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.

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.
The plaintiffs have filed this case both against
Oscar Sabiniano as driver, and against Gualberto Duavit
as owner of the jeep.
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.

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.

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

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.

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 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 defendant-appellant Superior Gas &
Equitable Co., Inc. (SUGECO) and driven by its
employee, defendant appellant Renato Gonzaga.

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 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 defendantappellant Gonzaga continued on its way to its
destination and did not bother to bring his victims to
the hospital.

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.

Plaintiff-appellee paid the assured UCPB the

amount of P244,500.00 representing the insurance
coverage of the damaged car.

In synthesis, we hold that the registered owner,

the defendant-appellant herein, is primarily responsible
for the damage caused to the vehicle of the plaintiffappellee, 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.

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.

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.

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.

Xxxx

Petitioners contention has partial merit, as

indeed, the vehicles involved in the case at bar are not
common carriers, which 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 .
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.

(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.
X x x x (Emphasis supplied)

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.
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.
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:
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

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
6ortuous incidents, for the latter need only to rely on
the public registration of a motor vehicle as
conclusive evidence of ownership. The nonregistration 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 pre-requisite for any person to even
enjoy the privilege of putting a vehicle on public roads.

VI. G.R. No. 125817

January 16, 2002

ABELARDO LIM and ESMADITO

GUNNABAN, petitioners,
vs.
COURT OF APPEALS and DONATO H.
GONZALES, respondents.
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.
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 tenwheeler-truck owned by petitioner Abelardo Lim and
driven by his co-petitioner 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 registered owner of the vehicle
as his principal, equity demanded that the present
case be made an exception.
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
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.
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

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?
Yes.
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 TransAsia [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 defendant-appellee that it left the port of
Cebu City with only one engine running. Defendantappellee 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

defendant-appellee 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 defendantappellee. 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 defendantappellee.

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.

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.

As expected, . . . engine trouble

occurred. Fortunate[ly] for defendantappellee, 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.

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.

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

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.

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 defendantappellee.
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
non-performance 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 quasi-contracts, 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