is
a general rule as to the parties to a contract of carriage of goods in
connection with which a bill of lading is issued reciting that goods
have been received for transportation, that the recital being in
essence a receipt alone, is not conclusive, but may be explained,
varied or contradicted by parol or other evidence.
In other words, on October 26, 1976 the cargo containing
the casketed remains of Crispina Saludo was booked for PAL Flight

Number PR-107 leaving San Francisco for Manila on October 27,

1976, PAL Airway Bill No. 079-01180454 was issued, not as
evidence of receipt of delivery of the cargo on October 26, 1976, but
merely as a confirmation of the booking thus made for the San
Francisco-Manila flight scheduled on October 27, 1976. Actually, it
was not until October 28, 1976 that PAL received physical delivery of
the body at San Francisco, as duly evidenced by the Interline Freight
Transfer Manifest of the American Airline Freight System and signed
for by Virgilio Rosales at 1945H, or 7:45 P.M. on said date.
Explicit is the rule under Article 1736 of the Civil Code that
the extraordinary responsibility of the common carrier begins from
the time the goods are delivered to the carrier. This responsibility
remains in full force and effect even when they are temporarily
unloaded or stored in transit, unless the shipper or owner exercises
the right of stoppage in transitu, and terminates only after the lapse
of a reasonable time for the acceptance, of the goods by the
consignee or such other person entitled to receive them. And, there
is delivery to the carrier when the goods are ready for and have
been placed in the exclusive possession, custody and control of the
carrier for the purpose of their immediate transportation and the
carrier has accepted them. Where such a delivery has thus been
accepted by the carrier, the liability of the common carrier
commences eo instanti.
Hence, while we agree with petitioners that the
extraordinary diligence statutorily required to be observed by the
carrier instantaneously commences upon delivery of the goods
thereto, for such duty to commence there must in fact have been
delivery of the cargo subject of the contract of carriage. Only when
such fact of delivery has been unequivocally established can the
liability for loss, destruction or deterioration of goods in the custody
of the carrier, absent the excepting causes under Article 1734, attach
and the presumption of fault of the carrier under Article 1735 be
invoked.
As already demonstrated, the facts in the case at bar belie
the averment that there was delivery of the cargo to the carrier on
October 26, 1976. Rather, as earlier explained, the body intended to
be shipped as agreed upon was really placed in the possession and
control of PAL on October 28, 1976 and it was from that date that
private respondents became responsible for the agreed cargo under
their undertakings in PAL Airway Bill No. 079-01180454.
Consequently, for the switching of caskets prior thereto which was
not caused by them, and subsequent events caused thereby, private
respondents cannot be held liable.
The oft-repeated rule regarding a carrier's liability for delay
is that in the absence of a special contract, a carrier is not an insurer
against delay in transportation of goods. When a common carrier
undertakes to convey goods, the law implies a contract that they
shall be delivered at destination within a reasonable time, in the
absence, of any agreement as to the time of delivery. But where a
carrier has made an express contract to transport and deliver
property within a specified time, it is bound to fulfill its contract and is
liable for any delay, no matter from what cause it may have arisen.
A common carrier undertaking to transport property
has the implicit duty to carry and deliver it within reasonable
time, absent any particular stipulation regarding time of
delivery, and to guard against delay. In case of any
unreasonable delay, the carrier shall be liable for damages
immediately and proximately resulting from such neglect of
duty. As found by the trial court, the delay in the delivery of the
remains of Crispina Saludo, undeniable and regrettable as it was,
cannot be attributed to the fault, negligence or malice of private
respondents, a conclusion concurred in by respondent court and
which we are not inclined to disturb.

X. G.R. No. 94761 May 17, 1993

Yes.
MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V. CASTILLO, doing business
under the name and style of Ethegal Laboratories, respondents.
FACTS: Petitioner Maersk Line is engaged in the transportation of
goods by sea, doing business in the Philippines through its general
agent Compania General de Tabacos de Filipinas.
Private respondent Efren Castillo, is the proprietor of Ethegal
Laboratories, a firm engaged in the manufacture of pharmaceutical
products.
In 1976, Efren ordered from Eli Lilly. Inc. of Puerto Rico
through its (Eli Lilly, Inc.'s) agent in the Philippines, Elanco Products,
600,000 empty gelatin capsules for the manufacture of his
pharmaceutical products. The capsules were placed in six (6) drums
of 100,000 capsules each valued at US $1,668.71.
Through a Memorandum of Shipment, the shipper Eli Lilly,
Inc. of Puerto Rico advised private respondent as consignee that
the 600,000 empty gelatin capsules in six (6) drums of 100,000
capsules each, were already shipped on board MV "Anders
Maerskline" for shipment to the Philippines via Oakland, California.
In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival
to be April 3, 1977.
For reasons unknown, said cargo of capsules were
mishipped and diverted to Richmond, Virginia, USA and then
transported back Oakland, Califorilia. The goods finally arrived in the
Philippines on June 10, 1977 or after two (2) months from the date
specified in the memorandum. As a consequence, private respondent
as consignee refused to take delivery of the goods on account of its
failure to arrive on time.
Private respondent alleging gross negligence and undue delay
in the delivery of the goods, filed an action before the court a quo for
rescission of contract with damages against petitioner and Eli Lilly, Inc.
as defendants.
Denying that it committed breach of contract, petitioner alleged
that the subject shipment was transported in accordance with the
provisions of the covering bill of lading and that its liability under the
law on transportation of good attaches only in case of loss,
destruction or deterioration of the goods as provided for in Article
1734 of Civil Code.
Defendant Eli Lilly, Inc. alleged that the delay in the arrival of
the the subject merchandise was due solely to the gross negligence of
petitioner Maersk Line.
RTC rendered judgment in favor of respondent Castillo, stating
that there was a breach in the performance of their obligation by the
defendant Maersk Line consisting of their negligence to ship the 6
drums of empty Gelatin Capsules which under their own
memorandum shipment would arrive in the Philippines on April 3, 1977
which under Art. 1170 of the New Civil Code, they stood liable for
damages.
Considering that the only evidence presented by the defendant
Maersk line thru its agent the Compania de Tabacos de Filipinas is the
testimony of Rolando Ramirez, the Court did not change the findings and
rendered judgment in favor of the plaintiff Efren Castillo as against the
defendant Maersk Line thru its agent, the COMPANIA GENERAL DE
TABACOS DE FILIPINAS. CA affirmed.
ISSUE: W/N a cause of action exists against Maersk Line given that
there was a dismissal of the complaint against Eli Lilly?
Yes, but not under the cross claim rather because Maersk was an
original party.
:W/N Castillo is entitled to damages resulting from delay in the
delivery of the shipment in the absence in the bill of lading of a
stipulation on the delivery of goods?

HELD: It should be recalled that the complaint was filed originally

against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier.
Petitioner being an original party defendant upon whom the delayed
shipment is imputed cannot claim that the dismissal of the complaint
against Eli Lilly, Inc. inured to its benefit.
As borne out by the record, the RTC anchored its decision on
petitioner's delay or negligence to deliver the six (6) drums of gelatin
capsules within a reasonable time on the basis of which petitioner was
held liable for damages under Article 1170 of the New Civil Code which
provides that those who in the performance of their obligations are guilty
of fraud, negligence, or delay and those who in any manner contravene
the tenor thereof, are liable for damages.
Nonetheless, Maersk maintains that it cannot be held for
damages for the alleged delay in the delivery of the 600,000 empty
gelatin capsules since it acted in good faith and there was no special
contract under which the carrier undertook to deliver the shipment on or
before a specific date.
On the other hand, Efren claims that during the period before
the specified date of arrival of the goods, he had made several
commitments and contract of adhesion. Therefore, petitioner can be
held liable for the damages suffered by private respondent for the
cancellation of the contracts he entered into.
The bill of lading covering the subject shipment among
others, reads:
6. GENERAL
(1) The Carrier does not undertake that the goods shall arrive
at the port of discharge or the place of delivery at any particular
time or to meet any particular market or use and save as is
provided in clause 4 the Carrier shall in no circumstances be
liable for any direct, indirect or consequential loss or damage
caused by delay. If the Carrier should nevertheless be held
legally liable for any such direct or indirect or consequential
loss or damage caused by delay, such liability shall in no event
exceed the freight paid for the transport covered by this Bill of
Lading.
It is not disputed that the aforequoted provision at the back of
the bill of lading, in fine print, is a contract of adhesion. Generally,
contracts of adhesion are considered void since almost all the
provisions of these types of contracts are prepared and drafted
only by one party, usually the carrier. The only participation left of the
other party in such a contract is the affixing of his signature thereto,
hence the term "Adhesion".
Nonetheless, settled is the rule that bills of lading are
contracts not entirely prohibited. One who adheres to the contract is
in reality free to reject it in its entirety; if he adheres, he gives his
consent. The questioned provision in the subject bill of lading has the
effect of practically leaving the date of arrival of the subject shipment on
the sole determination and will of the carrier.
While it is true that common carriers are not obligated by law to
carry and to deliver merchandise, and persons are not vested with the
right to prompt delivery, unless such common carriers previously assume
the obligation to deliver at a given date or time, delivery of shipment or
cargo should at least be made within a reasonable time.
In the case before us, we find that a delay in the delivery of
the goods spanning a period of two (2) months and seven (7) days
falls was beyond the realm of reasonableness. Described as gelatin
capsules for use in pharmaceutical products, subject shipment was
delivered to, and left in, the possession and custody of petitioner-carrier
for transport to Manila via Oakland, California. But through petitioner's
negligence was mishipped to Richmond, Virginia. Petitioner's insitence
that it cannot be held liable for the delay finds no merit.

XI. G.R. No. 118126 March 4, 1996

TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. COURT
OF APPEALS and ATTY. RENATO T. ARROYO, respondents.
FACTS: Plaintiff [herein private respondent Atty. Renato
Arroyo], a public attorney, bought a ticket from Trans-Asia
[herein petitioner], a corporation engaged in inter-island
shipping, for the voyage of M/V Asia Thailand vessel to
Cagayan de Oro City from Cebu City on November 12, 1991.
At around 5:30 in the evening of November 12, 1991,
Arroyo boarded the vessel. At that instance, plaintiff noticed
that some repair works were being undertaken on the
engine of the vessel. The vessel departed at around 11:00 in
the evening with only one (1) engine running.
After an hour of slow voyage, the vessel stopped near
Kawit Island and dropped its anchor thereat. After half an
hour of stillness, some passengers demanded that they should
be allowed to return to Cebu City for they were no longer
willing to continue their voyage to Cagayan de Oro City. The
captain acceeded to their request and thus the vessel headed
back to Cebu City.
At Cebu City, plaintiff together with the other passengers
who requested to be brought back to Cebu City, were allowed to
disembark. Thereafter, the vessel proceeded to Cagayan de Oro
City. Plaintiff, the next day, boarded the M/V Asia Japan for its
voyage to Cagayan de Oro City, likewise a vessel of defendant.
On account of this failure of defendant to transport him to the
place of destination on November 12, 1991, plaintiff filed before
RTC for damages.
He alleged that the engines of the M/V Asia Thailand
conked out in the open sea, and for more than an hour it was
stalled and at the mercy of the waves, thus causing fear in the
passengers. It sailed back to Cebu City after it regained power,
but for unexplained reasons, the passengers, including the
private respondent, were arrogantly told to disembark without the
necessary precautions against possible injury to them. They
were thus unceremoniously dumped, which only exacerbated the
private respondent's mental distress. He further alleged that by
reason of the petitioner's wanton, reckless, and willful acts, he
was unnecessarily exposed to danger and, having been stranded
in Cebu City for a day.
In his pre-trial brief, the private respondent asserted that his
complaint was "an action for damages arising from bad faith,
breach of contract and from tort," with the former arising from the
petitioner's "failure to carry [him] to his place of destination as
contracted," while the latter from the "conduct of the [petitioner]
resulting [in] the infliction of emotional distress" to the private
respondent. 6
RTC ruled that the action was only for breach of
contract, with Articles 1170, 1172, and 1173 of the Civil Code as
applicable law not Article 2180 of the same Code. Also, the
defendant thru its employees in the night of November 12, 1991,
did not commit fraud, negligence, bad faith or malice when it left
plaintiff in the Port of Cebu when it sailed back to Cagayan de
Oro City after it returned from Kawit Island.
As early as 3:00 p.m. of November 12, 1991, defendant
did not hide the fact that the cylinder head cracked. Plaintiff even
saw during its repair. If he had doubts as to the vessel's capacity
to sail, he had time yet to take another boat. The ticket could be
returned to defendant and corresponding cash would be returned
to him.

Neither could negligence, bad faith or malice on the part

of defendant be inferred from the evidence of the parties. When
the boat arrived at [the] Port of Cebu after it returned from Kawit
Island, there was an announcement that passengers who would
like to disembark were given ten (10) minutes only to do so. By
this announcement, it could be inferred that the boat will [sic]
proceed to Cagayan de Oro City. Defendant cannot be expected
to inform the reasons to each passenger. Announcement by
microphone was enough.
CA reversed RTC decision. It did not, however, allow
the grant of damages for the delay in the performance of the
petitioner's obligation as the requirement of demand set forth in
Article 1169 of the Civil Code had not been met by the private
respondent. Besides, it found that the private respondent offered
no evidence to prove that his contract of carriage with the
petitioner provided for liability in case of delay in departure, nor
that a designation of the time of departure was the controlling
motive for the establishment of the contract.
On the latter, the court a quo observed that the private
respondent even admitted he was unaware of the vessel's
departure time, and it was only when he boarded the vessel that
he became aware of such.
It is an established and admitted fact that the vessel
before the voyage had undergone some repair work on the
cylinder head of the engine. It is likewise admitted by defendantappellee that it left the port of Cebu City with only one engine
running. Defendant-appellee averred:
. . . The dropping of the vessel's anchor after running slowly on
only one engine when it departed earlier must have alarmed
some nervous passengers . . .
The entries in the logbook which defendantappellee itself offered as evidence categorically
stated therein that the vessel stopped at Kawit
Island because of engine trouble. It reads:
2330 HRS STBD ENGINE' EMERGENCY
STOP
2350 HRS DROP ANCHOR DUE TO ENGINE
TROUBLE, 2 ENGINE STOP.
The stoppage was not to start and synchronized
[sic] the engines of the vessel as claimed by
defendant-appellee. It was because one of the
engines of the vessel broke down; it was
because of the disability of the vessel which
from the very beginning of the voyage was
known to defendant-appellee.
Defendant-appellee from the very start of the
voyage knew for a fact that the vessel was not
yet in its sailing condition because the second
engine was still being repaired. Inspite of this
knowledge, defendant-appellee still proceeded
to sail with only one engine running.
Defendant-appellee at that instant failed to
exercise the diligence which all common
carriers should exercise in transporting or
carrying passengers. The law does not merely
require extraordinary diligence in the
performance of the obligation. The law
mandates that common carrier[s] should
exercise utmost diligence the transport of
passengers.

Article 1755 of the New Civil Code provides:

Art. 1755. A common carrier is
bound to carry the passengers
safely as far as human care
and foresight can provide,
using the utmost diligence of
very cautious persons, with a
due regard for all the
circumstances.
Utmost diligence of a VERY CAUTIOUS person
dictates that defendant-appellee should have
pursued the voyage only when its vessel was
already fit to sail. Defendant-appellee should
have made certain that the vessel [could]
complete the voyage before starting [to] sail.
Anything less than this, the vessel [could not]
sail . . . with so many passengers on board it.
However, defendant-appellant [sic] in complete
disregard of the safety of the passengers,
chose to proceed with its voyage even if only
one engine was running as the second engine
was still being repaired during the voyage.
Defendant-appellee disregarded the not very
remote possibility that because of the disability
of the vessel, other problems might occur which
would endanger the lives of the passengers
sailing with a disabled vessel.
As expected, . . . engine trouble occurred.
Fortunate[ly] for defendant-appellee, such
trouble only necessitated the stoppage of the
vessel and did not cause the vessel to capsize.
No wonder why some passengers requested to
be brought back to Cebu City. Common carriers
which are mandated to exercise utmost
diligence should not be taking these risks.
On this premise, plaintiff-appellant should not
be faulted why he chose to disembark from the
vessel with the other passengers when it
returned back to Cebu City. Defendant-appellee
may call him a very "panicky passenger" or a
"nervous person", but this will not relieve
defendant-appellee from the liability it incurred
for its failure to exercise utmost diligence. 13
xxx xxx xxx
As to the second assigned error, we find that
plaintiff-appellant is entitled to the award of
moral and exemplary damages for the breach
committed by defendant-appellee.
As discussed, defendant-appellee in sailing to
Cagayan de Oro City with only one engine and
with full knowledge of the true condition of the
vessel, acted. in bad faith with malice, in
complete disregard for the safety of the
passengers and only for its own personal
advancement/interest.
The Civil Code provides:
Art. 2201.

In case of fraud, bad faith, malice or wanton attitude, the obligor

shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.
Plaintiff-appellant is entitled to moral damages for the mental
anguish, fright and serious anxiety he suffered during the voyage
when the vessel's engine broke down and when he disembarked
from the vessel during the wee hours of the morning at Cebu City
when it returned. 14
Undoubtedly, there was, between the petitioner and the
private respondent, a contract of common carriage. The laws of
primary application then are the provisions on common carriers
under Section 4, Chapter 3, Title VIII, Book IV of the Civil Code,
while for all other matters not regulated thereby, the Code of
Commerce and special laws. 20
Under Article 1733 of the Civil Code, the petitioner was bound to
observe extraordinary diligence in ensuring the safety of the
private respondent. That meant that the petitioner was, pursuant
to Article 1755 of the said Code, bound to carry the private
respondent safely as far as human care and foresight could
provide, using the utmost diligence of very cautious persons, with
due regard for all the circumstances. In this case, we are in full
accord with the Court of Appeals that the petitioner failed to
discharge this obligation.
Before commencing the contracted voyage, the petitioner
undertook some repairs on the cylinder head of one of the
vessel's engines. But even before it could finish these repairs, it
allowed the vessel to leave the port of origin on only one
functioning engine, instead of two. Moreover, even the lone
functioning engine was not in perfect condition as sometime after
it had run its course, it conked out. This caused the vessel to
stop and remain a drift at sea, thus in order to prevent the ship
from capsizing, it had to drop anchor. Plainly, the vessel was
unseaworthy even before the voyage began. 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. 21 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.
As to its liability for damages to the private respondent, Article
1764 of the Civil Code expressly provides:
Art. 1764. Damages in cases comprised in this
Section shall be awarded in accordance with
Title XVIII of this Book, concerning Damages.
Article 2206 shall also apply to the death of a
passenger caused by the breach of contract by
common carrier.
The damages comprised in Title XVIII of the Civil Code
are actual or compensatory, moral, nominal, temperate
or moderate, liquidated, and exemplary.
In his complaint, the private respondent claims actual or
compensatory, moral, and exemplary damages.
Actual or compensatory damages represent the adequate
compensation for pecuniary loss suffered and for profits the
obligee failed to obtain. 22
In contracts or quasi-contracts, the obligor is liable for all the
damages which may be reasonably attributed to the nonperformance of the obligation if he is guilty of fraud, bad faith,
malice, or wanton attitude. 23

Moral damages include moral suffering, mental anguish, fright,

serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, or similar injury. They may be
recovered in the cases enumerated in Article 2219 of the Civil
Code, likewise, if they are the proximate result of, as in this case,
the petitioner's breach of the contract of carriage. 24 Anent a
breach of a contract of common carriage, moral damages may
be awarded if the common carrier, like the petitioner, acted
fraudulently or in bad faith. 25
Exemplary damages are imposed by way of example or
correction for the public good, in addition to moral, temperate,
liquidated or compensatory damages. 26 In contracts and quasicontracts, exemplary damages may be awarded if the defendant
acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner. 27 It cannot, however, be considered as a matter of right;
the court having to decide whether or not they should be
adjudicated. 28 Before the court may consider an award for
exemplary damages, the plaintiff must first show that he is
entitled to moral, temperate or compensatory damages; but it is
not necessary that he prove the monetary value thereof. 29
The Court of Appeals did not grant the private respondent actual
or compensatory damages, reasoning that no delay was incurred
since there was no demand, as required by Article 1169 of the
Civil Code. This article, however, finds no application in this case
because, as found by the respondent Court, there was in fact no
delay in the commencement of the contracted voyage. If any
delay was incurred, it was after the commencement of such
voyage, more specifically, when the voyage was subsequently
interrupted when the vessel had to stop near Kawit Island after
the only functioning engine conked out.
As to the rights and duties of the parties strictly arising out of
such delay, the Civil Code is silent. However, as correctly pointed
out by the petitioner, Article 698 of the Code of Commerce
specifically provides for such a situation. It reads:
In case a voyage already begun should be interrupted, the
passengers shall be obliged to pay the fare in proportion to the
distance covered, without right to recover for losses and
damages if the interruption is due to fortuitous event or force
majeure, but with a right to indemnity if the interruption should
have been caused by the captain exclusively. If the interruption
should be caused by the disability of the vessel and a passenger
should agree to await the repairs, he may not be required to pay
any increased price of passage, but his living expenses during
the stay shall be for his own account.
This article applies suppletorily pursuant to Article 1766
of the Civil Code.
Of course, this does not suffice for a resolution of the case at
bench for, as earlier stated, the cause of the delay or interruption
was the petitioner's failure to observe extraordinary diligence.
Article 698 must then be read together with Articles 2199, 2200,
2201, and 2208 in relation to Article 21 of the Civil Code. So
read, it means that the petitioner is liable for any pecuniary loss
or loss of profits which the private respondent may have suffered
by reason thereof. For the private respondent, such would be the
loss of income if unable to report to his office on the day he was
supposed to arrive were it not for the delay. This, however,
assumes that he stayed on the vessel and was with it when it
thereafter resumed its voyage; but he did not. As he and some
passengers resolved not to complete the voyage, the vessel had
to return to its port of origin and allow them to disembark. The
private respondent then took the petitioner's other vessel the
following day, using the ticket he had purchased for the previous
day's voyage.
Any further delay then in the private respondent's arrival at the
port of destination was caused by his decision to disembark. Had

he remained on the first vessel, he would have reached his

destination at noon of 13 November 1991, thus been able to
report to his office in the afternoon. He, therefore, would have
lost only the salary for half of a day. But actual or compensatory
damages must be proved, 30 which the private respondent failed
to do. There is no convincing evidence that he did not receive his
salary for 13 November 1991 nor that his absence was not
excused.
We likewise fully agree with the Court of Appeals that the
petitioner is liable for moral and exemplary damages. In allowing
its unseaworthy M/V Asia Thailand to leave the port of origin and
undertake the contracted voyage, with full awareness that it was
exposed to perils of the sea, it deliberately disregarded its
solemn duty to exercise extraordinary diligence and obviously
acted with bad faith and in a wanton and reckless manner. On
this score, however, the petitioner asserts that the safety or the
vessel and passengers was never at stake because the sea was
"calm" in the vicinity where it stopped as faithfully recorded in the
vessel's log book (Exhibit "4"). Hence, the petitioner concludes,
the private respondent was merely "over-reacting" to the situation
obtaining then. 31
We hold that the petitioner's defense cannot exculpate it nor
mitigate its liability. On the contrary, such a claim demonstrates
beyond cavil the petitioner's lack of genuine concern for the
safety of its passengers. It was, perhaps, only providential then
the sea happened to be calm. Even so, the petitioner should not
expect its passengers to act in the manner it desired. The
passengers were not stoics; becoming alarmed, anxious, or
frightened at the stoppage of a vessel at sea in an unfamiliar
zone as nighttime is not the sole prerogative of the faint-hearted.
More so in the light of the many tragedies at sea resulting in the
loss of lives of hopeless passengers and damage to property
simply because common carriers failed in their duty to exercise
extraordinary diligence in the performance of their obligations.
We cannot, however, give our affirmance to the award of
attorney's fees. Under Article 2208 of the Civil Code, these are
recoverable only in the concept of actual damages, 32 not as
moral damages 33 nor judicial costs. 34Hence, to merit such an
award, it is settled that the amount thereof must be
proven. 35 Moreover, such must be specifically prayed for as
was not done in this caseand may not be deemed incorporated
within a general prayer for "such other relief and remedy as this
court may deem just and equitable." 36 Finally, it must be noted
that aside from the following, the body of the respondent Court's
decision was devoid of any statement regarding attorney's fees:
Plaintiff-appellant was forced to litigate in order that he can claim
moral and exemplary damages for the suffering he encurred [sic].
He is entitled to attorney's fees pursuant to Article 2208 of the
Civil Code. It states:
Art. 2208. In the absence of stipulation, attorney's fees and
expenses of litigation, other than judicial costs cannot be
recovered except:
1. When exemplary damages are awarded;
2. When the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to
protect his interest.
This Court holds that the above does not satisfy the benchmark
of "factual, legal and equitable justification" needed as basis for
an award of attorney's fees. 37 In sum, for lack of factual and
legal basis, the award of attorney's fees must be deleted.
WHEREFORE, the instant petition is DENIED and the
challenged decision of the Court of Appeals in CA-G.R. CV No.

39901 is AFFIRMED subject to the modification as to the award

for attorney's fees which is hereby SET ASIDE