You are on page 1of 112

1|Page|| Tr a n s p o r t a t i o n Law Assigned Readings

TRANSPORTATION LAW ASSIGNED READINGS: Convention, to be one undivided carriage, if it has


GOVERNING LAWS: been regarded by the parties as a single operation,
NEW CIVIL CODE: whether it had been agreed upon under the form of
a single contract or of a series of contracts, and it
WARSAW CONVENTION:
does not lose its international character merely
because one contract or a series of contracts is to be
Convention for the Unification of Certain Rules Relating
performed entirely within a territory subject to the
to International Carriage by Air, Signed at Warsaw on 12
sovereignty, suzerainty, mandate or authority of the
October 1929
same High Contracting Party.
(Warsaw Convention)

7
2

Article 2
Chapter I - Scope - Definitions

8
3

This Convention applies to carriage performed by


Article 1
the State or by legally constituted public bodies
provided it falls within the conditions laid down in
4
Article 1.

This Convention applies to all international carriage


9
of persons, luggage or goods performed by aircraft
for reward. It applies equally to gratuitous carriage
This Convention does not apply to carriage
by aircraft performed by an air transport
performed under the terms of any international
undertaking.
postal Convention.

5
10

For the purposes of this Convention the expression


Chapter II - Documents of Carriage
"international carriage" means any carriage in
which, according to the contract made by the
11
parties, the place of departure and the place of
destination, whether or not there be a break in the
Section I - Passenger Ticket
carriage or a transhipment, are situated either
within the territories of two High Contracting
12
Parties, or within the territory of a single High
Contracting Party, if there is an agreed stopping Article 3
place within a territory subject to the sovereignty,
suzerainty, mandate or authority of another Power, 13
even though that Power is not a party to this
Convention. A carriage without such an agreed For the carriage of passengers the carrier must
stopping place between territories subject to the deliver a passenger ticket which shall contain the
sovereignty, suzerainty, mandate or authority of the following particulars:-
same High Contracting Party is not deemed to be
international for the purposes of this Convention. 14

6 the place and date of issue;

A carriage to be performed by several successive air 15


carriers is deemed, for the purposes of this
2|Page|| Tr a n s p o r t a t i o n Law Assigned Readings
(b) the place of departure and of destination; 24

16 The luggage ticket shall contain the following


particulars:-
(c) the agreed stopping places, provided that the
carrier may reserve the right to alter the stopping 25
places in case of necessity, and that if he exercises
that right, the alteration shall not have the effect of the place and date of issue;
depriving the carriage of its international character;
26
17
(b) the place of departure and of destination;
(d) the name and address of the carrier or carriers;
27
18
(c) the name and address of the carrier or carriers;
(e) a statement that the carriage is subject to the
rules relating to liability established by this 28
Convention.
(d) the number of the passenger ticket;

19
29
The absence, irregularity or loss of the passenger
(e) a statement that delivery of the luggage will be
ticket does not affect the existence or the validity of
made to the bearer of the luggage ticket;
the contract of carriage, which shall none the less be
subject to the rules of this Convention. Nevertheless,
30
if the carrier accepts a passenger without a
passenger ticket having been delivered he shall not
(f) the number and weight of the packages;
be entitled to avail himself of those provisions of this
Convention which exclude or limit his liability.
31

20
(g) the amount of the value declared in accordance
with Article 22(2);
Section II - Luggage Ticket

32
21

(h) a statement that the carriage is subject to the


Article 4
rules relating to liability established by this
Convention.
22

33
For the carriage of luggage, other than small
personal objects of which the passenger takes charge
himself, the carrier must deliver a luggage ticket.

23

The luggage ticket shall be made out in duplicate,


one part for the passenger and the other part for the
carrier.
3|Page|| Tr a n s p o r t a t i o n Law Assigned Readings
The absence, irregularity or loss of the luggage ticket accompany the goods. The third part shall be signed
does not affect the existence or the validity of the by the carrier and handed by him to the consignor
contract of carriage, which shall none the less be after the goods have been accepted.
subject to the rules of this Convention. Nevertheless,
if the carrier accepts luggage without a luggage 41
ticket having been delivered, or if the luggage ticket
does not contain the particulars set out at (d), (f) and The carrier shall sign on acceptance of the goods.
(h) above, the carrier shall not be entitled to avail
himself of those provisions of the Convention which 42
exclude or limit his liability.
The signature of the carrier may be stamped; that of
the consignor may be printed or stamped.
34

Section III - Air Consignment Note 43

If, at the request of the consignor, the carrier makes


35
out the air consignment note, he shall be deemed,
Article 5 subject to proof to the contrary, to have done so on
behalf of the consignor.
36
44
Every carrier of goods has the right to require the
consignor to make out and hand over to him a Article 7
document called an "air consignment note"; every
consignor has the right to require the carrier to 45
accept this document.
The carrier of goods has the right to require the
consignor to make out separate consignment notes
37
when there is more than one package.
The absence, irregularity or loss of this document
does not affect the existence or the validity of the 46
contract of carriage which shall, subject to the
Article 8
provisions of Article 9, be none the less governed by
the rules of this Convention.
47

38
The air consignment note shall contain the following
particulars:-
Article 6

48
39

the place and date of its execution;


The air consignment note shall be made out by the
consignor in three original parts and be handed over
49
with the goods.

(b) the place of departure and of destination;


40

50
The first part shall be marked "for the carrier," and
shall be signed by the consignor. The second part
(c) the agreed stopping places, provided that the
shall be marked "for the consignee"; it shall be
carrier may reserve the right to alter the stopping
signed by the consignor and by the carrier and shall
places in case of necessity, and that if he exercises
4|Page|| Tr a n s p o r t a t i o n Law Assigned Readings
that right the alteration shall not have the effect of 61
depriving the carriage of its international character;
(n) the number of parts of the air consignment note;
51
62
(d) the name and address of the consignor;
(o) the documents handed to the carrier to
52 accompany the air consignment note;

(e) the name and address of the first carrier; 63

53 (p) the time fixed for the completion of the carriage


and a brief note of the route to be followed, if these
(f) the name and address of the consignee, if the case matters have been agreed upon;
so requires;
64
54
(q) a statement that the carriage is subject to the
(g) the nature of the goods; rules relating to liability established by this
Convention.
55
65
(h) the number of the packages, the method of
packing and the particular marks or numbers upon Article 9
them;
66
56
If the carrier accepts goods without an air
the weight, the quantity and the volume or consignment note having been made out, or if the
dimensions of the goods; air consignment note does not contain all the
particulars set out in Article 8(a) to (i) inclusive and
57 (q), the carrier shall not be entitled to avail himself of
the provisions of this Convention which exclude or
(j) the apparent condition of the goods and of the limit his liability.
packing;
67
58
Article 10
(k) the freight, if it has been agreed upon, the date
and place of payment, and the person who is to pay 68
it;
The consignor is responsible for the correctness of
59 the particulars and statements relating to the goods
which he inserts in the air consignment note.
(l) if the goods are sent for payment on delivery, the
price of the goods, and, if the case so requires, the 69
amount of the expenses incurred;
The consignor will be liable for all damage suffered
60 by the carrier or any other person by reason of the
irregularity, incorrectness or incompleteness of the
(m) the amount of the value declared in accordance said particulars and statements.
with Article 22 (2);
5|Page|| Tr a n s p o r t a t i o n Law Assigned Readings
70 If the carrier obeys the orders of the consignor for
the disposition of the goods without requiring the
Article 11 production of the part of the air consignment note
delivered to the latter, he will be liable, without
71 prejudice to his right of recovery from the consignor,
for any damage which may be caused thereby to any
The air consignment note is prima facie evidence of
person who is lawfully in possession of that part of
the conclusion of the contract, of the receipt of the
the air consignment note.
goods and of the conditions of carriage.

77
72
The right conferred on the consignor ceases at the
The statements in the air consignment note relating
moment when that of the consignee begins in
to the weight, dimensions and packing of the goods,
accordance with Article 13. Nevertheless, if the
as well as those relating to the number of packages,
consignee declines to accept the consignment note or
are prima facie evidence of the facts stated; those
the goods, or if he cannot be communicated with,
relating to the quantity, volume and condition of the
the consignor resumes his right of disposition.
goods do not constitute evidence against the carrier
except so far as they both have been, and are stated 78
in the air consignment note to have been, checked by
him in the presence of the consignor, or relate to the Article 13
apparent condition of the goods.
79
73
Except in the circumstances set out in the preceding
Article 12 Article, the consignee is entitled, on arrival of the
goods at the place of destination, to require the
74 carrier to hand over to him the air consignment note
and to deliver the goods to him, on payment of the
Subject to his liability to carry out all his obligations
charges due and on complying with the conditions
under the contract of carriage, the consignor has the
of carriage set out in the air consignment note.
right to dispose of the goods by withdrawing them
at the aerodrome of departure or destination, or by 80
stopping them in the course of the journey on any
landing, or by calling for them to be delivered at the Unless it is otherwise agreed, it is the duty of the
place of destination or in the course of the journey to carrier to give notice to the consignee as soon as the
a person other than the consignee named in the air goods arrive.
consignment note, or by requiring them to be
returned to the aerodrome of departure. He must 81
not exercise this right of disposition in such a way as
to prejudice the carrier or other consignors and he If the carrier admits the loss of the goods, or if the
must repay any expenses occasioned by the exercise goods have not arrived at the expiration of seven
of this right. days after the date on which they ought to have
arrived, the consignee is entitled to put into force
75 against the carrier the rights which flow from the
contract of carriage.
If it is impossible to carry out the orders of the
consignor the carrier must so inform him forthwith. 82

76 Article 14
6|Page|| Tr a n s p o r t a t i o n Law Assigned Readings
83 Chapter III - Liability of the Carrier

The consignor and the consignee can respectively 91


enforce all the rights given them by Articles 12 and
13, each in his own name, whether he is acting in his Article 17
own interest or in the interest of another, provided
that he carries out the obligations imposed by the 92
contract.
The carrier is liable for damage sustained in the
84 event of the death or wounding of a passenger or
any other bodily injury suffered by a passenger, if
Article 15 the accident which caused the damage so sustained
took place on board the aircraft or in the course of
85 any of the operations of embarking or disembarking.

Articles 12, 13 and 14 do not affect either the 93


relations of the consignor or the consignee with each
other or the mutual relations of third parties whose Article 18
rights are derived either from the consignor or from
the consignee. 94

86 The carrier is liable for damage sustained in the


event of the destruction or loss of, or of damage to,
The provisions of Articles 12, 13 and 14 can only be any registered luggage or any goods, if the
varied by express provision in the air consignment occurrence which caused the damage so sustained
note. took place during the carriage by air.

87 95

Article 16 The carriage by air within the meaning of the


preceding paragraph comprises the period during
88 which the luggage or goods are in charge of the
carrier, whether in an aerodrome or on board an
The consignor must furnish such information and aircraft, or, in the case of a landing outside an
attach to the air consignment note such documents aerodrome, in any place whatsoever.
as are necessary to meet the formalities of customs,
octroi or police before the goods can be delivered to 96
the consignee. The consignor is liable to the carrier
for any damage occasioned by the absence, The period of the carriage by air does not extend to
insufficiency or irregularity of any such information any carriage by land, by sea or by river performed
or documents, unless the damage is due to the fault outside an aerodrome. If, however, such a carriage
of the carrier or his agents. takes place in the performance of a contract for
carriage by air, for the purpose of loading, delivery
89 or transshipment, any damage is presumed, subject
to proof to the contrary, to have been the result of an
The carrier is under no obligation to enquire into the event which took place during the carriage by air.
correctness or sufficiency of such information or
documents. 97

90 Article 19
7|Page|| Tr a n s p o r t a t i o n Law Assigned Readings
98 contract, the carrier and the passenger may agree to
a higher limit of liability.
The carrier is liable for damage occasioned by delay
in the carriage by air of passengers, luggage or 106
goods.
In the carriage of registered luggage and of goods,
99 the liability of the carrier is limited to a sum of 250
francs per kilogram, unless the consignor has made,
Article 20 at the time when the package was handed over to
the carrier, a special declaration of the value at
100 delivery and has paid a supplementary sum if the
case so requires. In that case the carrier will be liable
The carrier is not liable if he proves that he and his
to pay a sum not exceeding the declared sum, unless
agents have taken all necessary measures to avoid
he proves that that sum is greater than the actual
the damage or that it was impossible for him or
value to the consignor at delivery.
them to take such measures.

107
101
As regards objects of which the passenger takes
In the carriage of goods and luggage the carrier is
charge himself the liability of the carrier is limited to
not liable if he proves that the damage was
5,000 francs per passenger.
occasioned by negligent pilotage or negligence in the
handling of the aircraft or in navigation and that, in 108
all other respects, he and his agents have taken all
necessary measures to avoid the damage. The sums mentioned above shall be deemed to refer
to the French franc consisting of 65 milligrams
102 gold of millesimal fineness 900. These sums may be
converted into any national currency in round
Article 21
figures.

103
109

If the carrier proves that the damage was caused by


Article 23
or contributed to by the negligence of the injured
person the Court may, in accordance with the 110
provisions of its own law, exonerate the carrier
wholly or partly from his liability. Any provision tending to relieve the carrier of
liability or to fix a lower limit than that which is laid
104 down in this Convention shall be null and void, but
the nullity of any such provision does not involve
Article 22
the nullity of the whole contract, which shall remain
subject to the provisions of this Convention.
105

111
In the carriage of passengers the liability of the
carrier for each passenger is limited to the sum of
Article 24
125,000 francs. Where, in accordance with the law of
the Court seised of the case, damages may be 112
awarded in the form of periodical payments, the
equivalent capital value of the said payments shall In the cases covered by Articles 18 and 19 any action
not exceed 125,000 francs. Nevertheless, by special for damages, however founded, can only be brought
8|Page|| Tr a n s p o r t a t i o n Law Assigned Readings
subject to the conditions and limits set out in this must be made at the latest within fourteen days
Convention. from the date on which the luggage or goods have
been placed at his disposal.
113
120
In the cases covered by Article 17 the provisions of
the preceding paragraph also apply, without Every complaint must be made in writing upon the
prejudice to the questions as to who are the persons document of carriage or by separate notice in
who have the right to bring suit and what are their writing despatched within the times aforesaid.
respective rights.
121
114
Failing complaint within the times aforesaid, no
Article 25 action shall lie against the carrier, save in the case of
fraud on his part.
115
122
The carrier shall not be entitled to avail himself of
the provisions of this Convention which exclude or Article 27
limit his liability, if the damage is caused by his
wilful misconduct or by such default on his part as, 123
in accordance with the law of the Court seised of the
case, is considered to be equivalent to wilful In the case of the death of the person liable, an
misconduct. action for damages lies in accordance with the terms
of this Convention against those legally representing
116 his estate.

Similarly the carrier shall not be entitled to avail 124


himself of the said provisions, if the damage is
caused as aforesaid by any agent of the carrier acting Article 28
within the scope of his employment.
125
117
An action for damages must be brought, at the
Article 26 option of the plaintiff, in the territory of one of the
High Contracting Parties, either before the Court
118 having jurisdiction where the carrier is ordinarily
resident, or has his principal place of business, or
Receipt by the person entitled to delivery of luggage has an establishment by which the contract has been
or goods without complaint is prima facie evidence made or before the Court having jurisdiction at the
that the same have been delivered in good condition place of destination.
and in accordance with the document of carriage.
126
119
Questions of procedure shall be governed by the law
In the case of damage, the person entitled to of the Court seised of the case.
delivery must complain to the carrier forthwith after
the discovery of the damage, and, at the latest, 127
within three days from the date of receipt in the case
of luggage and seven days from the date of receipt in Article 29
the case of goods. In the case of delay the complaint
9|Page|| Tr a n s p o r t a t i o n Law Assigned Readings
128 134

The right to damages shall be extinguished if an Chapter IV - Provisions Relating to Combined


action is not brought within two years, reckoned Carriage
from the date of arrival at the destination, or from
the date on which the aircraft ought to have arrived, 135
or from the date on which the carriage stopped.
Article 31
129
136
The method of calculating the period of limitation
shall be determined by the law of the Court seised of In the case of combined carriage performed partly
the case. by air and partly by any other mode of carriage, the
provisions of this Convention apply only to the
130 carriage by air, provided that the carriage by air falls
within the terms of Article 1.
Article 30
137
131
Nothing in this Convention shall prevent the parties
In the case of carriage to be performed by various in the case of combined carriage from inserting in
successive carriers and falling within the definition the document of air carriage conditions relating to
set out in the third paragraph of Article 1, each other modes of carriage, provided that the
carrier who accepts passengers, luggage or goods is provisions of this Convention are observed as
subjected to the rules set out in this Convention, and regards the carriage by air.
is deemed to be one of the contracting parties to the
contract of carriage in so far as the contract deals 138
with that part of the carriage which is performed
under his supervision. Chapter V - General and Final Provisions

132 139

In the case of carriage of this nature, the passenger Article 32


or his representative can take action only against the
carrier who performed the carriage during which 140
the accident or the delay occurred, save in the case
Any clause contained in the contract and all special
where, by express agreement, the first carrier has
agreements entered into before the damage occurred
assumed liability for the whole journey.
by which the parties purport to infringe the rules
laid down by this Convention, whether by deciding
133
the law to be applied, or by altering the rules as to
As regards luggage or goods, the passenger or jurisdiction, shall be null and void. Nevertheless for
consignor will have a right of action against the first the carriage of goods arbitration clauses are allowed,
carrier, and the passenger or consignee who is subject to this Convention, if the arbitration is to
entitled to delivery will have a right of action against take place within one of the jurisdictions referred to
the last carrier, and further, each may take action in the first paragraph of Article 28.
against the carrier who performed the carriage
during which the destruction, loss, damage or delay 141
took place. These carriers will be jointly and
Article 33
severally liable to the passenger or to the consignor
or consignee.
10 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
142 Ministry for Foreign Affairs of Poland, which will
notify the deposit to the Government of each of the
Nothing contained in this Convention shall prevent High Contracting Parties.
the carrier either from refusing to enter into any
contract of carriage, or from making regulations 151
which do not conflict with the provisions of this
Convention. As soon as this Convention shall have been ratified
by five of the High Contracting Parties it shall come
143 into force as between them on the ninetieth day after
the deposit of the fifth ratification. Thereafter it shall
Article 34 come into force between the High Contracting
Parties who shall have ratified and the High
144 Contracting Party who deposits his instrument of
ratification on the ninetieth day after the deposit.
This Convention does not apply to international
carriage by air performed by way of experimental 152
trial by air navigation undertakings with the view to
the establishment of a regular line of air navigation, It shall be the duty of the Government of the
nor does it apply to carriage performed in Republic of Poland to notify to the Government of
extraordinary circumstances outside the normal each of the High Contracting Parties the date on
scope of an air carrier's business. which this Convention comes into force as well as
the date of the deposit of each ratification.
145
153
Article 35
Article 38
146
154
The expression "days" when used in this Convention
means current days not working days. This Convention shall, after it has come into force,
remain open for accession by any State.
147
155
Article 36
The accession shall be effected by a notification
148 addressed to the Government of the Republic of
Poland, which will inform the Government of each
The Convention is drawn up in French in a single
of the High Contracting Parties thereof.
copy which shall remain deposited in the archives of
the Ministry for Foreign Affairs of Poland and of 156
which one duly certified copy shall be sent by the
Polish Government to the Government of each of the The accession shall take effect as from the ninetieth
High Contracting Parties. day after the notification made to the Government of
the Republic of Poland.
149
157
Article 37
Article 39
150
158
This Convention shall be ratified. The instruments of
ratification shall be deposited in the archives of the
11 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Any one of the High Contracting Parties may 165
denounce this Convention by a notification
addressed to the Government of the Republic of Any High Contracting Party shall be entitled not
Poland, which will at once inform the Government earlier than two years after the coming into force of
of each of the High Contracting Parties. this Convention to call for the assembling of a new
international Conference in order to consider any
159 improvements which may be made in this
Convention. To this end he will communicate with
Denunciation shall take effect six months after the the Government of the French Republic which will
notification of denunciation, and shall operate only take the necessary measures to make preparations
as regards the Party who shall have proceeded to for such Conference.
denunciation.
166
160
This Convention done at Warsaw on the 12th
Article 40 October, 1929, shall remain open for signature until
the 31st January, 1930.
161

Any High Contracting Party may, at the time of


signature or of deposit of ratification or of accession Additional Protocol
declare that the acceptance which he gives to this
Convention does not apply to all or any of his 167
colonies, protectorates, territories under mandate, or
any other territory subject to his sovereignty or his Additional Protocol (With reference to Article 2)
authority, or any territory under his suzerainty.
168
162
The High Contracting Parties reserve to themselves
Accordingly any High Contracting Party may the right to declare at the time of ratification or of
subsequently accede separately in the name of all or accession that the first paragraph of Article 2 of this
any of his colonies, protectorates, territories under Convention shall not apply to international carriage
mandate or any other territory subject to his by air performed directly by the State, its colonies,
sovereignty or to his authority or any territory under protectorates or mandated territories or by any other
his suzerainty which has been thus excluded by his territory under its sovereignty, suzerainty or
original declaration. authority."

163 CODE OF COMMERCE:

Any High Contracting Party may denounce this Code of Commerce Provisions on Overland
Convention, in accordance with its provisions, Transportation1
separately or for all or any of his colonies,
protectorates, territories under mandate or any other Scope
territory subject to his sovereignty or to his
authority, or any other territory under his As the heading suggests, this portion of the discussion on
suzerainty. Code of Commerce transportation contracts covers
overland transportation, the other portion covering
164 admiralty/maritime transport. The non-inclusion of air
transportation may be attributed to the fact they were
Article 41
1
12 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
inexistent at the time this antiquated piece of legislation Those parts and provisions of the Civil Code of 1889
was enacted. Commercial overland transportation covers which are in force on the date when this new Civil Code
the transport of merchandise or any objects of commerce becomes effective;
or the transportation of any object by entities habitually
engaged in public transportation. The provisions of the Code of Commerce governing sales,
partnership, agency, loan, deposit and guaranty;

The provisions of the Code of Civil Procedure on


Nature of Contract prescription as far as inconsistent with this Code; and

ARTICLE 349. A contract of transportation by land or All laws, Acts, parts of Acts, rules of court, executive
water ways of any kind shall be considered commercial: orders, and administrative regulations which are
inconsistent with this Code.
When it has for its object merchandise or any article of
commerce.

When, whatever its object may be, the carrier is a The promulgation of the Civil Code, having included its
merchant or is habitually engaged in transportation for the own section on common carriers, removed the distinction
public. between transport contracts of common carriers under the
Civil Code and that of the Code of Commerce. Since the
provisions pertaining to overland transportation have not
been repealed expressly, the Code of Commerce
The first one is self-explanatory as transportation of provisions apply suppletorily.
merchandise is always commercial. The second
subparagraph may be confusing however, as it may
include transportation of news and persons, and hence
may be thought of as being covered by the NCC Common Contract of Carriage
Carrier provisions. It must be noted that the article
principally requires that the carrier be a merchant or one Bill of lading
habitually engaged in transportation work for the public,
so that it may still be considered commercial even if the Subject matter and description
business is for transporting passengers.
ARTICLE 352. The bills of lading, or tickets in cases of
transportation of passengers, may be diverse, some for
persons and others for baggage; but all of them shall bear
Effect of Civil Code the name of the carrier, the date of shipment, the points of
departure and arrival, the cost, and, with respect to the
Article 1766 (NCC ). In all matters not regulated by this
2
baggage, the number and weight of the packages, with
Code, the rights and obligations of common carriers shall such other manifestations which may be considered
be governed by the Code of Commerce and by special necessary for their easy identification.
laws.

As defined in 9 Am Jur 662, a bill of lading (B/L) is


Article 2270 (NCC). The following laws and regulations defined as a written acknowledgment of the receipt of
are hereby repealed: goods and an agreement to transport and to deliver them
at a specified place to a person named or on his order.
This includes almost all forms of transportation, and no
longer confined to its earlier notion of being issued only by
2 the vessels master. There are different classes of bills of
13 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
lading, and they are included in the Civil Code
enumeration of documents of title to goods as found in
Article 1636 thereof. In general, there is no strict form for bills of lading. The
enumeration of the contents may be simplified, omitted,
referred to standard matrices, etc. to maximize the number
of transactions that can be accommodated within a certain
Form and contents period. What is important in a B/L is that it contains the
carriers acknowledgment by the carrier that the goods are
ARTICLE 350. The shipper as well as the carrier of received, the legal effect is the same.
merchandise or goods may mutually demand that a bill of
lading be made, stating:

The name, surname and residence of the shipper. Function

The name, surname and residence of the carrier. ARTICLE 353. The legal evidence of the contract
between the shipper and the carrier shall be the bills of
The name, surname and residence of the person to whom lading, by the contents of which the disputes which may
or to whose order the goods are to be sent or whether they arise regarding their execution and performance shall be
are to be delivered to the bearer of said bill. decided, no exceptions being admissible other than those
of falsity and material error in the drafting.
The description of the goods, with a statement of their
kind, of their weight, and of the external marks or signs of After the contract has been complied with, the bill of
the packages in which they are contained. lading which the carrier has issued shall be returned to
him, and by virtue of the exchange of this title with the
The cost of transportation. thing transported, the respective obligations and actions
shall be considered cancelled, unless in the same act the
The date on which shipment is made. claim which the parties may wish to reserve be reduced to
writing, with the exception of that provided for in Article
The place of delivery to the carrier. 366.

The place and the time at which delivery to the consignee In case the consignee, upon receiving the goods, cannot
shall be made. return the bill of lading subscribed by the carrier, because
of its loss or of any other cause, he must give the latter a
The indemnity to be paid by the carrier in case of delay, if receipt for the goods delivered, this receipt producing the
there should be any agreement on this matter. same effects as the return of the bill of lading.

ARTICLE 351. In transportation made by railroads or A bill of lading is the legal evidence of the contract of
other enterprises subject to regulation rate and time transportation between the carrier and the shipper. In case
schedules, it shall be sufficient for the bills of lading or the of dispute, the B/L may be referred to in order to
declaration of shipment furnished by the shipper to refer, prove/disprove execution and performance in accordance
with respect to the cost, time and special conditions of the with its terms. Being a written contract, its contents may
carriage, to the schedules and regulations the application not be disputed subject to exceptions to the parole
of which he requests; and if the shipper does not evidence rule.
determine the schedule, the carrier must apply the rate of
those which appear to be the lowest, with the conditions
inherent thereto, always including a statement or reference
to in the bill of lading which he delivers to the shipper. Refusal to transport
14 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
ARTICLE 356. Carriers may refuse packages which according to the general provisions established in this
appear unfit for transportation; and if the carriage is to be Code for commercial contracts.
made by railway, and the shipment is insisted upon, the
company shall transport them, being exempt from all
responsibility if its objections, is made to appear in the bill
of lading. ARTICLE 351. In transportation made by railroads or
other enterprises subject to regulation rate and time
schedules, it shall be sufficient for the bills of lading or the
declaration of shipment furnished by the shipper to refer,
This is an exception rather than a rule, since generally, the with respect to the cost, time and special conditions of the
common carrier cannot ordinarily refuse to carry a carriage, to the schedules and regulations the application
particular class of goods without prejudicing its traffic. of which he requests; and if the shipper does not
Should the shipper insist despite the unfitness of the determine the schedule, the carrier must apply the rate of
items, the carrier is exonerated if the objection is stated in those which appear to be the lowest, with the conditions
the B/L. inherent thereto, always including a statement or reference
to in the bill of lading which he delivers to the shipper.

Doubtful declaration of contents


The issuance of a bill of lading may be demanded by
ARTICLE 357. If by reason of well-founded suspicion of shipper and carrier, this is not obligatory, since as a
falsity in the declaration as to the contents of a package the general rule, contracts may take any form. Its issuance may
carrier should decide to examine it, he shall proceed with only be obligatory in some instances pursuant to certain
his investigation in the presence of witnesses, with the regulations or as part of the agreement of the parties. The
shipper or consignee in attendance. want of B/L does not preclude the existence of a
transportation contract.
If the shipper or consignee who has to be cited does not
attend, the examination shall be made before a notary,
who shall prepare a memorandum of the result of the
investigation, for such purposes as may be proper. Carriers Responsibility

If the declaration of the shipper should be true, the Commencement


expense occasioned by the examination and that of
carefully repacking the packages shall be for the account ARTICLE 355. The responsibility of the carrier shall
of the carrier and in a contrary case for the account of the commence from the moment he receives the merchandise,
shipper. personally or through a person charged for the purpose, at
the place indicated for receiving them.

Carrier in case of doubt can examine contents of parcel,


but the procedure in the article should be followed. This is similar to Article 1736 of the New Civil Code.

No bill of lading Route

ARTICLE 354. In the absence of a bill of lading, disputes ARTICLE 359. If there is an agreement between the
shall be determined by the legal proofs which the parties shipper and the carrier as to the road over which the
may present in support of their respective claims, conveyance is to be made, the carrier may not change the
route, unless it be by reason of force majeure; and should
15 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
he do so without this cause, he shall be liable for all the Article 1734 (NCC). Common carriers are responsible for
losses which the goods he transports may suffer from any the loss, destruction, or deterioration of the goods, unless
other cause, beside paying the sum which may have been the same is due to any of the following causes only:
stipulated for such case.
Flood, storm, earthquake, lightning, or other natural
disaster or calamity;

If there is an agreed route, carriers violation may hold it Act of the public enemy in war, whether international or
liable for losses and other indemnities; and with Article civil;
1747 NCC, the carrier cannot limit its liability if the change
of route is unjustified. In case there is no agreed route, the Act or omission of the shipper or owner of the goods;
carrier must select the shortest, least expensive and
practically passable. The character of the goods or defects in the packing or in
the containers;

Order or act of competent public authority.


Care of Goods

ARTICLE 361. The merchandise shall be transported at


the risk and venture of the shipper, if the contrary has not Article 1735 (NCC). In all cases other than those
been expressly stipulated. mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article,
if the goods are lost, destroyed or deteriorated, common
As a consequence, all the losses and deteriorations which carriers are presumed to have been at fault or to have
the goods may suffer during the transportation by reason acted negligently, unless they prove that they observed
of fortuitous event, force majeure, or the inherent nature extraordinary diligence as required in article 1733.
and defect of the goods, shall be for the account and risk
of the shipper. Proof of these accidents is incumbent upon
the carrier.
The Civil Code and the Code of Commerce generally are
in consonance with each other. The first paragraph of
Article 361 has been construed as being the case only
ARTICLE 362. Nevertheless, the carrier shall be liable for when the loss is due to fortuitous event, force majeure, or
the losses and damages resulting from the causes the inherent defect of the goods. Both laws do not seem to
mentioned in the preceding article if it is proved, as be in disagreement with regard to the burden of the
against him, that they arose through his negligence or by carrier to prove its exercise of due diligence with regard to
reason of his having failed to take the precautions which its performance of its contractual duty. One difference seen
usage has established among careful persons, unless the is the difference in the degree of care required for while
shipper has committed fraud in the bill of lading, the Code of Commerce requires ordinary diligence, the
representing the goods to be of a kind or quality different Civil Code modifies this and raises the degree to
from what they really were. extraordinary diligence.

If, notwithstanding the precautions referred to in this


article, the goods transported run the risk of being lost, on
account of their nature or by reason of unavoidable Delivery
accident, there being no time for their owners to dispose of
them, the carrier may proceed to sell them, placing them Condition of goods
for this purpose at the disposal of the judicial authority or
of the officials designated by special provisions. ARTICLE 363. Outside of the cases mentioned in the
second paragraph of Article 361, the carrier shall be
obliged to deliver the goods shipped in the same condition
16 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
in which, according to the bill of lading, they were found After the periods mentioned have elapsed, or the
at the time they were received, without any damage or transportation charges have been paid, no claim shall be
impairment, and failing to do so, to pay the value which admitted against the carrier with regard to the condition
those not delivered may have at the point and at the time in which the goods transported were delivered.
at which their delivery should have been made.

If those not delivered form part of the goods transported,


the consignee may refuse to receive the latter, when he ARTICLE 367. If doubts and disputes should arise
proves that he cannot make use of them independently of between the consignee and the carrier with respect to the
the others. condition of the goods transported at the time their
delivery to the former is made, the goods shall be
examined by experts appointed by the parties, and, in case
of disagreement, by a third one appointed by the judicial
ARTICLE 364. If the effect of the damage referred to in authority, the results to be reduced to writing; and if the
Article 361 is merely a diminution in the value of the interested parties should not agree with the expert opinion
goods, the obligation of the carrier shall be reduced to the and they do not settle their differences, the merchandise
payment of the amount which, in the judgment of experts, shall be deposited in a safe warehouse by order of the
constitutes such difference in value. judicial authority, and they shall exercise their rights in the
manner that may be proper.

ARTICLE 365. If, in consequence of the damage, the


goods are rendered useless for sale and consumption for Since this is a contract of transportation, the carrier has the
the purposes for which they are properly destined, the duty to deliver the goods to its destination in the same
consignee shall not be bound to receive them, and he may condition as when it received the goods as a general rule.
have them in the hands of the carrier, demanding of the Failure to do so renders the carrier liable for the
latter their value at the current price on that day. corresponding damage (depending on the case can either
be: a] the value of the damaged/lost goods; b] the
If among the damaged goods there should be some pieces difference between the original value and the diminished
in good condition and without any defect, the foregoing value; c] the value of the whole shipment in cases where
provision shall be applicable with respect to those the goods have been rendered useless for the destined
damaged and the consignee shall receive those which are purpose). The shipper may also refuse to accept the goods
sound, this segregation to be made by distinct and in case of partial damage.
separate pieces and without dividing a single object,
unless the consignee proves the impossibility of Since the condition of the goods would be the basis for
conveniently making use of them in this form. damages if there are any, in case where the actual
condition of the goods at the time of delivery are in
The same rule shall be applied to merchandise in bales or dispute, parties may appoint a third party expert examiner
packages, separating those parcels which appear sound. or failure to agree on one, the court may appoint one for
them. The opinion of the expert, however, is not conclusive
on the parties.

ARTICLE 366. Within the twenty-four hours following


the receipt of the merchandise, the claim against the
carrier for damage or average be found therein upon To whom delivery made
opening the packages, may be made, provided that the
indications of the damage or average which gives rise to ARTICLE 368. The carrier must deliver to the consignee,
the claim cannot be ascertained from the outside part of without any delay or obstruction, the goods which he may
such packages, in which case the claim shall be admitted have received, by the mere fact of being named in the bill
only at the time of receipt.
17 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
of lading to receive them; and if he does not do so, he shall performed its duty. Failure to exercise due diligence in
be liable for the damages which may be caused thereby. search of the consignee may hold the carrier liable for
damages due to delay in the receipt of the goods. This is in
The article states that the delivery is to be made on the accord with the rule that a common carriers responsibility
consignee. Where the B/L is to the order of the shipper, continues despite deposit in a warehouse until the
the carrier has the duty to take custody of the goods until consignee is properly notified of its arrival and a
presentation of the bill of lading duly indorsed by the reasonable amount of time for said consignee to remove
shipper. Otherwise, said carrier would be guilty of the goods has passed (Article 1738).
misdelivery as a contract of transportation not only
includes safe transportation of the goods but delivery to A carrier may resort to judicial deposit if the consignee a)
the proper recipient. is not found on the indicated address; b) refuses to pay the
transportation charges; c) refuses to receive the goods.
Misdelivery must be distinguished from non-delivery. In This act shall have the effect of delivery, without prejudice
the former, goods are delivered to a person other than the to third persons who may claim a better right to the goods.
designated recipient, whereas in the latter, there is no
delivery made at all.

When to be made

Judicial deposit ARTICLE 370. If a period has been fixed for the delivery
of the goods, it must be made within such time, and, for
ARTICLE 369. If the consignee cannot be found at the failure to do so, the carrier shall pay the indemnity
residence indicated in the bill of lading, or if he refuses to stipulated in the bill of lading, neither the shipper nor the
pay the transportation charges and expenses, or if he consignee being entitled to anything else.
refuses to receive the goods, the municipal judge, where
there is none of the first instance, shall provide for their If no indemnity has been stipulated and the delay exceeds
deposit at the disposal of the shipper, this deposit the time fixed in the bill of lading, the carrier shall be
producing all the effects of delivery without prejudice to liable for the damages which the delay may have caused.
third parties with a better right.

ARTICLE 358.If there is no period fixed for the delivery of


Article 1752 (NCC). Even when there is an agreement the goods the carrier shall be bound to forward them in
limiting the liability of the common carrier in the vigilance the first shipment of the same or similar goods which he
over the goods, the common carrier is disputably may make to the point where he must deliver them; and
presumed to have been negligent in case of their loss, should he not do so, the damages caused by the delay
destruction or deterioration. should be for his account.

In order to deliver the goods to the proper recipient, the The first article contemplates a situation where a period
carrier has the duty to sent notice of the arrival of the for delivery has been fixed, and there the carrier must
goods for the said consignee to remove said goods within deliver within the time fixed, otherwise it shall be liable
a reasonable time. for the indemnity agreed upon, and in the absence of such,
the carrier shall be liable for the damages caused by the
If the recipient is unknown to the carrier, it must exercise delay.
due diligence to look for the consignee of said goods. After
such search and while the consignee could not be found or In Article 358, where no period was fixed, the carrier shall
does not appear yet, the carrier may store the goods in a forward the goods in the earliest shipment of same or
proper place and the carrier will be deemed to have
18 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
similar goods to the destination. Should it fail to do so, the of number and dates, with a statement of the
carrier would be liable for the damage caused by the delay. circumstances required in Article 350 and others following
for the respective bills of lading.

Two or more carriers


Compliance with administrative regulations
ARTICLE 373. The carrier who makes the delivery of the
merchandise to the consignee by virtue of combined ARTICLE 377. The carrier shall be liable for all the
agreements or services with other carriers shall assume consequences which may arise from his failure to comply
the obligations of those who preceded him in the with the formalities prescribed by the laws and
conveyance, reserving his right to proceed against the regulations of the public administration, during the whole
latter if he was not the party directly responsible for the course of the trip and upon arrival at the point of
fault which gave rise to the claim of the shipper or destination, except when his failure arises from having
consignee. been led into error by falsehood on the part of the shipper
in the declaration of the merchandise. If the carrier has
The carrier who makes the delivery shall likewise acquire acted by virtue of a formal order of the shipper or
all the actions and rights of those who preceded him in the consignee of the merchandise, both shall become
conveyance. responsible.

The shipper and the consignee shall have an immediate


right of action against the carrier who executed the
transportation contract, or against the other carriers who Common carriers being coupled with public interest,
may have received the goods transported without failure to comply with the law holds the carrier liable
reservation. unless such violation was caused by the shippers
deception, in which case the carrier is exonerated. Where
However, the reservation made by the latter shall not there is no deception however, and the carrier acted under
relieve them from the responsibilities which they may the order of the shipper violating the law, both of them
have incurred by their own acts. shall be liable.

This contemplates a case where there are several Rights and Obligations of Shipper and/or Consignee
successive carriers performing the transportation contract.
The subsequent carriers shall acquire the rights and Right to damages
obligations of the earlier carrier/s. Hence, the shipper and
consignee may claim against the subsequent carrier for Condition imposed on right
liabilities of the earlier carrier. The latter carrier however,
has a right to go against the earlier carriers who are ARTICLE 366. Within the twenty-four hours following
directly liable for the fault that gave rise to the the receipt of the merchandise, the claim against the
shippers/consignors claim. carrier for damage or average be found therein upon
opening the packages, may be made, provided that the
indications of the damage or average which gives rise to
the claim cannot be ascertained from the outside part of
Obligation to keep registry such packages, in which case the claim shall be admitted
only at the time of receipt.
ARTICLE 378. Agents for transportation shall be obliged
to keep a special registry, with the formalities required by After the periods mentioned have elapsed, or the
Article 36, in which all the goods the transportation of transportation charges have been paid, no claim shall be
which is undertaken shall be entered in consecutive order
19 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
admitted against the carrier with regard to the condition 357, the damages may be in the form of the expenses for
in which the goods transported were delivered. the repacking of goods examined for being under
suspicion and the right only arises when the carriers
suspicion is wrong.

ARTICLE 357. If by reason of well-founded suspicion of


falsity in the declaration as to the contents of a package the
carrier should decide to examine it, he shall proceed with Amount of damages for loss
his investigation in the presence of witnesses, with the
shipper or consignee in attendance. ARTICLE 372. The value of the goods which the carrier
must pay in cases if loss or misplacement shall be
If the shipper or consignee who has to be cited does not determined in accordance with that declared in the bill of
attend, the examination shall be made before a notary, lading, the shipper not being allowed to present proof that
who shall prepare a memorandum of the result of the among the goods declared therein there were articles of
investigation, for such purposes as may be proper. greater value and money.

If the declaration of the shipper should be true, the expense Horses, vehicles, vessels, equipment and all other
occasioned by the examination and that of carefully repacking principal and accessory means of transportation shall be
the packages shall be for the account of the carrier and in a especially bound in favor of the shipper, although with
contrary case for the account of the shipper. respect to railroads said liability shall be subordinated to
the provisions of the laws of concession with respect to the
property, and to what this Code established as to the
manner and form of effecting seizures and attachments
ARTICLE 353. The legal evidence of the contract against said companies.
between the shipper and the carrier shall be the bills of
lading, by the contents of which the disputes which may
arise regarding their execution and performance shall be
decided, no exceptions being admissible other than those Article 1744 (NCC). A stipulation between the common
of falsity and material error in the drafting. carrier and the shipper or owner limiting the liability of
the former for the loss, destruction, or deterioration of the
After the contract has been complied with, the bill of goods to a degree less than extraordinary diligence shall
lading which the carrier has issued shall be returned to be valid, provided it be:
him, and by virtue of the exchange of this title with the
thing transported, the respective obligations and actions In writing, signed by the shipper or owner;
shall be considered cancelled, unless in the same act the
claim which the parties may wish to reserve be reduced to Supported by a valuable consideration other than the
writing, with the exception of that provided for in Article service rendered by the common carrier; and
366.
Reasonable, just and not contrary to public policy.
In case the consignee, upon receiving the goods, cannot
return the bill of lading subscribed by the carrier, because
of its loss or of any other cause, he must give the latter a
receipt for the goods delivered, this receipt producing the Since the B/L is the contract between the parties, the value
same effects as the return of the bill of lading. of the goods shipped as indicated therein shall be the
amount paid in case of loss and this shall be conclusive
between them. They may however agree to limit the value
unless the shipper declares a higher value and pays a
The articles above are conditions or limitations on the higher freight charge. However, if the loss is due to gross
right to damages by the shipper. Article 366 provides for a negligence of the carrier which would amount to fraud,
time limit to make a claim in case of damage. In Article
20 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
the shipper may be allowed to prove the actual value of ARTICLE 360. The shipper, without changing the place
the lost goods. where the delivery is to be made, may change the
consignment of the goods which he delivered to the
carrier, provided that at the time of ordering the change of
consignee the bill of lading signed by the carrier, if one has
Amount of damages for delay been issued, be returned to him, in exchange for another
wherein the novation of the contract appears.
ARTICLE 371. In case of delay through the fault of the
carrier, referred to in the preceding articles, the consignee The expenses which this change of consignment occasions
may leave the goods transported in the hands of the shall be for the account of the shipper.
former, advising him thereof in writing before their arrival
at the point of destination.

When this abandonment takes place, the carrier shall pay ARTICLE 365. If, in consequence of the damage, the
the full value of the goods as if they had been lost or goods are rendered useless for sale and consumption for
mislaid. the purposes for which they are properly destined, the
If the abandonment is not made, the indemnification for losses consignee shall not be bound to receive them, and he may
and damages by reason of the delay cannot exceed the current have them in the hands of the carrier, demanding of the
price which the goods transported would have had on the day latter their value at the current price on that day.
and at the place in which they should have been delivered; this
same rule is to be observed in all other cases in which this
indemnity may be due.
ARTICLE 363. Outside of the cases mentioned in the
second paragraph of Article 361, the carrier shall be
obliged to deliver the goods shipped in the same condition
If no indemnity in case of delay has been agreed upon and in which, according to the bill of lading, they were found
a delay took place without attendant fraud, damages shall at the time they were received, without any damage or
not exceed the value of the goods. impairment, and failing to do so, to pay the value which
those not delivered may have at the point and at the time
at which their delivery should have been made.

Right to abandon If those not delivered form part of the goods transported,
the consignee may refuse to receive the latter, when he
ARTICLE 371. In case of delay through the fault of the proves that he cannot make use of them independently of
carrier, referred to in the preceding articles, the consignee the others.
may leave the goods transported in the hands of the
former, advising him thereof in writing before their arrival If among the damaged goods there should be some pieces
at the point of destination. in good condition and without any defect, the foregoing
provision shall be applicable with respect to those
When this abandonment takes place, the carrier shall pay damaged and the consignee shall receive those which are
the full value of the goods as if they had been lost or sound, this segregation to be made by distinct and
mislaid. separate pieces and without dividing a single object,
If the abandonment is not made, the indemnification for unless the consignee proves the impossibility of
losses and damages by reason of the delay cannot exceed conveniently making use of them in this form.
the current price which the goods transported would have
had on the day and at the place in which they should have The same rule shall be applied to merchandise in bales or
been delivered; this same rule is to be observed in all other packages, separating those parcels which appear sound.
cases in which this indemnity may be due.
21 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Agbayani describes this as an exceptional but limited right shall have no other action than that corresponding to him
in case of delay in delivery. This is to be done in the as an ordinary creditor.
interregnum of when carrier is in delay before arrival of
the goods at its destination. The intent to abandon must be
communicated to the carrier, otherwise refusal of the
goods upon arrival would be ineffective. The other ARTICLE 376. The preference of the carrier to the
situations where abandonment may be made are those payment of what is owed him for the transportation and
indicated in Articles 363 and 365, namely, partial delivery expenses of the goods delivered to the consignee shall not
where the delivered goods would be unusable without the be cut off by the bankruptcy of the latter, provided it is
remainder; and that the goods are rendered useless for the claimed within the eight days mentioned in the preceding
purpose in which they were supposedly destined. article.

Right to change consignment Article 2241 (NCC). With reference to specific movable
property of the debtor, the following claims or liens shall
ARTICLE 360. The shipper, without changing the place be preferred:
where the delivery is to be made, may change the
consignment of the goods which he delivered to the carrier, xxx
provided that at the time of ordering the change of
consignee the bill of lading signed by the carrier, if one has (9) Credits for transportation, upon the goods carried, for
been issued, be returned to him, in exchange for another the price of the contract and incidental expenses, until
wherein the novation of the contract appears. their delivery and for thirty days thereafter; xxx

The expenses which this change of consignment occasions


shall be for the account of the shipper.
A contract of transportation is a bilateral contract. The
services it renders is for a charge, so when carrier has done
its prestation, the shipper is obliged to pay for the services.
Obligation to pay transportation charges As per Article 374, transportation charges are due after the
24-hour protest period. In case of failure, the carrier can
ARTICLE 374. The consignees to whom the shipment either a) demand a judicial sale of the goods to the extent
was made may not defer the payment of the expenses and of the charges; or b) create a lien on the goods. The 8 day
transportation charges of the goods they receive after the period granted by the Code of Commerce has been
lapse of twenty-four hours following their delivery; and in increased by the Civil Code to 30 days. After this period,
case of delay in this payment, the carrier may demand the the preference expires and the step to recover is via
judicial sale of the goods transported in an amount ordinary action. Possession of the goods within the said
necessary to cover the cost of transportation and the period, however, does not preclude the carrier from
expenses incurred. instituting an ordinary action to collect the transportation
charges due it.

Article 376 also provides that the bankruptcy of the


ARTICLE 375. The goods transported shall be especially consignee shall not cut off the carriers preference if the
bound to answer for the cost of transportation and for the claim has been made within the 30 day period.
expenses and fees incurred for them during their
conveyance and until the moment of their delivery.

This special right shall prescribe eight days after the Obligation to return bill of lading
delivery has been made, and once prescribed, the carrier
22 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
ARTICLE 353. The legal evidence of the contract
between the shipper and the carrier shall be the bills of
lading, by the contents of which the disputes which may Reference used for this report include Commentaries and
arise regarding their execution and performance shall be Jurisprudence on the Commercial Laws of the Philippines
decided, no exceptions being admissible other than those Vol. 4 by Aguedo Agbayani, 1993 edition
of falsity and material error in the drafting.

After the contract has been complied with, the bill of lading
which the carrier has issued shall be returned to him, and by CARRIAGE OF GOODS BY SEA ACT
virtue of the exchange of this title with the thing
COMMONWEALTH ACT No. 65
transported, the respective obligations and actions shall be
considered cancelled, unless in the same act the claim
IN ACT TO DECLARE THAT PUBLIC ACT
which the parties may wish to reserve be reduced to
NUMBERED FIVE HUNDRED AND TWENTY-ONE,
writing, with the exception of that provided for in Article
KNOWN AS "CARRIAGE OF GOODS BY SEA ACT,"
366.
ENACTED BY THE SEVENTY-FOURTH CONGRESS
OF THE UNITED STATES, BE ACCEPTED, AS IT IS
In case the consignee, upon receiving the goods, cannot
HEREBY ACCEPTED BY THE NATIONAL ASSEMBLY
return the bill of lading subscribed by the carrier, because of its
loss or of any other cause, he must give the latter a receipt for
WHEREAS, the Seventy-fourth Congress of the United
the goods delivered, this receipt producing the same effects as the
States enacted Public Act Numbered Five hundred and
return of the bill of lading.
twenty-one, entitled:

"Carriage of Goods by Sea Act";

The duty to return the B/L as stated in the second


WHEREAS, the primordial purpose of the said Acts is to
paragraph is an indication that the contractual obligation
bring about uniformity in ocean bills of lading and to give
has been performed and they are discharged from claims
effect to the Brussels Treaty, signed by the United States
against each other, subject to the exception provided for in
with other powers;
Article 366 pertaining to the 24-hour period to protest in
case the damage was found after opening the package. In
WHEREAS, the Government of the United States has left it
case the shipper could not return the B/L, such party
to the Philippine Government to decide whether or not the
should issue to the carrier a receipt for the goods
said Act shall apply to carriage of goods by sea in foreign
delivered.
trade to and from Philippine ports;

WHEREAS, the said Act of Congress contains advanced


legislation, which is in consonance with modern maritime
Applicability of Provisions
rules and the practices of the great shipping countries of
the world;
ARTICLE 379. The provisions contained in Articles 349
and following shall be understood as equally applicable to
WHEREAS, shipping companies, shippers, and marine
those who, although they do not personally effect the
insurance companies, and various chambers of commerce,
transportation of the merchandise, contract to do so
which are directly affected by such legislation, have
through others, either as contractors for a particular and
expressed their desire that said Congressional Act be
definite operation, or as agents for transportations and
made applicable and extended to the Philippines;
conveyances.
therefore,

In either case they shall be subrogated in the place of the


Be it enacted by the National Assembly of the Philippines:
carriers themselves, with respect to the obligations and
responsibility of the latter, as well as with regard to their
Section 1. That the provisions of Public Act Numbered
rights.
Five hundred and twenty-one of the Seventy-fourth
23 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Congress of the United States, approved on April RISKS
sixteenth, nineteen hundred and thirty-six, be accepted, as
it is hereby accepted to be made applicable to all contracts Section 2. Subject to the provisions of section 6, under
for the carriage of goods by sea to and from Philippine every contract of carriage of goods by sea, the carrier in
ports in foreign trade: Provided, That nothing in the Act relation to the loading handling, stowage, carriage,
shall be construed as repealing any existing provision of custody, care, and discharge of such goods, shall be subject
the Code of Commerce which is now in force, or as to the responsibilities and liabilities and entitled to the
limiting its application. rights and immunities hereinafter set forth.

Section 2. This Act shall take effect upon its approval. RESPONSIBILITIES AND LIABILITIES

Approved: October 22,1936. Section 3. (1) The carrier shall be bound, before and at the
beginning of the voyage, to exercise due diligence to
An Act Relating to the Carriage of Goods by Sea.
Make the ship seaworthy;
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That every Properly man, equip, and supply the ship;
bill of landing or similar document of title which is
evidence of a contract for the carriage of goods by sea to or Make the holds, refrigerating and cooling chambers, and
from ports of the United States, in foreign trade, shall have all other parts of the ship in which goods are carried, fit
effect subject to the provisions of the Act. and safe for their reception carriage and preservation.

TITLE I (2) The carrier shall properly and carefully load, handle,
stow, carry, keep, care for, and discharge the goods carried.
Section 1. When used in this Act
(3) After receiving the goods into his charge the carrier, or
The term "carrier" includes the owner or the charterer who the master or agent of the carrier, shall, on demand of the
enters into a contract of carriage with a shipper. shipper, issue to the shipper a bill of lading showing
among other things
The term "contract of carriage" applies only to contracts of
carriage covered by a bill of lading or any similar The leading marks necessary for identification of the
document of title, insofar as such document relates to the goods as the same are furnished in writing by the shipper
carriage of goods by sea, including any bill of lading or before the loading of such goods starts, provided such
any similar document as aforesaid issued under or marks are stamped or otherwise shown clearly upon the
pursuant to a charter party from the moment at which goods if uncovered, or on the cases or coverings in which
such bill of lading or similar document of title regulates such goods are contained, in such a manner as should
the relations between a carrier and a holder of the same. ordinarily remain legible until the end of the voyage.

The term "goods" includes goods, wares, merchandise, Either the number of packages or pieces, or the quantity or
and articles of every kind whatsoever, except live animals weight, as the case may be, as furnished in writing by the
and cargo which by the contract of carriage is stated as shipper.
being carried on deck and is so carried.
The apparent order and condition of the goods: Provided,
The term "ship" means any vessel used for the carriage of That no carrier, master, or agent of the carrier, shall be
goods by sea. bound to state or show in the bill of lading any marks,
number, quantity, or weight which he has reasonable
The term "carriage of goods" covers the period from the ground for suspecting not accurately to represent the
time when the goods are loaded on to the time when they goods actually received, or which he has had no
are discharged from the ship. reasonable means of checking.
24 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
(4) Such a bill of lading shall be prima facie evidence of the In the case of any actual or apprehended loss or damage
receipt by the carrier of the goods as therein described in the carrier and the receiver shall give all reasonable
accordance with paragraphs (3) (a), (b), and (c) of this facilities to each other for inspecting and tallying the
section: Provided, That nothing in this Act shall be goods.
construed as repealing or limiting the application of any
part of the Act, as amended, entitled "An Act relating to (7) After the goods are loaded the bill of lading to be
bills of lading in interstate and foreign commerce," issued by the carrier, master, or agent of the carrier to the
approved August 29, 1916 (U. S. C. title 49, secs. 81-124), shipper shall, if the shipper so demands, be a "shipped"
commonly known as the "Pomerene Bills of Lading Act." bill of lading Provided, That if the shipper shall have
previously taken up any document of title to such goods,
(5) The shipper shall be deemed to have guaranteed to the he shall surrender the same as against the issue of the
carrier the accuracy at the time of shipment of the marks, "shipped" bill of lading, but at the option of the carrier
number, quantity, and weight, as furnished by him; and such document of title may be noted at the port of
the shipper shall indemnify the carrier against all loss shipment by the carrier, master, or agent with name or
damages, and expenses arising or resulting from name the names of the ship or ships upon which the
inaccuracies in such particulars. The right of the carrier to goods have been shipped and the date or dates of
such indemnity shall in no way limit his responsibility and shipment, and when so noted the same shall for the
liability under the contract of carriage or to any person purpose of this section be deemed to constitute a
other than the shipper. "shipped" bill of lading.

(6) Unless notice of loss or damage and the general nature (8) Any clause, covenant, or agreement in a contract of
of such loss or damage be given in writing to the carrier or carriage relieving the carrier or the ship from liability for
his agent at the port of discharge before or at the time of loss or damage to or in connection with the goods, arising
the removal of the goods into the custody of the person from negligence, fault, or failure in the duties and
entitled to delivery thereof under the contract of carriage, obligations provided in this section, or lessening such
such removal shall be prima facie evidence of the delivery liability otherwise than as provided in this Act, shall be
by the carrier of the goods as described in the bill of null and void and of no effect. A benefit of insurance in
lading. If the loss or damage is not apparent, the notice favor of the carrier, or similar clause, shall be deemed to be
must be given within three days of the delivery. a clause relieving the carrier from liability.

Said notice of loss or damage maybe endorsed upon the RIGHTS AND IMMUNITIES
receipt for the goods given by the person taking delivery
thereof. Section 4. (1) Neither the carrier nor the ship shall be
liable for loss or damage arising or resulting from
The notice in writing need not be given if the state of the unseaworthiness unless caused by want of due diligence
goods has at the time of their receipt been the subject of on the part of the carrier to make the ship seaworthy, and
joint survey or inspection. to secure that the ship is properly manned, equipped, and
supplied, and to make to the holds, refrigerating and cool
In any event the carrier and the ship shall be discharged chambers, and all other parts of the ship in which goods
from all liability in respect of loss or damage unless suit is are carried fit and safe for their reception, carriage, and
brought within one year after delivery of the goods or the preservation in accordance with the provisions of
date when the goods should have been delivered: paragraph (1) of section 3. Whenever loss or damage has
Provided, That if a notice of loss or damage, either resulted from unseaworthiness, the burden of proving the
apparent or concealed, is not given as provided for in this exercise of due diligence shall be on the carrier or other
section, that fact shall not affect or prejudice the right of persons claiming exemption under the section.
the shipper to bring suit within one year after the delivery
of the goods or the date when the goods should have been (2) Neither the carrier nor the ship shall be responsible for
delivered loss or damage arising or resulting from
25 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Act, neglect, or default of the master, mariner, pilot, or the (3) The shipper shall not be responsible for loss or damage
servants of the carrier in the navigation or in the sustained by the carrier or the ship arising from any cause
management of the ship; without the act, fault, or neglect of the shipper, his agents,
or servants.
Fire, unless caused by the actual fault or privity of the
carrier; (4) Any deviation in saving or attempting to save life or
property at sea, or any reasonable deviation shall not be
Perils, dangers, and accidents of the sea or other navigable deemed to be an infringement or breach of this Act or of
waters; the contract of carriage, and the carrier shall not be liable
for any loss or damage resulting therefrom: Provided,
Act of God; however, That if the deviation is for the purpose of loading
cargo or unloading cargo or passengers it shall, prima
Act of war, facie, be regarded as unreasonable.

Act of public enemies; (5) Neither the carrier nor the ship shall in any event be or
become liable for any loss or damage to or in connection
Arrest or restraint of princes, rulers, or people, or seizure with the transportation of goods in an amount exceeding
under legal process; $600 per package lawful money of the United States, or in
case of goods not shipped in packages, per customary
Quarantine restrictions; freight unit, or the equivalent of that sum in other
currency, unless the nature and value of such goods have
Act or omission of the shipper or owner of the goods, his been declared by the shipper before shipment and inserted
agent or representative; in the bill of lading. This declaration, if embodied in the
bill of lading, shall be prima facie evidence, but shall not
Strikes or lockouts or stoppage or restraint of labor from be conclusive on the carrier.
whatever cause, whether partial or general; Provided, That
nothing herein contained shall be construed to relieve a By agreement between the carrier, master, or agent of the
carrier from responsibility for the carrier's own acts; carrier, and the shipper another maximum amount than
that mentioned in this paragraph may be fixed: Provided,
Riots and civil commotions That such maximum shall not be less than the figure above
named. In no event shall the carrier be liable for more than
Saving or attempting to save life or property at sea; the amount of damage actually sustained.

Wastage in bulk or weight or any other loss or damage Neither the carrier nor the ship shall be responsible in any
arising from inherent defect, quality, or vice of the goods; event for loss or damage to or in connection with the
transportation of the goods if the nature or value thereof
Insufficiency of packing; has been knowingly and fraudulently misstated by the
shipper in the bill of lading.
Insufficiency of inadequacy of marks;
(6) Goods of an inflammable, explosive, or dangerous
Latent defects not discoverable by due diligence; and nature to the shipment whereof the carrier, master or
agent of the carrier, has not consented with knowledge of
Any other cause arising without the actual fault and their nature and character, may at any time before
privity of the carrier and without the fault or neglect of the discharge be landed at any place or destroyed or rendered
agents or servants of the carrier, but the burden of proof innocuous by the carrier without compensation, and the
shall be on the person claiming the benefit of this shipper of such goods shall be liable for all damages and
exception to show that neither the actual fault or privity of expenses directly or indirectly arising out of or resulting
the carrier nor the fault or neglect of the agents or servants from such shipment. If any such goods shipped with such
of the carrier contributed to the loss or damage. knowledge and consent shall become a danger to the ship
or cargo, they may in like manner be landed at any place,
26 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
or destroyed or rendered innocuous by the carrier without responsibility and liability of the carrier or the ship for the
liability on the part of the carrier except to general average, loss or damage to or in connection with the custody and
if any. care and handling of goods prior to the loading on and
subsequent to the discharge from the ship on which the
SURRENDER OF RIGHTS AND IMMUNITIES AND goods are carried by sea.
INCREASE OF RESPONSIBILITIES AND LIABILITIES
Section 8. The provisions of this Act shall not affect the
Section 5. A carrier shall be at liberty to surrender in rights and obligations of the carrier under the provisions
whole or in part all or any of his rights and immunities or of the Shipping Act, 1916, or under the provisions of
to increase any of his responsibilities and liabilities under section 4281 to 4289, inclusive, of the Revised Statutes of
this Act, provided such surrender or increase shall be the United States, or of any amendments thereto; or under
embodied in the bill of lading issued to the shipper. the provisions of any other enactment for the time being in
force relating to the limitation of the liability of the owners
The provisions of this Act shall not be applicable to charter of seagoing vessels.
parties; but if bills of lading are issued in the case of a ship
under charter party, they shall comply with the terms of TITLE II
this Act. Nothing in this Act shall be held to prevent the
insertion in a bill of lading of any lawful provision Section 9. Nothing contained in this Act shall be construed
regarding general average. as permitting a common carrier by water to discriminate
between competing shippers similarly place in time and
SPECIAL CONDITIONS circumstances, either (a) with respect to the right to
demand and receive bills of lading subject to the
Section 6. Notwithstanding the provisions of the provisions of this Act; or (b) when issuing such bills of
preceding sections, a carrier, master or agent of the carrier, lading, either in the surrender of any of the carrier's rights
and a shipper shall, in regard to any particular goods be at and immunities or in the increase of any of the carrier's
liberty to enter into any agreement in any terms as to the responsibilities and liabilities pursuant to section 6, title I,
responsibility and liability of the carrier for such goods, of this Act or (c) in any other way prohibited by the
and as to the rights and immunities of the carrier in Shipping Act, 1916, s amended.
respect of such goods, or his obligation as to seaworthiness
(so far as the stipulation regarding seaworthiness is not Section 10. Section 25 of the Interstate Commerce Act is
contrary to public policy), or the care or diligence of his hereby amended by adding the following proviso at the
servants or agents in regard to the loading, handling end of paragraph 4 thereof: "Provided, however, That
stowage, carriage, custody, care, and discharge of the insofar as any bill of lading authorized hereunder relates
goods carried by sea: Provided, That in this case no bill of to the carriage of goods by sea, such bill of lading shall be
lading has been or shall be issued and that the terms subject to the provisions of the Carriage of Goods by Sea
agreed shall be embodied in a receipt which shall be a Act."
non-negotiable document and shall be marked as such.
Section 11. Where under the customs of any trade the
Any agreement so entered into shall have full legal weight of any bulk cargo inserted in the bill of lading is a
effect: Provided, That this section shall not apply to weight ascertained or accepted by a third party other than
ordinary commercial shipments made in the ordinary the carrier or the shipper, and the fact that the weight is so
course of trade but only to other shipments where the ascertained or accepted is stated in the bill of lading, then,
character or condition of the property to be carried or the notwithstanding any thing in this Act, the bill of lading
circumstances, terms, and conditions under which the shall not be deemed to be prima facie evidence against the
carriage is to be performed are such as reasonably to carrier of the receipt of goods of the weight so inserted in
justify a special agreement. the bill of lading, and the accuracy thereof at the time of
shipment shall not be deemed to have been guaranteed by
Section 7. Nothing contained in this Act shall prevent a the shipper.
carrier or a shipper from entering into any agreement,
stipulation, condition, reservation, or exemption as to the
27 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Section 12. Nothing in this Act shall be construed as suspension or rescission of any such suspension shall take
superseding any part of the Act entitled "An act relating to effect on a date named therein, which date shall be not less
navigation of vessels, bills of lading, and to certain than ten days from the issue of the proclamation.
obligations, duties, and rights in connection with the
carriage of property," approved February 13,1893, or of Any contract for the carriage of goods by sea, subject to
any other law which would be applicable in the absence of the provisions of this Act, effective during any period
this Act, insofar as they relate to the duties, when title I hereof, or any part thereof, is suspended, shall
responsibilities, and liabilities of the ship or carrier prior be subject to all provisions of law now or hereafter
to the time when the goods are loaded on or after the time applicable to that part of Title I which may have thus been
they are discharged from the ship. suspended.

Section 13. This Act shall apply to all contracts for carriage Section 15. This Act shall take effect ninety days after the
of goods by sea to or from ports of the United States in date of its approval; but nothing in this Act shall apply
foreign trade. As used in this Act the term "United States" during a period not to exceed one year following its
includes its districts, territories, and possessions: Provided, approval to any contract for the carriage of goods by sea,
however, That the Philippine legislature may by law made before the date on which this Act is approved, nor to
exclude its application to transportation to or from ports of any bill of lading or similar document of title issued,
the Philippine Islands. The term "foreign trade" means the whether before or after such date of approval in pursuance
transportation of goods between the ports of the United of any such contract as aforesaid.
States and ports of foreign countries. Nothing in this Act
shall be held to apply to contracts for carriage of goods by Section 16. This Act may be cited as the "Carriage of
sea between any port of the United States or its Goods by Sea Act."
possessions, and any other port of the United States or its
possession: Provided, however, That any bill of lading or Approved, April 16, 1936.
similar document of title which is evidence of a contract
for the carriage of goods by sea between such ports, THE SALVAGE LAW
containing an express statement that it shall be subject to
the provisions of this Act, shall be subjected hereto as fully SECTION 1. When in case of shipwreck, the vessel or its
cargo shall be beyond the control of the crew, or shall have
as if subject hereto as fully as if subject hereto by the
been abandoned by them, and picked up and conveyed to
express provisions of this Act: Provided, further, That
a safe place by other persons, the latter shall be entitled to
every bill of lading or similar document of title which is a reward for the salvage. Those who, not being included in
evidence of a contract for the carriage of goods by sea the above paragraph, assist in saving a vessel or its cargo
from ports of the United States, in foreign trade, shall from shipwreck, shall be entitled to a like reward.
contain a statement that it shall have effect subject to the
provisions of this Act. SECTION 2. If the captain of the vessel, or the person
acting in his stead, is present, no one shall take from the
sea, or from the shores or coast merchandise or effects
Section 14. Upon the certification of the Secretary of
proceeding from a shipwreck or proceed to the salvage of
Commerce that the foreign commerce of the United States
the vessel, without the consent of such captain or person
in its competition with that of foreign nations is acting in his stead.
prejudiced the provisions, or any of them, of Title I of this
Act, or by the laws of any foreign country or countries SECTION 3. He who shall save or pick up a vessel or
relating to the carriage of goods by sea, the President of merchandise at sea, in the absence of the captain of the
the United States, may, from time to time, by proclamation, vessel, owner, or a representative of either of them, they
being unknown, shall convey and deliver such vessel or
suspend any or all provisions of Title I of this Act for such
merchandise, as soon as possible, to the Collector of
periods of time or indefinitely as may be designated in the
Customs, if the port has a collector, and otherwise to the
proclamation. The President may at any time rescind such provincial treasurer or municipal mayor.
suspension of Title I hereof, and any provisions thereof
which may have been suspended shall thereby be SECTION 4. After the salvage is accomplished, the owner
reinstated and again apply to contracts thereafter made for or his representative shall have a right to the delivery of
the carriage of goods by sea. Any proclamation of the vessel or things saved, provided that he pays, or gives
28 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
a bond to secure, the expenses and the proper reward. The SECTION 9. If, during the danger, an agreement is entered
amount and sufficiency of the bond, in the absence of into concerning the amount of the reward for salvage or
agreement, shall be determined by the Collector of assistance, its validity may be impugned because it is
Customs or by the Judge of the Court of First Instance of excessive, and it may be required to be reduced to an
the province in which the things saved may be found. amount proportionate to the circumstance.

SECTION 5. The Collector of Customs, provincial SECTION 10. In a case coming under the last preceding
treasurer, or municipal mayor, to whom a salvage is section, as well as in the absence of an agreement, the
reported, shall order: reward for salvage or assistance shall be fixed by the Court
of First Instance of the province where the things salvaged
That the things saved be safeguard and inventoried. are found, taking into account principally the
expenditures made to recover or save the vessel or the
b. The sale at public auction of the things saved which cargo or both, the zeal demonstrated, the time employed,
may be in danger of immediate loss or of those whose the services rendered, the excessive express occasioned the
conservation is evidently prejudicial to the interests of the number of persons who aided, the danger to which they
owner, when no objection is made to such sale. and their vessels were exposed as well as that which
menaced the things recovered or salvaged, and the value
of such things after deducting the expenses.
c. The advertisement within thirty days subsequent to the
salvage, in one of the local newspapers or in the nearest
newspaper published, of all the details of the disaster, SECTION 11. From the proceeds of the sale of the things
with a statement of the mark and number of the effects saved shall be deducted, first, the expenses of their
requesting all interested persons to make their claims. custody, conservation, advertisement, and auction, as well
as whatever taxes or duties they should pay for their
entrance; then there shall be deducted the expenses of
SECTION 6. If, while the vessel or things saved are at the
salvage; and from the net amount remaining shall be taken
disposition of the authorities, the owner or his
the reward for the salvage or assistance which shall not
representative shall claim them, such authorities shall
exceed fifty per cent of such amount remaining.
order their delivery to such owner or his representative,
provided that there is no controversy over their value, and
a bond is given by the owner or his representative to SECTION 12. If in the salvage or in the rendering of
secure the payment of the expenses and the proper assistance different persons shall have intervened the
reward. Otherwise, the delivery shall not be made until reward shall be divided between them in proportion to the
the matter is decided by the Court of First Instance of the services which each one may have rendered, and, in case
province. of doubt, in equal parts. Those who, in order to save
persons, shall have been exposed to the same dangers
shall also have a right to participation in the reward.
SECTION 7. No claim being presented in the three months
subsequent to the publication of the advertisement
prescribed in sub-section (c) of Section five, the things save SECTION 13. If a vessel or its cargo shall have been
shall be sold at public auction, and their proceeds, after assisted or saved, entirely or partially, by another vessel,
deducting the expenses and the proper reward shall be the reward for salvage or for assistance shall be divided
deposited in the insular treasury. If three years shall pass between the owner, the captain, and the remainder of the
without anyone claiming it, one-half of the deposit shall be crew of the latter vessel, so as to give the owner a half, the
adjudged to him who saved the things, and the other half captain a fourth, and all the remainder of the crew the
to the insular government. other fourth of the reward, in proportion to their
respective salaries, in the absence of an agreement to the
contrary. The express of salvage, as well as the reward for
SECTION 8. The following shall have no right to a reward
salvage or assistance, shall be a charge on the things
for salvage or assistance:
salvaged on their value.

The crew of the vessel shipwrecked or which was in


SECTION 14. This Act shall take effect on its passage.
danger of a shipwreck;

ENACTED, FEBRUARY 4, 1916.


He who shall have commenced the salvage in spite of
opposition of the captain or his representative; and
THE PUBLIC SERVICE LAW
He who shall have failed to comply with the provisions of
Section three. CHAPTER I
ORGANIZATION
29 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Section 1. This Act shall be known as the "Public Service such number of Judges of the Courts of First Instance, or
Act." such number of attorneys of the legal division of the
Commission, as may be necessary to sit temporarily as
Section 2. There is created under the Department of Commissioners in the Public Service Commission.
Justice a commission which shall be designated and
known as the Public Service Commission, composed of The Public Service Commission shall sit individually or as
one Public Service Commissioner and five Associate a body en banc or in two divisions of three Commissioners
Commissioners, and which shall be vested with the each. The Public Service Commissioner shall preside when
powers and duties hereafter specified. Whenever the word the Commission sits en banc and in one division. In the
"Commission" is used in this Act, it shall be held to mean other division, the Associate Commissioner with seniority
the Public Service Commission, and whenever the word of appointment in that division shall preside. Five
"Commissioner" is used in this Act it shall be held to mean Commissioners shall constitute a quorum for sessions en
the Public Service Commissioner or anyone of the banc and two Commissioners shall constitute a quorum
Associate Commissioners. The Public Service for the sessions of a division. In the absence of a quorum,
Commissioner and the Associate Public Service the session shall be adjourned until the requisite number
Commissioners shall be natural born citizens and is present.
residents of the Philippines, not under thirty years of age;
members of the Bar of the Philippines, with at least five All the powers herein vested upon the Commission shall
years of law practice or five years of employment in the be considered vested upon any of the Commissioners,
government service requiring a lawyer's diploma; and acting either individually or jointly as hereinafter
shall be appointed by the President of the Philippines, provided. The Commissioners shall equitably divide
with the consent of the Commission on Appointments of among themselves all pending cases and those that may
the Congress of the Philippines: Provided, however, That hereafter be submitted to the Commissioner, in such
the present Commissioner and the personnel of the manner and form as they may determine, and shall
Commission shall continue in office without the necessity proceed to hear and determine the case assigned to each
of re-appointment. The Commissioners shall have the rank or to their respective divisions, or to the Commission en
and privilege of retirement of Judges of the Courts of First banc as follows: uncontested cases, except those pertaining
Instance. (As amended by Republic Act Nos. 178 and 2677) to the fixing of rates, shall be decided by one
Commissioner; contested cases and all cases involving the
Section 3. The Commissioner and Associate fixing of rates shall be decided by the Commission in
Commissioners shall hold office until they reach the age of division and the concurrence of at least two
seventy years, or until removed in accordance with the Commissioners in the division shall be necessary for the
procedures prescribed in section one hundred and promulgation of a decision or non-interlocutory order in
seventy-three of Act Numbered Twenty-seven hundred these cases: Provided, however, That any motion for
and eleven, known as the Revised Administrative Code: reconsideration of a decision or non-interlocutory order of
Provided, however, That upon retirement any any Commissioner or division shall be heard directly by
Commissioner of Associate Commissioner shall be the Commission en banc and the concurrence of at least
entitled to all retirement benefits and privileges for Judges four Commissioners shall be necessary for the
of the Courts of First Instance or under the retirement law promulgation of a final decision or order resolving such
to which he may be entitled on the date of his retirement. motion for reconsideration. (As amended by Republic Act
In case of the absence, for any reason, of the Public Service Nos. 723 and 2677)
Commissioner, the Associate Commissioner with seniority
of appointment shall act as Commissioner. If on account of Section 4. The Public Service Commissioner shall receive
absence, illness, or incapacity of any of three an annual compensation of thirteen thousand pesos; and
Commissioners, or whenever by reason of temporary each of the Associate Commissioners an annual
disability of any Commissioner or of a vacancy occurring compensation of twelve thousand pesos. The
therein, the requisite number of Commissioners necessary Commissioners shall be assisted by one chief attorney, one
to render a decision or issue an order in any case is not finance and rate regulation officer, one chief utilities
present, or in the event of a tie vote among the regulation engineer, one chief accountant, one
Commissioners, the Secretary of Justice may designate transportation regulation chief, one secretary of the Public
30 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Service Commission, and three public utilities advisers Section 7. The Secretary of the Commission, under the
who shall receive an annual compensation of not less than direction of the Commissioner, shall have charge of the
ten thousand eight hundred pesos each; five assistant administrative business of the Commission and shall
chiefs of division who shall receive an annual perform such other duties as may be required of him. He
compensation of not less than nine thousand six hundred shall be the recorder and official reporter of the
pesos each; twelve attorneys who shall receive an annual proceedings of the Commission and shall have authority
compensation of not less than nine thousand pesos each; to administer oaths in all matters coming under the
and a technical and confidential staff to be composed of jurisdiction of the Commission. He shall be the custodian
two certified public accounts, two electrical engineers, two of the records, maps, profiles, tariffs, itineraries, reports,
mechanical or communication engineers, and two special and any other documents and papers filed with the
assistants who shall receive an annual compensation of not Commission or entrusted to his care and shall be
less than seven thousand two hundred pesos each. (As responsible therefor to the Commission. He shall have
amended by Republic Act Nos. 723, 2677 and 3792) authority to designate from time to time any of his
delegates to perform the duties of Deputy Secretary with
Section 5. The Public Service Commissioner, the Associate any of the Commissioners.
Public Service Commissioners, and all other officers and
employees of the Public Service Commission shall enjoy Section 8. The Commission shall furnish the Secretary
the same privileges and rights as the officer and employees such of its findings and decisions as in its judgment may
of the classified civil service of the Government of the be of general public interest; the Secretary shall compile
Philippines. They shall also be entitled to receive from the the same for the purpose of publication in a series of
Government of the Philippines their necessary travelling volumes to be designated "Reports of the Public Service
expenses while travelling on the business of the Commission of the Philippines," which shall be published
Commission, which shall be paid on proper voucher in such form and manner as may be best adapted for
therefor, approved by the Secretary of Justice, out of funds public information and use, and such authorized
appropriated for the contingent expenses of the publications shall be competent evidence of the reports
Commission. and decisions of the Commission therein contained
without any further proof or authentication thereof.
When the exigency of the service so requires and with the
approval of the Secretary of Justice, and subject to the Section 9. No member or employee of the Commission
provisions of Commonwealth Act Numbered Two shall have any official or professional relation with any
hundred forty-six, as amended, funds may be set aside public service as herein defined, or hold any office of
from the appropriations provided for the Commission profit or trust with the Government of the Philippines.
and/or from the fees collected under Section forty of this
Act to defray the expenses to be incurred by the Public Section 10. The Commission shall have its office in the
Service Commissioner or any of the Associate City of Manila or at such other place as may be
Commissioners, officers or employees of the Commission designated, and may hold hearings on any proceedings at
to be designated by the Commissioner, with the approval such times and places, within the Philippines, as it may
of the Secretary of Justice, in the study of modern trends provide by order in writing: Provided, That during the
in supervision and regulation of public services. (As months of April and May of each year, at least three
amended by Republic Act No. 3792) Commissioners shall be on vacation in such manner that
once every two years at least three of them shall be on
Section 6. The Secretary of Justice, upon recommendation duty during April and May: Provided, however, That in
of the Public Service Commissioner, shall appoint all the interest of public service, the Secretary of Justice may
subordinate officers and employees of the Commission as require any or all the Commissioners not on duty to
may be provided in the Appropriation Act. The Public render services and perform their duties during the
Service Commissioner shall have general executive vacation months. (As amended by Republic Act Nos. 176
control, direction, and supervision over the work of the and 3792)
Commission and of its members, body and personnel, and
over all administrative business. (As amended by Republic Section 11. The Commission shall have the power to make
Act Nos. 178 and 3792) needful rules for its Government and other proceedings
31 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
not inconsistent with this Act and shall adopt a common parties engaged in agriculture, not itself or themselves a
seal, and judicial notice shall be taken for such seal. True public service, for operation by the latter for a limited time
copies of said rules and other amendments shall be and for a specific purpose directly connected with the
promptly furnished to the Bureau of Printing and shall be cultivation of his or their farm, the transportation,
forthwith published in the Official Gazette. processing, and marketing of agricultural products of such
third party or third parties shall not be considered as
CHAPTER II operating a public service for the purposes of this Act.
JURISDICTION, POWERS AND DUTIES OF THE
COMMISSION (c) The word "person" includes every individual, co-
partnership, joint-stock company or corporation, whether
Section 13. (a) The Commission shall have jurisdiction, domestic or foreign, their lessees, trustees, or receivers, as
supervision, and control over all public services and their well as any municipality, province, city, government-
franchises, equipment, and other properties, and in the owned or controlled corporation, or agency of the
exercise of its authority, it shall have the necessary powers Government of the Philippines, and whatever other
and the aid of the public force: Provided, That public persons or entities that may own or possess or operate
services owned or operated by government entities or public services. (As amended by Com. Act 454 and RA No.
government-owned or controlled corporations shall be 2677)
regulated by the Commission in the same way as
privately-owned public services, but certificates of public Section 14. The following are exempted from the
convenience or certificates of public convenience and provisions of the preceding section:
necessity shall not be required of such entities or
corporations: And provided, further, That it shall have no Warehouses;
authority to require steamboats, motor ships and
steamship lines, whether privately-owned, or owned or Vehicles drawn by animals and bancas moved by oar or
operated by any Government controlled corporation or sail, and tugboats and lighters;
instrumentality to obtain certificate of public convenience
or to prescribe their definite routes or lines of service. Airships within the Philippines except as regards the
fixing of their maximum rates on freight and passengers;
(b) The term "public service" includes every person that
now or hereafter may own, operate, manage, or control in Radio companies except with respect to the fixing of rates;
the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or Public services owned or operated by any instrumentality
accidental, and done for general business purposes, any of the National Government or by any government-owned
common carrier, railroad, street railway, traction railway, or controlled corporation, except with respect to the fixing
sub-way motor vehicle, either for freight or passenger, or of rates. (As amended by Com. Act 454, RA No. 2031, and
both with or without fixed route and whether may be its RA No. 2677 )
classification, freight or carrier service of any class, express
service, steamboat or steamship line, pontines, ferries, and Section 15. With the exception of those enumerated in the
water craft, engaged in the transportation of passengers or preceding section, no public service shall operate in the
freight or both, shipyard, marine railways, marine repair Philippines without possessing a valid and subsisting
shop, [warehouse] wharf or dock, ice plant, ice- certificate from the Public Service Commission known as
refrigeration plant, canal, irrigation system, gas, electric "certificate of public convenience," or "certificate of public
light, heat and power water supply and power, petroleum, convenience and necessity," as the case may be, to the
sewerage system, wire or wireless communications effect that the operation of said service and the
system, wire or wireless broadcasting stations and other authorization to do business will promote the public
similar public services: Provided, however, That a person interests in a proper and suitable manner.
engaged in agriculture, not otherwise a public service,
who owns a motor vehicle and uses it personally and/or The Commission may prescribe as a condition for the
enters into a special contract whereby said motor vehicle is issuance of the certificate provided in the preceding
offered for hire or compensation to a third party or third paragraph that the service can be acquired by the Republic
32 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
of the Philippines or any instrumentality thereof upon subdivision of the Philippines when, in the judgment of
payment of the cost price of its useful equipment, less the Commission, such franchise or privilege will properly
reasonable depreciation; and likewise, that the certificate conserve the public interests, and the Commission shall in
shall be valid only for a definite period of time; and that so approving impose such conditions as to construction,
the violation of any of these conditions shall produce the equipment, maintenance, service, or operation as the
immediate cancellation of the certificate without the public interests and convenience may reasonably require,
necessity of any express action on the part of the and to issue certificates of public convenience and
Commission. necessity when such is required or provided by any law or
franchise.
In estimating the depreciation, the effect of the use of the
equipment, its actual condition, the age of the model, or To fix and determine individual or joint rates, tolls,
other circumstances affecting its value in the market shall charges, classifications, or schedules thereof, as well as
be taken into consideration. commutation, mileage, kilometrage, and other special
rates which shall be imposed observed and followed
The foregoing is likewise applicable to any extension or thereafter by any public service: Provided, That the
amendment of certificates actually in force and to those Commission may, in its discretion, approve rates proposed
which may hereafter be issued, to permit to modify by public services provisionally and without necessity of
itineraries and time schedules of public services, and to any hearing; but it shall call a hearing thereon within
authorizations to renew and increase equipment and thirty days, thereafter, upon publication and notice to the
properties. concerns operating in the territory affected: Provided,
further, That in case the public service equipment of an
Section 16. Proceedings of the Commission, upon notice operator is used principally or secondarily for the
and hearing. - The Commission shall have power, upon promotion of a private business, the net profits of said
proper notice and hearing in accordance with the rules private business shall be considered in relation with the
and provisions of this Act, subject to the limitations and public service of such operator for the purpose of fixing
exceptions mentioned and saving provisions to the the rates.
contrary :
To fix just and reasonable standards, classifications,
To issue certificates which shall be known as certificates of regulations, practices, measurement, or service to be
public convenience, authorizing the operation of public furnished, imposed, observed, and followed thereafter by
service within the Philippines whenever the Commission any public service.
finds that the operation of the public service proposed and
the authorization to do business will promote the public To ascertain and fix adequate and serviceable standards
interest in a proper and suitable manner. Provided, That for the measurement of quantity, quality, pressure, initial
thereafter, certificates of public convenience and voltage, or other condition pertaining to the supply of the
certificates of public convenience and necessity will be product or service rendered by any public service, and to
granted only to citizens of the Philippines or of the United prescribe reasonable regulations for the examination and
States or to corporations, co-partnerships, associations or test of such product or service and for the measurement
joint-stock companies constituted and organized under the thereof.
laws of the Philippines; Provided, That sixty per centum of
the stock or paid-up capital of any such corporations, co- To establish reasonable rules, regulations, instructions,
partnership, association or joint-stock company must specifications, and standards, to secure the accuracy of all
belong entirely to citizens of the Philippines or of the meters and appliances for measurements.
United States: Provided, further, That no such certificates
shall be issued for a period of more than fifty years. To compel any public service to furnish safe, adequate,
and proper service as regards the manner of furnishing
To approve, subject to constitutional limitations any the same as well as the maintenance of the necessary
franchise or privilege granted under the provisions of Act material and equipment.
No. Six Hundred and Sixty-seven, as amended by Act No.
One Thousand and twenty-two, by any political
33 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
To require any public service to establish, construct, corresponding to the progress of the industry. Each public
maintain, and operate any reasonable extension of its service shall conform its depreciation accounts to the rates
existing facilities, where in the judgment of said so determined and fixed, and shall set aside the moneys so
Commission, such extension is reasonable and practicable provided for out of its earnings and carry the same in a
and will furnish sufficient business to justify the depreciation fund. The income from investments of money
construction and maintenance of the same and when the in such fund shall likewise be carried in such fund. This
financial condition of the said public service reasonably fund shall not be expended otherwise than for
warrants the original expenditure required in making and depreciation, improvements, new construction, extensions
operating such extension. or conditions to the properly of such public service.

To direct any railroad, street railway or traction company To amend, modify or revoke at any time certificate issued
to establish and maintain at any junction or point of under the provisions of this Act, whenever the facts and
connection or intersection with any other line of said road circumstances on the strength of which said certificate was
or track, or with any other line of any other railroad, street issued have been misrepresented or materially changed.
railway or traction to promote, such just and reasonable
connection as shall be necessary to promote the To suspend or revoke any certificate issued under the
convenience of shippers of property, or of passengers, and provisions of this Act whenever the holder thereof has
in like manner direct any railroad, street railway, or violated or willfully and contumaciously refused to
traction company engaged in carrying merchandise, to comply with any order rule or regulation of the
construct, maintain and operate, upon reasonable terms, a Commission or any provision of this Act: Provided, That
switch connection with any private sidetrack which may the Commission, for good cause, may prior to the hearing
be constructed by any shipper to connect with the railroad, suspend for a period not to exceed thirty days any
street railway or traction company line where, in the certificate or the exercise of any right or authority issued
judgment of the Commission, such connection is or granted under this Act by order of the Commission,
reasonable and practicable and can be out in with safety whenever such step shall in the judgment of the
and will furnish sufficient business to justify the Commission be necessary to avoid serious and irreparable
construction and maintenance of the same. damage or inconvenience to the public or to private
interests.
To authorize, in its discretion, any railroad, street railway
or traction company to lay its tracks across the tracks of To fix, determine, and regulate, as the convenience of the
any other railroad, street railway or traction company or state may require, a special type for auto-busses, trucks,
across any public highway. and motor trucks to be hereafter constructed, purchased,
and operated by operators after the approval of this Act; to
To direct any railroad or street railway company to install fix and determine a special registration fee for auto-buses,
such safety devices or about such other reasonable trucks, and motor trucks so constructed, purchased and
measures as may in the judgment of the Commission be operated: Provided, That said fees shall be smaller than
necessary for the protection of the public are passing more those charged for auto-busses, trucks, and motor
grade crossing of (1) public highways and railroads, (2) trucks of types not made regulation under the subsection.
public highways and streets railway, or (3) railways and
street railways. Section 17. Proceedings of Commission without previous
hearing. - The Commission shall have power without
To fix and determine proper and adequate rates of previous hearing, subject to established limitations and
depreciation of the property of any public service which exception and saving provisions to the contrary:
will be observed in a proper and adequate depreciation
account to be carried for the protection of stockholders, To investigate, upon its own initiative, or upon complaint
bondholders or creditors in accordance with such rules, in writing, any matter concerning any public service as
regulations, and form of account as the Commission may regards matters under its jurisdiction; to require any
prescribe. Said rates shall be sufficient to provide the public service to furnish safe, adequate, and proper
amounts required over and above the expense of service as the public interest may require and warrant; to
maintenance to keep such property in a state of efficiency enforce compliance with any standard, rule, regulation,
34 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
order or other requirement of this Act or of the such terms and conditions as the Commission shall
Commission, and to prohibit or prevent any public service prescribe.
as herein defined from operating without having first
secured a certificate of public convenience or public To grant to any public service special permits to make
necessity and convenience, as the case may be and require extra or special trips within the territory covered by its
existing public services to pay the fees provided for in this certificates of public convenience, and to make special
Act for the issuance of the proper certificate of public excursion trips outside of its own territory if the public
convenience or certificate of public necessity and interest or special circumstances required it: Provided,
convenience, as the case may be, under the penalty, in the however, that in case a public service cannot render such
discretion by the Commission, of the revocation and extra service on its own line or in its own territory, a
cancellation of any acquired rights. special permit for such extra service may be granted to any
other public service.
To require any public service to pay the actual expenses
incurred by the Commission in any investigation if it shall To require any public service to keep its books, records,
be found in the same that any rate, tool, charge, schedule, and accounts so as to afford an intelligent understanding
regulation, practice, act or service thereof is in violation of of the conduct of its business and to that end to require
any provision of this Act or any certificate, order, rule, every such public service of the same class to adopt a
regulation or requirement issued or established by the uniform system of accounting. Such system conform to
Commission. The Commission may also assess against any any system approved and confirmed by the Auditor
public service costs not to exceed twenty-five pesos with General.
reference to such investigation.
To require any public service to furnish annual reports of
From time to time appraise and value the property of any finances and operations. Such reports shall set forth in
public service, whenever in the judgment of the detail the capital stock issued, the amounts of said capital
Commission it shall be necessary so to do, for the purpose stock paid up and the form of payment thereof; the
of carrying out any of the provisions of this Act, and in dividends paid, the surplus, if any and the number of
making such valuation the Commission may have access stockholders, the consolidated and pending obligations
to and use any books, documents, or records in the and the interest paid thereon; the cost and value of the
possession of any department, bureau, office, or board of property of the operator; concessions or franchises and
the government of the Philippines or any political equipment; the number of employees and salaries paid to
subdivision thereof. each class; the accidents to passengers, employees, and
other person, and the causes thereof; the annual
To provide, on motion by or at the request of any expenditures on improvements; the manner of their
consumer or user of a public service, for the examination investment and nature of such improvements; the receipts
and test of any appliance used for the measuring of any and profits in each of the branches of the business and of
product or service of a public service, and for that whatever source; the operating and other expenses; the
purpose, by its agents, experts, or examiners to enter upon balance of profits and losses; and a complete statement of
any premises where said appliances may be, and other the annual financial operations of the operator, including
premises of the public service, for the purpose of setting an annual balance sheet. Such reports shall also contain
up and using on said premises any apparatus necessary any information which the Commission may require
therefor. and to fix the fees to be paid by any consumer or concerning freight and passenger rates, or agreements,
user who may apply to the Commission for such compromises or contracts affecting the same. Said reports
examination or test to be made, and if the appliance be shall cover a period of twelve months, ending on
found defective or incorrect to the disadvantage of the December thirty-first of each year, and shall be sworn to by
consumer or user to require the fees paid to be refunded to the officer or functionary of the public service authorized
the consumer or user by the public service concerned. therefor. The Commission shall also have power to require
from time to time special reports containing such
To permit any street railway or traction company to change information as above provided for or on other matters as
its existing gauge to standard steam railroad gauge, upon the Commission may deem necessary or advisable.
35 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
To require every public service to file with the other department of the Government of the Philippines to
Commission a statement in writing, verified by the oaths engage in any public service business without having first
of the owner or the president and the secretary thereof, if secured from the Commission a certificate of public
a corporation, setting forth the name, title of office or convenience or certificate of public convenience and
portion, and post-office address, and the authority, power necessity as provided for in this Act, except grantees of
and duties of every officer, member of the board of legislative franchises expressly exempting such grantees
directors, trustees executive committee, superintendent, from the requirement of securing a certificate from this
chief or head of construction and operation thereof, in Commission as well as concerns at present existing
such form as to disclose the source and origin of each expressly exempted from the jurisdiction of the
administrative act, rule, decision, order or other action of Commission, either totally or in part, by the provisions of
the operator of such public service; and, within ten days section thirteen of this Act.
after any change is made in the title of, or authority,
powers or duties appertaining to any such office or Section 19. Unlawful Acts. - It shall be unlawful for any
position, or the person holding the same, filed with the public service:
Commission a like statement, verified in like manner,
setting forth such change. To provide or maintain any service that is unsafe,
improper, or inadequate or withhold or refuse any service
To require any public service to comply with the laws of which can reasonably be demanded and furnished, as
the Philippines and with any provincial resolution or found and determined by the Commission in a final order
municipal ordinance relating thereto and to conform to which shall be conclusive and shall take effect in
the duties imposed upon it thereby or by the provisions of accordance with this Act, upon appeal of otherwise.
its own character, whether obtained under any general or
special law of the Philippines. To make or give, directly or indirectly, by itself or through
its agents, attorneys or brokers, or any of them, discounts
To investigate any or all accidents that may occur on the or rebates on authorized rates, or grant credit for the
property of any public service or directly or indirectly payment of freight charges, or any undue or unreasonable
arising from or connected with its maintenance or preference or advantage to any person of corporation or to
operation in the Philippines; to require any public service any locality or to any particular description of traffic or
to give the Commission immediate and effective notice of service, or subject any particular person or corporation or
all any such accidents, and to make such order or locality or any particular description of traffic to any
recommendation with respect thereto as the public prejudice or disadvantage in any respect whatsoever; to
interest may warrant or require. adopt, maintain, or enforce any regulation, practice or
measurement which shall be found or determined by the
To require every public service s herein defined to file Commission to be unjust, unreasonable, unduly
within complete schedules of every classification preferential or unjustly discriminatory in a final order
employed and of every individual or joint rate, toll fare or which shall be conclusive and shall take effect in
charge made, charged or exacted by it for any product accordance with the provisions of this Act, upon repeal or
supplied or service rendered within the Philippines and, otherwise.
in the case of public carriers, to file with it a statement
showing the itineraries or routes served as specified in To refuse or neglect, when requested by the Director of
such requirement. Posts or his authorized representative, to carry public mail
on the regular trips of any public land transportation
CHAPTER III service maintained or operated by any such public service;
OPERATORS OF PUBLIC SERVICES REGULATIONS upon such terms and conditions and for a consideration in
AND PROHIBITIONS such amount as may be agreed upon between the Director
of Posts and the public service carrier of fixed by the
Section 18. It shall be unlawful for any individual, co- Commission in the absence of an agreement between the
partnership, association, corporation or joint-stock Director of Posts and the carrier. In case the Director of
company, their lessees, trustees or receivers appointed by Posts and public service carrier are unable to agree on the
any court whatsoever, or any municipality, province, or amount of the compensation to be paid for the carriage of
36 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
the mail, the Director of Posts shall forthwith request the such issue maturing in more than one year from the date
Commission to fix a just and reasonable compensation for thereof, when satisfied that the same is to be made in
such carriage and the same shall be promptly fixed by the accordance with law, and the purpose of such issue be
Commission in accordance with Section sixteen of this approved by the Commission. (f) To capitalize any
Act. franchise in excess of the amount, inclusive of any tax or
annual charge, actually paid to the Government of the
Section 20. Acts requiring the approval of the Philippines or any political subdivision thereof as the
Commission. - Subject to established limitations and consideration of said franchise; capitalize any contract for
exceptions and saving provisions to the contrary, it shall be consolidation, merger or lease, or issue any bonds or other
unlawful for any public service or for the owner, lessee or evidence of indebtedness against or as a lien upon any
operator thereof, without the approval and authorization contract for consolidation, merger, or lease: Provided,
of the Commission previously had - however, that the provisions of this section shall not
prevent the issuance of stock, bonds, or other evidence of
To adopt, establish, fix, impose, maintain, collect or carry indebtedness subject to the approval of the Commission
into effect any individual or joint rates, commutation, by any lawfully merged or consolidated public services
mileage or other special rate, toll, fare, charge, not in contravention of the provisions of this section.
classification or itinerary. The Commission shall approve
only those that are just and reasonable and not any that To sell, alienate, mortgage, encumber or lease its property,
are unjustly discriminatory or unduly preferential, only franchises, certificates, privileges, or rights or any part
upon reasonable notice to the public services and other thereof; or merge or consolidate its property, franchises
parties concerned, giving them a reasonable opportunity privileges or rights, or any part thereof, with those of any
to be heard and the burden of the proof to show that the other public service. The approval herein required shall be
proposed rates or regulations are just and reasonable shall given, after notice to the public and hearing the persons
be upon the public service proposing the same. interested at a public hearing, if it be shown that there are
just and reasonable grounds for making the mortgaged or
To establish, construct, maintain, or operate new units or encumbrance, for liabilities of more than one year
extend existing facilities or make any other addition to or maturity, or the sale, alienation, lease, merger, or
general extension of the service. consolidation to be approved, and that the same are not
detrimental to the public interest, and in case of a sale, the
To abandon any railroad station or stop the sale of date on which the same is to be consummated shall be
passenger tickets, or cease to maintain an agent to receive fixed in the order of approval: Provided, however, that
and discharge freight at any station now or hereafter nothing herein contained shall be construed to prevent the
established at which passenger tickets are now or may transaction from being negotiated or completed before its
hereafter be regularly sold, or at which such agent is now approval or to prevent the sale, alienation, or lease by any
or may hereafter be maintained, or make any permanent public service of any of its property in the ordinary course
change in its time tables or itineraries on any railroad or in of its business.
its service.
To sell or register in its books the transfer or sale of shares
To lay any railroad or street railway track across any of its capital stock, if the result of that sale in itself or in
highway, so as to make a new crossing at grade, or cross connection with another previous sale, shall be to vest in
the tracks of any other railroad or street railway, provided, the transferee more than forty per centum of the
that this subsection shall not apply to replacements of subscribed capital of said public service. Any transfer
lawfully existing tracks. made in violation of this provision shall be void and of no
effect and shall not be registered in the books of the public
Hereafter to issue any stock or stock certificates service corporation. Nothing herein contained shall be
representing an increase of capital; or issue any share of construed to prevent the holding of shares lawfully
stock without par value; or issue any bonds or other acquired. (As amended by Com. Act No. 454.)
evidence of indebtedness payable in more than one year
from the issuance thereof, provided that it shall be the To sell, alienate or in any manner transfer shares of its
duty of the Commission, after hearing, to approve any capital stock to any alien if the result of that sale,
37 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
alienation, or transfer in itself or in connection with pay the fine in any case within the same specified in the
another previous sale shall be the reduction to less than order or decision of the Commission shall be deemed
sixty per centum of the capital stock belonging to good and sufficient reason for the suspension of the
Philippine citizens. Such sale, alienation or transfer shall certificate of said public service until payment shall be
be void and of no effect and shall be sufficient cause for made. Payment may also be enforced by appropriate
ordering the cancellation of the certificate. action brought in a court of competent jurisdiction. The
remedy provided in this section shall not be a bar to, or
To issue, give or tender, directly or indirectly, any free affect any other remedy provided in this Act but shall be
ticket free pass or free or reduced rate of transportation for cumulative and additional to such remedy or remedies.
passengers, except to the following persons: (1) officers,
agents, employees, attorneys, physicians and surgeons of Section 22. Observance of the orders, decisions, and
said public service, and members of their families; (2) regulations of the Commission and of the terms and
inmates of hospitals or charity institutions, and persons conditions of any certificate may also be enforced by
engaged in charitable work; (3) indigent, destitute, and mandamus or injunction in appropriate cases, or by action
homeless persons when transported by charitable societies to compel the specific performance of the orders,
or hospitals, and the necessary agents employed in such decisions, and regulations so made, or of the duties
transportation; (4) the necessary caretakers, going and imposed by law upon such public service: Provided, that
returning, of livestock, poultry, fruit, and other freight the Commission may compromise any case that arise
under uniform and non-discriminatory regulation; (5) under this Act in such manner and for such amount as it
employees of sleeping car corporations, express may deem just and reasonable.
corporations and telegraph and telephone corporations,
railway and marine mail service employees, when Section 23. Any public service corporation that shall
traveling in the course of their official duly; (6) post-office perform, commit, or do any act or thing forbidden or
inspectors, customs officers and inspectors, and prohibited or shall neglect, fail or omit to do or perform
immigration inspectors when engaged in inspection; (7) any act or thing herein to be done or performed, shall be
witnesses attending any legal investigation in which the punished by a fine not exceeding twenty-five thousand
public service is an interested party; (8) persons injured in pesos, or by imprisonment not exceeding five years, or
accidents or wrecks, and physicians and nurses attending both, in the discretion of the court.
such persons; (9) peace officers and men of regularly
constituted fire departments. (As amended by Com. Act Section 24. Any person who shall knowingly and willfully
No. 454.) perform, commit, or do, or participate in performing,
committing, or doing, or who shall knowingly and
Adopt, maintain, or apply practices or measures, rules or willfully cause, participate, or join with others in causing
regulations to which the public shall be subject in its any public service corporation or company to do, perform
relations with the public service. or commit, or who shall advice, solicit, persuade, or
knowingly and willfully instruct, direct, or order any
CHAPTER IV officer, agent, or employee of any public service
PENALTIES FOR VIOLATIONS corporation or company to perform, commit, or do any act
or thing forbidden or prohibited by this Act, shall be
Section 21. Every public service violating or failing to punished by a fine not exceeding two thousand pesos, or
comply with the terms and conditions of any certificate or imprisonment not exceeding two years, or both, in the
any orders, decisions or regulations of the Commission discretion of the court: Provided, however, that for
shall be subject to a fine of not exceeding two hundred operating a private passenger automobile as a public
pesos per day for every day during which such default or service without having a certificate of public convenience
violation continues; and the Commission is hereby for the same the offender shall be subject to the penalties
authorized and empowered to impose such fine, after due provided for in section sixty-seven (j) of Act numbered
notice and hearing. thirty-nine hundred an ninety-two.

The fines so imposed shall be paid to the Government of Section 25. Any person who shall knowingly and willfully
the Philippines through the Commission, and failure to neglect, fail, or omit to do or perform, or who shall
38 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
knowingly and willfully cause or join or participate with contempt by a fine not exceeding two hundred pesos or by
others in causing any public service corporation or imprisonment not exceeding ten days, or both, any person
company to neglect, fail or omit to do or perform, or who guilty of misconduct in the presence of the Commissioner
shall advise, solicit, or persuade, or knowingly and or associate commissioners or so near the same as to
willfully instruct, direct, or order any officer, agent, or interrupt the hearing or session or any proceeding before
employee of any public service corporation or company to them, including cases in which a person present at a
neglect, fail, or omit to do any act or thing required to be hearing, session, or investigation held by either of the
done by this Act, shall be published by a fine not commissioners refuses to be sworn as a witness or to
exceeding two thousand pesos or by imprisonment not answer as such when lawfully required to do so. To
exceeding two years, or both, in the discretion of the court. enforce the provisions of this section, the Commission
may, if necessary, request the assistance of the municipal
Section 26. Any person who shall destroy, injure, or police for the execution of any order made for said
interfere with any apparatus or appliance owned or purpose.
operated by to in charge of the Commission or its agents,
shall be deemed guilty of a misdemeanor and upon While the Commission is authorized to make rules for the
conviction shall be published by a fine not exceeding one conduct of their business, it could not set at naught the
thousand pesos or imprisonment not exceeding six fundamental rule of all proceedings that only parties
months, or both in the discretion of the court. having a real interest will be heard.

Any public service permitting the destruction, injury to, or A party not affected or prejudiced cannot file an
interference with, any such apparatus or appliances shall opposition.
forfeit a sum not exceeding four thousand pesos for each
offense. One public service corporation cannot assume the name
and be substituted in the place of another public service
Section 27. This Act shall not have the effect to release or corporation.
waive any right of action by the Commission or by any
person for any right, penalty, or forfeiture which may have A legal representative of the estate of a deceased applicant
arisen or which may arise, under any of the laws of the may be substituted for the latter. If the right consists in the
Philippines, and any penalty or forfeiture enforceable prosecution of unfinished proceedings upon an
under this Act shall not be a bar to or affect a recovery for application for a certificate of public convenience of the
a right, or affect or bar any criminal proceedings against deceased before the Public service Commission, it is but
any public service or person or persons operating such logical that the legal representative be empowered and
public services, its officers, directors, agents, or employees. entitled in behalf of the estate to make the right effective in
that proceeding.
Section 28. Violations of the orders, decisions, and
regulations of the Commission and of the terms and One who has been granted a legislative franchise to
conditions of any certificate issued by the Commission operate an ice plant, although not yet an operator of such
shall prescribe after sixty days, and violations of the public utility, has sufficient interest or personality either to
provisions of this Act shall prescribe after one hundred oppose an established operator's application for an
and eighty days. increase in the capacity of his existing plant, or to ask for a
joint hearing of said application and the grantee's own
CHAPTER V application for the issuance of a certificate of public
PROCEDURE AND REVIEW convenience in order to operate under such franchise.

Section 29. All hearings and investigations before the The fact that a party is the lessee of a line does not bar him
Commission shall be governed by rules adopted by the from applying for a certificate of its own in the same line.
Commission, and in the conduct thereof the Commission Even in cases where the owner of a certificate has sold it
shall not be bound by the technical rules of legal evidence: subject to the condition that he would not apply for a
Provided, That the Public Service Commissioner or similar service on the same line sold by him, it has been
associate commissioners may summarily punish for held that such an argument does not bar the seller from
39 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
applying and that the Public Service Commission, if it (c) The Commissioner and associate commissioners, the
finds that there is public need for the new service applied chiefs of divisions, the attorneys of the Commission, and
for, may properly grant the certificate requested. In other the deputy secretaries shall have the power to administer
words the primary consideration is a finding by the oaths in all matters under the jurisdiction of the
Commission that public interest and convenience require a Commission.
given service and that parties may not by agreement
deprive the Commission of its power. (d) Any person who shall testify falsely or make any false
affidavit or oath before the Commission or before any of
A case involving the grant of a Certificate of Public its members shall be guilty of perjury, and upon
Convenience to the respondent becomes moot and conviction thereof in a court of competent jurisdiction,
academic where the respondent ceases to be a bus shall be punished as provided by law.
operator, and it should be dismissed.
(e) Witnesses appearing before the Commission in
Section 30. (a) The Commission may issue subpoenas and obedience to subpoena or subpoena duces tecum, shall be
subpoenas duces tecum, for witnesses in any matter or entitled to receive the same fees and mileage allowance as
inquiry pending before the Commission and require the witnesses attending Courts of First Instance in civil cases.
production of all books, papers, tariffs, contracts,
agreements, and all other documents, which the (f) Any person who shall obstruct the Commission or
Commission may deem necessary in any proceeding. such either of the Commissioners while engaged in the
process shall be issued under the seal of the Commission, discharge of Official duties, or who shall conduct himself
signed by one of the Commissioners or by the secretary, in a rude, disrespectful or disorderly manner before the
and may be served by any person of full age, or by Commission or either of the Commissioners, while
registered mail. In case of disobedience to such subpoena, engaged in the discharge of official duties, or shall orally
the Commission may invoke the said of the Supreme or in writing be disrespectful to, offend or insult either of
Court or of any Court of First Instance of the Philippines the Commissioners on occasion or by reason of the
in requiring the attendance and testimony of witness and performance of official duties, upon conviction thereof by
the production of books, papers, and documents under a court of competent jurisdiction, shall be punished for
the provisions of this chapter, and the Supreme Court, or each offense by a fine not exceeding one thousand pesos,
any Court of First Instance of the Philippines within the or by imprisonment not exceeding six months, or both, in
jurisdiction of which such inquiry is carried on, may in the discretion of the court.
case of contumacy of refusal to obey a subpoena, issue to
any public service subject to the provisions of this Act, or Section 31. No person shall be excused from testifying or
to any person, an order requiring such public service or from producing any book, document, or paper in any
other person to appear before the Commission and investigation or inquiry by or upon the hearing before the
produce and papers if so ordered and give evidence Commission, when ordered so to do by said Commission,
touching the matter; and any failure to obey such order of except when the testimony or evidence required of him
the court may be punished by such court as a contempt may tend to incriminate him. Without the consent of the
thereof. interested party no member or employee of the
Commission shall be compelled or permitted to give
(b) Any person who shall neglect or refuse to answer any testimony in any civil suit to which the Commission is not
lawful inquiry or produce the Commission books, paper, a party, with regard to secrets obtained by him in the
tariffs, contracts, agreements, and documents or other discharge of his official duty.
things called for by said Commission, if in his power to do
so, in obedience to the subpoena or lawful inquiry of the Section 32. The Commission may, in any investigation or
Commission, upon conviction thereof by a court of hearing, by its order in writing cause the deposition of
competent jurisdiction, shall be punished by a fine not witnesses residing within or without the Philippines to be
exceeding five thousand pesos or by imprisonment not taken in the manner prescribed by the Rules of Court.
exceeding one year, or both, in the discretion of the court. Where witnesses reside in places distant from Manila and
it would be inconvenient and expensive for them to appear
personally before the Commission, the Commission may,
40 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
by proper order, commission any clerk of the Court of First Section 34. Any interested party may request the
Instance, municipal judge or justice of the peace of the reconsideration of any order, ruling, or decision of the
Philippines to take the deposition of witnesses in any case Commission by means of a petition filed not later than
pending before the Commission. It shall be the duty of the fifteen days after the date of the notice of the order, ruling,
official so commissioned, to designated promptly a date or or decision in question. The grounds on which the request
dates for the taking of such deposition, giving timely for reconsideration is based shall be clearly and
notice to the parties, and on said date to proceed to take specifically stated in the petition. Copies of said petition
the deposition, reducing it to writing. After the shall be served on all parties interested in the matter. It
depositions have been taken, the official so commissioned shall be the duty of the Commission to call a hearing to
shall certify to the depositions taken and forward them as decide the same promptly, either denying the petition or
soon as possible to the Commission. It shall be the duty of revoking or modifying the order, ruling or decision under
the respective parties to furnish stenographers for taking consideration.
and transcribing the testimony taken. in case the are no
stenographers available, the testimony shall be taken in Section 35. The Supreme Court is hereby given
long hand by such person as the clerk of court, the jurisdiction to review any order, ruling, or decision of the
municipal judge or justice of the peace may designate. The Commission and to modify or set aside such order, ruling,
Commission may also commission a notary public to take or decision when it clearly appears that there was no
the depositions in the same manner herein provided. evidence before the Commission to support reasonably
such order, ruling, or decision, or that the same is contrary
The Commission may also, by proper order, authorize any to law, or that it was without the jurisdiction of the
of the attorneys of the legal division or division chiefs of Commission. The evidence presented to the Commission,
the Commission, if they be lawyers, to hear and investigate together with the record of the proceedings before the
any case filed, with the Commission and in connection Commission, shall be certified by the secretary of the
therewith to receive such evidence as may be material Commission to the Supreme Court. Any order, ruling, or
thereto. At the conclusion of the hearing or investigation, decision of the Commission may likewise be reviewed by
the attorney or division chief so authorized shall submit the Supreme Court upon a writ of certiorari in proper
the evidence received by him to the Commission to enable cases. The procedure for review, except as herein
the latter to render its decision. (As amended by Rep. Act provided, shall be prescribed by rules of the Supreme
No. 723.) Court.

Section 33. Every order made by the Commission shall be Section 36. Any other, ruling, or decision of the may be
served upon the person or public service affected thereby, reviewed on the application of any person or public
within ten days from the time said order is filed by service affected thereby, by certiorari in appropriate cases,
personal delivery or by ordinary mail, upon the attorney or by petition, to be known as petition for review, which
of record, or in case there be no attorney of record, upon shall be filed within thirty days from the notification of
the party interested; and in case such certified copy is sent such order, ruling or decision, or in case of a petition is
by registered mail, the registry mail receipt shall be prima filed in accordance with the preceding section for the
facie evidence of the receipt of such order by the public reconsideration of such order, ruling or decision and the
service in due course of mail. All orders of the same is denied it shall be filed within fifteen days after
Commission to continue an existing service or prescribing notice of the order denying reconsideration. Said petition
rates to be charged shall be immediately operative; all shall be placed on file in the office of the Clerk of the
other orders shall become effective upon the dates Supreme Court who shall furnish copies thereof to the
specified thereon: Provided, however, that orders, Secretary of the Commission and other parties interested.
resolutions or decisions in converted matters and not
referring to the continuance of an existing service or Section 37. The institution of a writ of certiorari or other
prescribing rates to be charged shall not be effective unless special remedies in the Supreme Court shall in no case
otherwise provided by the Commission, and shall take supersede or stay any order, ruling or decision of the
effect thirty days after notice to the parties. Commission, unless the Supreme Court shall so direct,
and the appellant may be required by the Supreme Court
41 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
to give bond in such form and of such amount as may be purpose of complaining in matters of the rates and
deemed proper. services; (4) to investigate the service given by the rates
charged by, and the valuation of the properties of the
Section 38. The chief of the legal division or any other public services under the jurisdiction of the Commission,
attorneys of the Commission shall represent the same in and such other matters relating to said public services as
all judicial proceedings. It shall be the duty of the Solicitor affect the interests of users of the products or service
General to represent the Commission in any judicial thereof, and to take all the steps necessary for the
proceedings if, for special reason, the Commissioner shall protection of the interests of the person or persons or of
request his intervention. the public affected thereby. In connection with such
investigation he is hereby empowered to issue subpoena or
There is hereby created under the administrative subpoena duces tecum.
supervision of the Secretary of Justice an office to be
known as the Office of the People's Counsel in the Public The People's Counsel is authorized to call upon and obtain
Service Commission. The people's Counsel shall have two such assistance as he may deem necessary in the
assistants and such number of employees as may be performance of his duties from any officer or employee of
necessary to perform the functions hereinafter specified. any department, bureau, office, agency, or instrumentality
The People's Counsel and his assistants shall be appointed of the government including corporations owned,
by the President of the Philippines with the consent of the controlled or operated by the government. (As amended
commission on appointments of the Congress of the by Rep. Act No. 178.)
Philippines. The employees of the office of the People's
Counsel shall be appointed by the Secretary of Justice Section 39. Any preceding in any court of the Philippines
upon recommendation of the People's Counsel. directly affecting an order of the Commission or to which
the Commission is a party, shall have preference over all
The People's Counsel and his assistants shall posses the other civil proceedings pending in such court, except
qualifications of a provincial fiscal. The People's Counsel election cases.
shall receive compensation at the rate of seven thousand
two hundred pesos per annum, and the first and second CHAPTER VI
assistant's People's Counsel, at the rate of six thousand FEES
pesos per annum each.
Section 40. The Commission is authorized and ordered to
The People's Counsel, his assistants, and the employees of charge and collect from any public service or applicant, as
the Office of the People's Counsel shall not, during their the case may be, the following fees as reimbursement of its
continuance in office, intervene directly or indirectly in the expenses in the authorization, supervision and/or
management or control of, or be financially interested regulation of public services:
directly or indirectly in any public service as defined in
this Act. The charge of fifty pesos for the registration of:

It shall be the duty of the People's Counsel (1) to institute Applications under the provisions of Section sixteen (a),
proceedings before the Commission, in behalf of the (b), (c), and (d), and twenty (a), (b) (c), (e), (f), and (h):
public, for the purpose of fixing just and reasonable rates Provided however, That in case of transportation services
or charges to be followed and observed by public services an additional filing fee of five pesos shall be charged for
as herein defined, whenever he has reason to believe that each additional unit or vehicle in excess of five units or
the existing rates or charges of such public services are vehicles applied for: And provided, finally, That no filing
unjust and unreasonable or unjustly discriminatory; (2) to fee shall be collected for the reduction of rates if the same
represent and appear for the public before the does not alter or modify in any way the basic rates of the
Commission or any court of the Philippines in every case schedule.
involving the interest of users of the products of, or service
furnished by any public service under the jurisdiction of Applications for the approval or modification of
the Commission; (3) to represent and appear for maximum rates under Section fourteen.
petitioners appearing before the Commission for the
42 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Thirty pesos shall be collected from any operator of land and/or in the regulation or fixing of their rates, twenty
transportation for the registration of: centavos for each one hundred pesos or fraction thereof, of
the capital stock subscribed or paid, or if no shares have
Applications under Section seventeen (f). been issued, of the capital invested, or of the property and
equipment, whichever is higher.
Applications for the extension of time covering a period of
thirty days for the registration of motor vehicles For the issue or increase of capital stock, twenty centavos
previously authorized by the Commission. for each one hundred pesos or fraction thereof, of the
increased capital.
The charge of thirty pesos for the filing of other
applications by any public service operator not specifically For each permit authorizing the increase of equipment, the
provided for in the preceding paragraphs of this section installation of new units or authorizing the increase of
other than motions of a temporary or incidental character: capacity. or the extension of means or general extension in
Provided, however, That fifteen pesos only shall be the services, twenty centavos for each one hundred pesos
collected for each certificate of public convenience or or fraction of the additional capital necessary to carry out
certificate of public convenience and necessity in diploma the permit.
form issued to a public service operator.
For the inspection or certification made in the meter
For annual reimbursement of the expenses incurred by the laboratory of the Commission or each apparatus or meter
Commission for the supervision and regulation of the used by any public service, four pesos, and for
operations of motor vehicle services: examination made outside the meter laboratory of the
Commission, the additional expenses as may be incurred
For each automobile, ten pesos. in making the examination shall also be paid.

For each motor vehicle, truck, or trailer of less than two For certification of copies of official documents in the files
tons gross transportation capacity, ten pesos. of the Commission, fifty centavos plus fifty centavos for
each page or folio so certified.
For each motor vehicle, truck, or trailer of two tons or
more, but less than three tons gross transportation This section shall not be applicable to the Republic of the
capacity, twenty pesos. Philippines, nor to its instrumentalities.

For each motor vehicle, truck, or trailer of three tons or Aside from the appropriations for the Commission under
more but less than four tons gross transportation capacity, the annual General Appropriation Act, any unexpended
thirty pesos. balance of the fees collected by the Commission under this
section shall be constituted receipts automatically
Motor vehicles, trucks, trailers or buses of four tons or appropriated each year, and together with any surplus in
more gross capacity shall pay at the rate of ten pesos per the standardizing meter laboratory revolving fund under
ton gross. The fees provided in paragraphs (d) and (e) Commonwealth Act Numbered Three hundred forty-nine,
hereof shall be paid on or before September thirtieth of shall be disbursed by the Public Service Commissioner in
each year with a penalty of fifty per centum in case of accordance with special budgets to be approved by the
delinquency: Provided, further, That if the fees or any Department of Justice, the Budget Commission and the
balance thereof are not paid within sixty days from the Office of the President of the Philippines for additional
said date, the penalty shall be increased by one per needed personal services, maintenance and operating
centum for every month thereafter of delinquency: expenses, acquisition of urgently needed vehicles,
Provided, however, That motor vehicles registered in the furniture and equipment, maintenance of an adequate
Motor Vehicles Office after September thirtieth shall be reference library, acquisition of a lot and building for the
exempt from payment for said year. Commission, and other expenses necessary for efficient
administration and effective supervision and regulation of
For annual reimbursement of the expenses incurred by the public services. (As amended by Com. Act No. 454 and RA
Commission in the supervision of other public services No. 3792, approved June 22, 1963.)
43 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
CHAPTER VII Section 47. This Act shall take effect upon its approval.
GENERAL AND TRANSITORY PROVISIONS
Approved: November 7, 1936
Section 41. A substantial compliance with the
requirements of this Act shall be sufficient to give effect to CONSTITUTION: ARTICLE XII SECTION 11
all the rules, orders, acts and regulations of the
Commission and they shall not be declared inoperative, Section 11. No franchise, certificate, or any other form of
illegal, or void for any omission of a technical nature in authorization for the operation of a public utility shall be
respect thereto. granted except to citizens of the Philippines or to
corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital
Section 42. Copies of all official documents and orders
is owned by such citizens; nor shall such franchise,
filled or deposited in the office of the Commission, certificate, or authorization be exclusive in character or for
certified by either of the commissioners, or by the a longer period than fifty years. Neither shall any such
secretary to be true copy of the original, under the seal of franchise or right be granted except under the condition
the Commission shall be evidence in like manner as the that it shall be subject to amendment, alteration, or repeal
originals in all courts of the Philippines. by the Congress when the common good so requires. The
State shall encourage equity participation in public
utilities by the general public. The participation of foreign
Section 43. The Commission created under this Act shall
investors in the governing body of any public utility
succeed the Commission created under Act numbered enterprise shall be limited to their proportionate share in
thirty-one hundred and eight in the dispatch, hearing, and its capital, and all the executive and managing officers of
determination of all pending matters before the latter; and such corporation or association must be citizens of the
shall take charge of its archives, books, furniture, Philippines.
equipment, and other properties of whatsoever nature.

Section 44. In addition to the sum appropriated for the


former commission under Act numbered forty-one
hundred and thirty-two, the General Appropriation Act
for nineteen hundred and thirty-six, the sum of six
thousand seven hundred and sixty-eight pesos and thirty-
four centavos is hereby appropriated out of any funds in
the Philippines Treasury not otherwise; and in addition to
the sum appropriated under Act numbered thirty-eight,
the General Appropriation Act for nineteen hundred and
thirty-seven, the sum of twenty-three thousand six
hundred and ten pesos, or so much thereof as may be
necessary, is hereby appropriated, out of any funds in the
Philippines Treasury not otherwise appropriated, for
carrying out the purposes of this Act.

Section 45. If, any reason, any section, subsection,


sentence, clauses or terms of this Act is held to the
unconstitutional such decision shall not affect the validity
of the other provisions of this Act.

Section 46. Act numbered thirty-two hundred and forty-


seven and Act numbered thirty-five hundred and eighteen
shall continue in force and effect; but all provisions of Act
numbered thirty-one hundred and eight and amendments
thereof, and all other acts or parts or acts inconsistent with
the provisions of this Act are hereby repealed.
44 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
CASES Maritime Company of the Philippines the total amount
that the Maritime Company of the Philippines may
G.R. No. L-49407 August 19, 1988 voluntarily or by compliance to a writ of execution pay to
the plaintiff pursuant to the judgment rendered in this
NATIONAL DEVELOPMENT COMPANY, petitioner-
case.
appellant,
vs.
With costs against the defendant Maritime Company of
THE COURT OF APPEALS and DEVELOPMENT
the Philippines.
INSURANCE & SURETY
CORPORATION, respondents-appellees.
(pp. 34-35, Rollo, GR No. L-49469)

No. L-49469 August 19, 1988


The facts of these cases as found by the Court of Appeals,
are as follows:
MARITIME COMPANY OF THE
PHILIPPINES, petitioner-appellant,
The evidence before us shows that in accordance with a
vs.
memorandum agreement entered into between defendants
THE COURT OF APPEALS and DEVELOPMENT
NDC and MCP on September 13, 1962, defendant NDC as
INSURANCE & SURETY
the first preferred mortgagee of three ocean going vessels
CORPORATION, respondents- appellees.
including one with the name 'Dona Nati' appointed
defendant MCP as its agent to manage and operate said
Balgos & Perez Law Office for private respondent in both cases.
vessel for and in its behalf and account (Exh. A). Thus, on
February 28, 1964 the E. Philipp Corporation of New York
loaded on board the vessel "Dona Nati" at San Francisco,
California, a total of 1,200 bales of American raw cotton
PARAS, J.:
consigned to the order of Manila Banking Corporation,
Manila and the People's Bank and Trust Company acting
These are appeals by certiorari from the decision * of the
for and in behalf of the Pan Asiatic Commercial Company,
Court of Appeals in CA G.R. No: L- 46513-R entitled
Inc., who represents Riverside Mills Corporation (Exhs. K-
"Development Insurance and Surety Corporation plaintiff-
2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel
appellee vs. Maritime Company of the Philippines and
at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa,
National Development Company defendant-appellants,"
Ltd., consigned to the order of Manila Banking
affirming in toto the decision ** in Civil Case No. 60641 of
Corporation consisting of 200 cartons of sodium lauryl
the then Court of First Instance of Manila, Sixth Judicial
sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En
District, the dispositive portion of which reads:
route to Manila the vessel Dofia Nati figured in a collision
at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a
WHEREFORE, judgment is hereby rendered ordering the
Japanese vessel 'SS Yasushima Maru' as a result of which
defendants National Development Company and
550 bales of aforesaid cargo of American raw cotton were
Maritime Company of the Philippines, to pay jointly and
lost and/or destroyed, of which 535 bales as damaged
severally, to the plaintiff Development Insurance and
were landed and sold on the authority of the General
Surety Corp., the sum of THREE HUNDRED SIXTY
Average Surveyor for Yen 6,045,-500 and 15 bales were not
FOUR THOUSAND AND NINE HUNDRED FIFTEEN
landed and deemed lost (Exh. G). The damaged and lost
PESOS AND EIGHTY SIX CENTAVOS (364,915.86) with
cargoes was worth P344,977.86 which amount, the plaintiff
the legal interest thereon from the filing of plaintiffs
as insurer, paid to the Riverside Mills Corporation as
complaint on April 22, 1965 until fully paid, plus TEN
holder of the negotiable bills of lading duly endorsed
THOUSAND PESOS (Pl0,000.00) by way of damages as
(Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3
and for attorney's fee.
and R-3}. Also considered totally lost were the aforesaid
shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the
On defendant Maritime Company of the Philippines'
order of Manila Banking Corporation, Manila, acting for
cross-claim against the defendant National Development
Guilcon, Manila, The total loss was P19,938.00 which the
Company, judgment is hereby rendered, ordering the
plaintiff as insurer paid to Guilcon as holder of the duly
National Development Company to pay the cross-claimant
45 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
endorsed bill of lading (Exhibits M-1 and S-3). Thus, the MCP interposed its appeal on December 20, 1969, while
plaintiff had paid as insurer the total amount of NDC filed its appeal on February 17, 1970 after its motion
P364,915.86 to the consignees or their successors-in- to set aside the decision was denied by the trial court in its
interest, for the said lost or damaged cargoes. Hence, order dated February 13,1970.
plaintiff filed this complaint to recover said amount from
the defendants-NDC and MCP as owner and ship agent On November 17,1978, the Court of Appeals promulgated
respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, its decision affirming in toto the decision of the trial court.
p.38)
Hence these appeals by certiorari.
On April 22, 1965, the Development Insurance and Surety
Corporation filed before the then Court of First Instance of NDC's appeal was docketed as G.R. No. 49407, while that
Manila an action for the recovery of the sum of of MCP was docketed as G.R. No. 49469. On July 25,1979,
P364,915.86 plus attorney's fees of P10,000.00 against NDC this Court ordered the consolidation of the above cases
and MCP (Record on Appeal), pp. 1-6). (Rollo, p. 103). On August 27,1979, these consolidated
cases were given due course (Rollo, p. 108) and submitted
Interposing the defense that the complaint states no cause for decision on February 29, 1980 (Rollo, p. 136).
of action and even if it does, the action has prescribed,
MCP filed on May 12, 1965 a motion to dismiss (Record on In its brief, NDC cited the following assignments of error:
Appeal, pp. 7-14). DISC filed an Opposition on May 21,
1965 to which MCP filed a reply on May 27, 1965 (Record I
on Appeal, pp. 14-24). On June 29, 1965, the trial court
deferred the resolution of the motion to dismiss till after THE COURT OF APPEALS ERRED IN APPLYING
the trial on the merits (Record on Appeal, p. 32). On June ARTICLE 827 OF THE CODE OF COMMERCE AND NOT
8, 1965, MCP filed its answer with counterclaim and cross- SECTION 4(2a) OF COMMONWEALTH ACT NO. 65,
claim against NDC. OTHERWISE KNOWN AS THE CARRIAGE OF GOODS
BY SEA ACT IN DETERMINING THE LIABILITY FOR
NDC, for its part, filed its answer to DISC's complaint on LOSS OF CARGOES RESULTING FROM THE
May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an COLLISION OF ITS VESSEL "DONA NATI" WITH THE
answer to MCP's cross-claim on July 16, 1965 (Record on YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN
Appeal, pp. 39-40). However, on October 16, 1965, NDC's OR OUTSIDE THE TERRITORIAL JURISDICTION OF
answer to DISC's complaint was stricken off from the THE PHILIPPINES.
record for its failure to answer DISC's written
interrogatories and to comply with the trial court's order II
dated August 14, 1965 allowing the inspection or
photographing of the memorandum of agreement it THE COURT OF APPEALS ERRED IN NOT DISMISSING
executed with MCP. Said order of October 16, 1965 THE C0MPLAINT FOR REIMBURSEMENT FILED BY
likewise declared NDC in default (Record on Appeal, p. THE INSURER, HEREIN PRIVATE RESPONDENT-
44). On August 31, 1966, NDC filed a motion to set aside APPELLEE, AGAINST THE CARRIER, HEREIN
the order of October 16, 1965, but the trial court denied it PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-
in its order dated September 21, 1966. Appellant National Development Company; p. 96, Rollo).

On November 12, 1969, after DISC and MCP presented On its part, MCP assigned the following alleged errors:
their respective evidence, the trial court rendered a
decision ordering the defendants MCP and NDC to pay I
jointly and solidarity to DISC the sum of P364,915.86 plus
the legal rate of interest to be computed from the filing of THE RESPONDENT COURT OF APPEALS ERRED IN
the complaint on April 22, 1965, until fully paid and NOT HOLDING THAT RESPONDENT DEVELOPMENT
attorney's fees of P10,000.00. Likewise, in said decision, the INSURANCE AND SURETY CORPORATION HAS NO
trial court granted MCP's crossclaim against NDC. CAUSE OF ACTION AS AGAINST PETITIONER
46 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
MARITIME COMPANY OF THE PHILIPPINES AND IN THE BILLS OF LADING HAS NO APPLICATION IN
NOT DISMISSING THE COMPLAINT. THE INSTANT CASE THERE BEING NO GENERAL
AVERAGE TO SPEAK OF.
II
VI
THE RESPONDENT COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE CAUSE OF ACTION OF THE RESPONDENT COURT OF APPEALS ERRED IN
RESPONDENT DEVELOPMENT INSURANCE AND HOLDING THE PETITIONERS NATIONAL
SURETY CORPORATION IF ANY EXISTS AS AGAINST DEVELOPMENT COMPANY AND COMPANY OF THE
HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO
PHILIPPINES IS BARRED BY THE STATUTE OF HEREIN RESPONDENT DEVELOPMENT INSURANCE
LIMITATION AND HAS ALREADY PRESCRIBED. AND SURETY CORPORATION THE SUM OF P364,915.86
WITH LEGAL INTEREST FROM THE FILING OF THE
III COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS
AND FOR ATTORNEYS FEES INSTEAD OF
THE RESPONDENT COURT OF APPEALS ERRED IN SENTENCING SAID PRIVATE RESPONDENT TO PAY
ADMITTING IN EVIDENCE PRIVATE RESPONDENTS HEREIN PETITIONERS ITS COUNTERCLAIM IN THE
EXHIBIT "H" AND IN FINDING ON THE BASIS AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES
THEREOF THAT THE COLLISION OF THE SS DONA AND THE COSTS. (pp. 1-4, Brief for the Maritime
NATI AND THE YASUSHIMA MARU WAS DUE TO THE Company of the Philippines; p. 121, Rollo)
FAULT OF BOTH VESSELS INSTEAD OF FINDING
THAT THE COLLISION WAS CAUSED BY THE FAULT, The pivotal issue in these consolidated cases is the
NEGLIGENCE AND LACK OF SKILL OF THE determination of which laws govern loss or destruction of
COMPLEMENTS OF THE YASUSHIMA MARU goods due to collision of vessels outside Philippine waters,
WITHOUT THE FAULT OR NEGLIGENCE OF THE and the extent of liability as well as the rules of
COMPLEMENT OF THE SS DONA NATI prescription provided thereunder.

IV The main thrust of NDC's argument is to the effect that the


Carriage of Goods by Sea Act should apply to the case at
THE RESPONDENT COURT OF APPEALS ERRED IN bar and not the Civil Code or the Code of Commerce.
HOLDING THAT UNDER THE CODE OF COMMERCE Under Section 4 (2) of said Act, the carrier is not
PETITIONER APPELLANT MARITIME COMPANY OF responsible for the loss or damage resulting from the "act,
THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF neglect or default of the master, mariner, pilot or the
SS DONA NATI OWNED BY CO-PETITIONER servants of the carrier in the navigation or in the
APPELLANT NATIONAL DEVELOPMENT COMPANY management of the ship." Thus, NDC insists that based on
AND THAT SAID PETITIONER-APPELLANT IS the findings of the trial court which were adopted by the
SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR Court of Appeals, both pilots of the colliding vessels were
LOSS OF OR DAMAGES TO CARGO RESULTING IN at fault and negligent, NDC would have been relieved of
THE COLLISION OF SAID VESSEL, WITH THE liability under the Carriage of Goods by Sea Act. Instead,
JAPANESE YASUSHIMA MARU. Article 287 of the Code of Commerce was applied and
both NDC and MCP were ordered to reimburse the
V insurance company for the amount the latter paid to the
consignee as earlier stated.
THE RESPONDENT COURT OF APPEALS ERRED IN
FINDING THAT THE LOSS OF OR DAMAGES TO THE This issue has already been laid to rest by this Court of
CARGO OF 550 BALES OF AMERICAN RAW COTTON, Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470
DAMAGES WERE CAUSED IN THE AMOUNT OF [1987]) where it was held under similar circumstance "that
P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER the law of the country to which the goods are to be
BALE AS ESTABLISHED IN THE BILLS OF LADING transported governs the liability of the common carrier in
AND ALSO IN HOLDING THAT PARAGRAPH 1O OF case of their loss, destruction or deterioration" (Article
47 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
1753, Civil Code). Thus, the rule was specifically laid Significantly, under the provisions of the Code of
down that for cargoes transported from Japan to the Commerce, particularly Articles 826 to 839, the shipowner
Philippines, the liability of the carrier is governed or carrier, is not exempt from liability for damages arising
primarily by the Civil Code and in all matters not from collision due to the fault or negligence of the captain.
regulated by said Code, the rights and obligations of Primary liability is imposed on the shipowner or carrier in
common carrier shall be governed by the Code of recognition of the universally accepted doctrine that the
commerce and by laws (Article 1766, Civil Code). Hence, shipmaster or captain is merely the representative of the
the Carriage of Goods by Sea Act, a special law, is merely owner who has the actual or constructive control over the
suppletory to the provision of the Civil Code. conduct of the voyage (Y'eung Sheng Exchange and
Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).
In the case at bar, it has been established that the goods in
question are transported from San Francisco, California There is, therefore, no room for NDC's interpretation that
and Tokyo, Japan to the Philippines and that they were the Code of Commerce should apply only to domestic
lost or due to a collision which was found to have been trade and not to foreign trade. Aside from the fact that the
caused by the negligence or fault of both captains of the Carriage of Goods by Sea Act (Com. Act No. 65) does not
colliding vessels. Under the above ruling, it is evident that specifically provide for the subject of collision, said Act in
the laws of the Philippines will apply, and it is immaterial no uncertain terms, restricts its application "to all contracts
that the collision actually occurred in foreign waters, such for the carriage of goods by sea to and from Philippine
as Ise Bay, Japan. ports in foreign trade." Under Section I thereof, it is
explicitly provided that "nothing in this Act shall be
Under Article 1733 of the Civil Code, common carriers construed as repealing any existing provision of the Code
from the nature of their business and for reasons of public of Commerce which is now in force, or as limiting its
policy are bound to observe extraordinary diligence in the application." By such incorporation, it is obvious that said
vigilance over the goods and for the safety of the law not only recognizes the existence of the Code of
passengers transported by them according to all Commerce, but more importantly does not repeal nor limit
circumstances of each case. Accordingly, under Article its application.
1735 of the same Code, in all other than those mentioned
is Article 1734 thereof, the common carrier shall be On the other hand, Maritime Company of the Philippines
presumed to have been at fault or to have acted negigently, claims that Development Insurance and Surety
unless it proves that it has observed the extraordinary Corporation, has no cause of action against it because the
diligence required by law. latter did not prove that its alleged subrogers have either
the ownership or special property right or beneficial
It appears, however, that collision falls among matters not interest in the cargo in question; neither was it proved that
specifically regulated by the Civil Code, so that no the bills of lading were transferred or assigned to the
reversible error can be found in respondent courses alleged subrogers; thus, they could not possibly have
application to the case at bar of Articles 826 to 839, Book transferred any right of action to said plaintiff- appellee in
Three of the Code of Commerce, which deal exclusively this case. (Brief for the Maritime Company of the
with collision of vessels. Philippines, p. 16).

More specifically, Article 826 of the Code of Commerce The records show that the Riverside Mills Corporation
provides that where collision is imputable to the personnel and Guilcon, Manila are the holders of the duly endorsed
of a vessel, the owner of the vessel at fault, shall indemnify bills of lading covering the shipments in question and an
the losses and damages incurred after an expert appraisal. examination of the invoices in particular, shows that the
But more in point to the instant case is Article 827 of the actual consignees of the said goods are the
same Code, which provides that if the collision is aforementioned companies. Moreover, no less than MCP
imputable to both vessels, each one shall suffer its own itself issued a certification attesting to this fact.
damages and both shall be solidarily responsible for the Accordingly, as it is undisputed that the insurer, plaintiff
losses and damages suffered by their cargoes. appellee paid the total amount of P364,915.86 to said
consignees for the loss or damage of the insured cargo, it
is evident that said plaintiff-appellee has a cause of action
48 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
to recover (what it has paid) from defendant-appellant bale of raw cotton as stated in paragraph 17 of the bills of
MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43). lading. Also the MCP argues that the law on averages
should be applied in determining their liability.
MCP next contends that it can not be liable solidarity with
NDC because it is merely the manager and operator of the MCP's contention is devoid of merit. The declared value of
vessel Dona Nati not a ship agent. As the general the goods was stated in the bills of lading and
managing agent, according to MCP, it can only be liable if corroborated no less by invoices offered as evidence '
it acted in excess of its authority. during the trial. Besides, common carriers, in the language
of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51
As found by the trial court and by the Court of Appeals, Phil. 90 [1927]) "cannot limit its liability for injury to a loss
the Memorandum Agreement of September 13, 1962 of goods where such injury or loss was caused by its own
(Exhibit 6, Maritime) shows that NDC appointed MCP as negligence." Negligence of the captains of the colliding
Agent, a term broad enough to include the concept of vessel being the cause of the collision, and the cargoes not
Ship-agent in Maritime Law. In fact, MCP was even being jettisoned to save some of the cargoes and the vessel,
conferred all the powers of the owner of the vessel, the trial court and the Court of Appeals acted correctly in
including the power to contract in the name of the NDC not applying the law on averages (Articles 806 to 818,
(Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Code of Commerce).
Consequently, under the circumstances, MCP cannot
escape liability. MCP's claim that the fault or negligence can only be
attributed to the pilot of the vessel SS Yasushima Maru
It is well settled that both the owner and agent of the and not to the Japanese Coast pilot navigating the vessel
offending vessel are liable for the damage done where Dona Nati need not be discussed lengthily as said claim is
both are impleaded (Philippine Shipping Co. v. Garcia not only at variance with NDC's posture, but also contrary
Vergara, 96 Phil. 281 [1906]); that in case of collision, both to the factual findings of the trial court affirmed no less by
the owner and the agent are civilly responsible for the acts the Court of Appeals, that both pilots were at fault for not
of the captain (Yueng Sheng Exchange and Trading Co. v. changing their excessive speed despite the thick fog
Urrutia & Co., supra citing Article 586 of the Code of obstructing their visibility.
Commerce; Standard Oil Co. of New York v. Lopez
Castelo, 42 Phil. 256, 262 [1921]); that while it is true that Finally on the issue of prescription, the trial court correctly
the liability of the naviero in the sense of charterer or agent, found that the bills of lading issued allow trans-shipment
is not expressly provided in Article 826 of the Code of of the cargo, which simply means that the date of arrival
Commerce, it is clearly deducible from the general of the ship Dona Nati on April 18,1964 was merely
doctrine of jurisprudence under the Civil Code but more tentative to give allowances for such contingencies that
specially as regards contractual obligations in Article 586 said vessel might not arrive on schedule at Manila and
of the Code of Commerce. Moreover, the Court held that therefore, would necessitate the trans-shipment of cargo,
both the owner and agent (Naviero) should be declared resulting in consequent delay of their arrival. In fact,
jointly and severally liable, since the obligation which is because of the collision, the cargo which was supposed to
the subject of the action had its origin in a tortious act and arrive in Manila on April 18, 1964 arrived only on June 12,
did not arise from contract (Verzosa and Ruiz, Rementeria 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the
y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, cargoes in question been saved, they could have arrived in
even though he may not be the owner of the vessel, is Manila on the above-mentioned dates. Accordingly, the
liable to the shippers and owners of the cargo transported complaint in the instant case was filed on April 22, 1965,
by it, for losses and damages occasioned to such cargo, that is, long before the lapse of one (1) year from the date
without prejudice, however, to his rights against the owner the lost or damaged cargo "should have been delivered" in
of the ship, to the extent of the value of the vessel, its the light of Section 3, sub-paragraph (6) of the Carriage of
equipment, and the freight (Behn Meyer Y Co. v. Goods by Sea Act.
McMicking et al. 11 Phil. 276 [1908]).
PREMISES CONSIDERED, the subject petitions are
As to the extent of their liability, MCP insists that their DENIED for lack of merit and the assailed decision of the
liability should be limited to P200.00 per package or per respondent Appellate Court is AFFIRMED.
49 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
SO ORDERED. On July 9, 1990, Republic Act No. 6957 entitled "An Act
Authorizing the Financing, Construction, Operation and
G.R. No. 114222 April 6, 1995 Maintenance of Infrastructure Projects by the Private
Sector, and For Other Purposes," was signed by President
FRANCISCO S. TATAD, JOHN H. OSMENA and Corazon C. Aquino. Referred to as the Build-Operate-
RODOLFO G. BIAZON, petitioners, Transfer (BOT) Law, it took effect on October 9, 1990.
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Republic Act No. 6957 provides for two schemes for the
Secretary of the Department of Transportation and financing, construction and operation of government
Communications, and EDSA LRT CORPORATION, projects through private initiative and investment: Build-
LTD., respondents. Operate-Transfer (BOT) or Build-Transfer (BT).

QUIASON, J.: In accordance with the provisions of R.A. No. 6957 and to
set the EDSA LRT III project underway, DOTC, on January
This is a petition under Rule 65 of the Revised Rules of 22, 1991 and March 14, 1991, issued Department Orders
Court to prohibit respondents from further implementing Nos. 91-494 and 91-496, respectively creating the
and enforcing the "Revised and Restated Agreement to Prequalification Bids and Awards Committee (PBAC) and
Build, Lease and Transfer a Light Rail Transit System for the Technical Committee.
EDSA" dated April 22, 1992, and the "Supplemental
Agreement to the 22 April 1992 Revised and Restated After its constitution, the PBAC issued guidelines for the
Agreement To Build, Lease and Transfer a Light Rail prequalification of contractors for the financing and
Transit System for EDSA" dated May 6, 1993. implementation of the project The notice, advertising the
prequalification of bidders, was published in three
Petitioners Francisco S. Tatad, John H. Osmena and newspapers of general circulation once a week for three
Rodolfo G. Biazon are members of the Philippine Senate consecutive weeks starting February 21, 1991.
and are suing in their capacities as Senators and as
taxpayers. Respondent Jesus B. Garcia, Jr. is the incumbent The deadline set for submission of prequalification
Secretary of the Department of Transportation and documents was March 21, 1991, later extended to April 1,
Communications (DOTC), while private respondent EDSA 1991. Five groups responded to the invitation namely, ABB
LRT Corporation, Ltd. is a private corporation organized Trazione of Italy, Hopewell Holdings Ltd. of Hongkong,
under the laws of Hongkong. Mansteel International of Mandaue, Cebu, Mitsui & Co.,
Ltd. of Japan, and EDSA LRT Consortium, composed of
I ten foreign and domestic corporations: namely, Kaiser
Engineers International, Inc., ACER Consultants (Far East)
In 1989, DOTC planned to construct a light railway transit Ltd. and Freeman Fox, Tradeinvest/CKD Tatra of the
line along EDSA, a major thoroughfare in Metropolitan Czech and Slovak Federal Republics, TCGI Engineering
Manila, which shall traverse the cities of Pasay, Quezon, All Asia Capital and Leasing Corporation, The Salim
Mandaluyong and Makati. The plan, referred to as EDSA Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta & Co.
Light Rail Transit III (EDSA LRT III), was intended to Capitol Industrial Construction Group, Inc, and F. F. Cruz
provide a mass transit system along EDSA and alleviate & co., Inc.
the congestion and growing transportation problem in the
metropolis. On the last day for submission of prequalification
documents, the prequalification criteria proposed by the
On March 3, 1990, a letter of intent was sent by the Eli Technical Committee were adopted by the PBAC. The
Levin Enterprises, Inc., represented by Elijahu Levin to criteria totalling 100 percent, are as follows: (a) Legal
DOTC Secretary Oscar Orbos, proposing to construct the aspects 10 percent; (b) Management/Organizational
EDSA LRT III on a Build-Operate-Transfer (BOT) basis. capability 30 percent; and (c) Financial capability 30
percent; and (d) Technical capability 30 percent (Rollo,
On March 15, 1990, Secretary Orbos invited Levin to send p. 122).
a technical team to discuss the project with DOTC.
50 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
On April 3, 1991, the Committee, charged under the BOT 14 of the Implementing Rules and Regulations of the BOT
Law with the formulation of the Implementation Rules Law which authorized negotiated award of contract in
and Regulations thereof, approved the same. addition to public bidding was of doubtful legality; and (4)
that congressional approval of the list of priority projects
After evaluating the prequalification, bids, the PBAC under the BOT or BT Scheme provided in the law had not
issued a Resolution on May 9, 1991 declaring that of the yet been granted at the time the contract was awarded
five applicants, only the EDSA LRT Consortium "met the (Rollo, pp. 178-179).
requirements of garnering at least 21 points per criteria
[sic], except for Legal Aspects, and obtaining an over-all In view of the comments of Executive Secretary Drilon, the
passing mark of at least 82 points" (Rollo, p. 146). The DOTC and private respondents re-negotiated the
Legal Aspects referred to provided that the BOT/BT agreement. On April 22, 1992, the parties entered into a
contractor-applicant meet the requirements specified in "Revised and Restated Agreement to Build, Lease and
the Constitution and other pertinent laws (Rollo, p. 114). Transfer a Light Rail Transit System for EDSA" (Rollo, pp.
47-78) inasmuch as "the parties [are] cognizant of the fact
Subsequently, Secretary Orbos was appointed Executive the DOTC has full authority to sign the Agreement
Secretary to the President of the Philippines and was without need of approval by the President pursuant to the
replaced by Secretary Pete Nicomedes Prado. The latter provisions of Executive Order No. 380 and that certain
sent to President Aquino two letters dated May 31, 1991 events [had] supervened since November 7, 1991 which
and June 14, 1991, respectively recommending the award necessitate[d] the revision of the Agreement" (Rollo, p. 51).
of the EDSA LRT III project to the sole complying bidder, On May 6, 1992, DOTC, represented by Secretary Jesus
the EDSA LRT Consortium, and requesting for authority Garcia vice Secretary Prado, and private respondent
to negotiate with the said firm for the contract pursuant to entered into a "Supplemental Agreement to the 22 April
paragraph 14(b) of the Implementing Rules and 1992 Revised and Restated Agreement to Build, Lease and
Regulations of the BOT Law (Rollo, pp. 298-302). Transfer a Light Rail Transit System for EDSA" so as to
"clarify their respective rights and responsibilities" and to
In July 1991, Executive Secretary Orbos, acting on submit [the] Supplemental Agreement to the President, of
instructions of the President, issued a directive to the the Philippines for his approval" (Rollo, pp. 79-80).
DOTC to proceed with the negotiations. On July 16, 1991,
the EDSA LRT Consortium submitted its bid proposal to Secretary Garcia submitted the two Agreements to
DOTC. President Fidel V. Ramos for his consideration and
approval. In a Memorandum to Secretary Garcia on May 6,
Finding this proposal to be in compliance with the bid 1993, approved the said Agreements, (Rollo, p. 194).
requirements, DOTC and respondent EDSA LRT
Corporation, Ltd., in substitution of the EDSA LRT According to the agreements, the EDSA LRT III will use
Consortium, entered into an "Agreement to Build, Lease light rail vehicles from the Czech and Slovak Federal
and Transfer a Light Rail Transit System for EDSA" under Republics and will have a maximum carrying capacity of
the terms of the BOT Law (Rollo, pp. 147-177). 450,000 passengers a day, or 150 million a year to be
achieved-through 54 such vehicles operating
Secretary Prado, thereafter, requested presidential simultaneously. The EDSA LRT III will run at grade, or
approval of the contract. street level, on the mid-section of EDSA for a distance of
17.8 kilometers from F.B. Harrison, Pasay City to North
In a letter dated March 13, 1992, Executive Secretary Avenue, Quezon City. The system will have its own power
Franklin Drilon, who replaced Executive Secretary Orbos, facility (Revised and Restated Agreement, Sec. 2.3
informed Secretary Prado that the President could not (ii); Rollo p. 55). It will also have thirteen (13) passenger
grant the requested approval for the following reasons: (1) stations and one depot in 16-hectare government property
that DOTC failed to conduct actual public bidding in at North Avenue (Supplemental Agreement, Sec. 11; Rollo,
compliance with Section 5 of the BOT Law; (2) that the law pp. 91-92).
authorized public bidding as the only mode to award BOT
projects, and the prequalification proceedings was not the Private respondents shall undertake and finance the entire
public bidding contemplated under the law; (3) that Item project required for a complete operational light rail
51 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
transit system (Revised and Restated Agreement, Sec. RECOGNIZED IN R.A. NO. 6957 OR ITS
4.1; Rollo, p. 58). Target completion date is 1,080 days or IMPLEMENTING RULES AND REGULATIONS AND,
approximately three years from the implementation date HENCE, IS ILLEGAL;
of the contract inclusive of mobilization, site works, initial
and final testing of the system (Supplemental Agreement, THE AWARD OF THE CONTRACT ON A NEGOTIATED
Sec. 5; Rollo, p. 83). Upon full or partial completion and BASIS VIOLATES R; A. NO. 6957 AND, HENCE, IS
viability thereof, private respondent shall deliver the use UNLAWFUL;
and possession of the completed portion to DOTC which
shall operate the same (Supplemental Agreement, Sec. 5; THE AWARD OF THE CONTRACT IN FAVOR OF
Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, RESPONDENT EDSA LRT CORPORATION, LTD.
84). DOTC shall pay private respondent rentals on a VIOLATES THE REQUIREMENTS PROVIDED IN THE
monthly basis through an Irrevocable Letter of Credit. The IMPLEMENTING RULES AND REGULATIONS OF THE
rentals shall be determined by an independent and BOT LAW AND, HENCE, IS ILLEGAL;
internationally accredited inspection firm to be appointed
by the parties (Supplemental Agreement, Sec. 6; Rollo, pp. THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO
85-86) As agreed upon, private respondent's capital shall 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL
be recovered from the rentals to be paid by the DOTC APPROVAL AND, HENCE, ARE ILLEGAL AND
which, in turn, shall come from the earnings of the EDSA INEFFECTIVE; AND
LRT III (Revised and Restated Agreement, Sec. 1, p.
5; Rollo, p. 54). After 25 years and DOTC shall have THE AGREEMENTS ARE GROSSLY
completed payment of the rentals, ownership of the DISADVANTAGEOUS TO THE GOVERNMENT (Rollo,
project shall be transferred to the latter for a consideration pp. 15-16).
of only U.S. $1.00 (Revised and Restated Agreement, Sec.
11.1; Rollo, p. 67). Secretary Garcia and private respondent filed their
comments separately and claimed that:
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain
Sections of Republic Act No. 6957, Entitled "An Act Petitioners are not the real parties-in-interest and have no
Authorizing the Financing, Construction, Operation and legal standing to institute the present petition;
Maintenance of Infrastructure Projects by the Private
Sector, and for Other Purposes" was signed into law by the The writ of prohibition is not the proper remedy and the
President. The law was published in two newspapers of petition requires ascertainment of facts;
general circulation on May 12, 1994, and took effect 15
days thereafter or on May 28, 1994. The law expressly The scheme adopted in the Agreements is actually a build-
recognizes BLT scheme and allows direct negotiation of transfer scheme allowed by the BOT Law;
BLT contracts.
The nationality requirement for public utilities mandated
II by the Constitution does not apply to private respondent;

In their petition, petitioners argued that: The Agreements executed by and between respondents
have been approved by President Ramos and are not
THE AGREEMENT OF APRIL 22, 1992, AS AMENDED disadvantageous to the government;
BY THE SUPPLEMENTAL AGREEMENT OF MAY 6,
1993, INSOFAR AS IT GRANTS EDSA LRT The award of the contract to private respondent through
CORPORATION, LTD., A FOREIGN CORPORATION, negotiation and not public bidding is allowed by the BOT
THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, Law; and
VIOLATES THE CONSTITUTION AND, HENCE, IS
UNCONSTITUTIONAL; Granting that the BOT Law requires public bidding, this
has been amended by R.A No. 7718 passed by the
THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN Legislature On May 12, 1994, which provides for direct
THE AGREEMENTS IS NOT DEFINED NOR negotiation as a mode of award of infrastructure projects.
52 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
III as lessor, will turn it over to DOTC, as lessee, for the latter
to operate the system and pay rentals for said use.
Respondents claimed that petitioners had no legal
standing to initiate the instant action. Petitioners, however, The question posed by petitioners is:
countered that the action was filed by them in their
capacity as Senators and as taxpayers. Can respondent EDSA LRT Corporation, Ltd., a foreign
corporation own EDSA LRT III; a public utility? (Rollo, p.
The prevailing doctrines in taxpayer's suits are to allow 17).
taxpayers to question contracts entered into by the
national government or government-owned or controlled The phrasing of the question is erroneous; it is loaded.
corporations allegedly in contravention of the law What private respondent owns are the rail tracks, rolling
(Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to stocks like the coaches, rail stations, terminals and the
disallow the same when only municipal contracts are power plant, not a public utility. While a franchise is
involved (Bugnay Construction and Development needed to operate these facilities to serve the public, they
Corporation v. Laron, 176 SCRA. 240 [1989]). do not by themselves constitute a public utility. What
constitutes a public utility is not their ownership but their
For as long as the ruling in Kilosbayan on locus standi is not use to serve the public (Iloilo Ice & Cold Storage Co. v.
reversed, we have no choice but to follow it and uphold Public Service Board, 44 Phil. 551, 557 558 [1923]).
the legal standing of petitioners as taxpayers to institute
the present action. The Constitution, in no uncertain terms, requires a
franchise for the operation of a public utility. However, it
IV does not require a franchise before one can own the
facilities needed to operate a public utility so long as it
In the main, petitioners asserted that the Revised and does not operate them to serve the public.
Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are Section 11 of Article XII of the Constitution provides:
unconstitutional and invalid for the following reasons:
No franchise, certificate or any other form of authorization
the EDSA LRT III is a public utility, and the ownership and for the operation of a public utility shall be granted except to
operation thereof is limited by the Constitution to Filipino citizens of the Philippines or to corporations or
citizens and domestic corporations, not foreign associations organized under the laws of the Philippines at
corporations like private respondent; least sixty per centum of whose capital is owned by such
citizens, nor shall such franchise, certificate or
the Build-Lease-Transfer (BLT) scheme provided in the authorization be exclusive character or for a longer period
agreements is not the BOT or BT Scheme under the law; than fifty years . . . (Emphasis supplied).

the contract to construct the EDSA LRT III was awarded to In law, there is a clear distinction between the "operation"
private respondent not through public bidding which is of a public utility and the ownership of the facilities and
the only mode of awarding infrastructure projects under equipment used to serve the public.
the BOT law; and
Ownership is defined as a relation in law by virtue of
the agreements are grossly disadvantageous to the which a thing pertaining to one person is completely
government. subjected to his will in everything not prohibited by law or
the concurrence with the rights of another (Tolentino, II
Private respondent EDSA LRT Corporation, Ltd. to whom Commentaries and Jurisprudence on the Civil Code of the
the contract to construct the EDSA LRT III was awarded by Philippines 45 [1992]).
public respondent, is admittedly a foreign corporation
"duly incorporated and existing under the laws of The exercise of the rights encompassed in ownership is
Hongkong" (Rollo, pp. 50, 79). There is also no dispute that limited by law so that a property cannot be operated and
once the EDSA LRT III is constructed, private respondent, used to serve the public as a public utility unless the
53 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
operator has a franchise. The operation of a rail system as consists of theoretical and live training of DOTC
a public utility includes the transportation of passengers operational personnel which includes actual driving of
from one point to another point, their loading and light rail vehicles under simulated operating conditions,
unloading at designated places and the movement of the control of operations, dealing with emergencies, collection,
trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. counting and securing cash from the fare collection system
v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 (Revised and Restated Agreement, Annex E, Secs. 2-3).
[1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Personnel of DOTC will work under the direction and
Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]). control of private respondent only during training
(Revised and Restated Agreement, Annex E, Sec. 3.1). The
The right to operate a public utility may exist training objectives, however, shall be such that upon
independently and separately from the ownership of the completion of the EDSA LRT III and upon opening of
facilities thereof. One can own said facilities without normal revenue operation, DOTC shall have in their
operating them as a public utility, or conversely, one may employ personnel capable of undertaking training of all
operate a public utility without owning the facilities used new and replacement personnel (Revised and Restated
to serve the public. The devotion of property to serve the Agreement, Annex E Sec. 5.1). In other words, by the end
public may be done by the owner or by the person in of the three-year construction period and upon
control thereof who may not necessarily be the owner commencement of normal revenue operation, DOTC shall
thereof. be able to operate the EDSA LRT III on its own and train
all new personnel by itself.
This dichotomy between the operation of a public utility
and the ownership of the facilities used to serve the public Fees for private respondent' s services shall be included in
can be very well appreciated when we consider the the rent, which likewise includes the project cost, cost of
transportation industry. Enfranchised airline and shipping replacement of plant equipment and spare parts,
companies may lease their aircraft and vessels instead of investment and financing cost, plus a reasonable rate of
owning them themselves. return thereon (Revised and Restated Agreement, Sec.
1; Rollo, p. 54).
While private respondent is the owner of the facilities
necessary to operate the EDSA. LRT III, it admits that it is Since DOTC shall operate the EDSA LRT III, it shall
not enfranchised to operate a public utility (Revised and assume all the obligations and liabilities of a common
Restated Agreement, Sec. 3.2; Rollo, p. 57). In view of this carrier. For this purpose, DOTC shall indemnify and hold
incapacity, private respondent and DOTC agreed that on harmless private respondent from any losses, damages,
completion date, private respondent will immediately injuries or death which may be claimed in the operation or
deliver possession of the LRT system by way of lease for 25 implementation of the system, except losses, damages,
years, during which period DOTC shall operate the same injury or death due to defects in the EDSA LRT III on
as a common carrier and private respondent shall provide account of the defective condition of equipment or
technical maintenance and repair services to DOTC facilities or the defective maintenance of such equipment
(Revised and Restated Agreement, Secs. 3.2, 5.1 and facilities (Revised and Restated Agreement, Secs. 12.1 and
5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists 12.2; Rollo, p. 68).
of providing (1) repair and maintenance facilities for the
depot and rail lines, services for routine clearing and In sum, private respondent will not run the light rail
security; and (2) producing and distributing maintenance vehicles and collect fees from the riding public. It will have
manuals and drawings for the entire system (Revised and no dealings with the public and the public will have no
Restated Agreement, Annex F). right to demand any services from it.

Private respondent shall also train DOTC personnel for It is well to point out that the role of private respondent as
familiarization with the operation, use, maintenance and lessor during the lease period must be distinguished from
repair of the rolling stock, power plant, substations, the role of the Philippine Gaming Management
electrical, signaling, communications and all other Corporation (PGMC) in the case of Kilosbayan Inc. v.
equipment as supplied in the agreement (Revised and Guingona, 232 SCRA 110 (1994). Therein, the Contract of
Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training Lease between PGMC and the Philippine Charity
54 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Sweepstakes Office (PCSO) was actually a collaboration or expenses and its investment in the project plus a
joint venture agreement prescribed under the charter of reasonable rate of return thereon. The contractor transfers
the PCSO. In the Contract of Lease; PGMC, the lessor the facility to the government agency or local government
obligated itself to build, at its own expense, all the facilities unit concerned at the end of the fixed term which shall not
necessary to operate and maintain a nationwide on-line exceed fifty (50) years. For the construction stage, the
lottery system from whom PCSO was to lease the facilities contractor may obtain financing from foreign and/or
and operate the same. Upon due examination of the domestic sources and/or engage the services of a foreign
contract, the Court found that PGMC's participation was and/or Filipino constructor [sic]: Provided, That the
not confined to the construction and setting up of the on- ownership structure of the contractor of an infrastructure
line lottery system. It spilled over to the actual operation facility whose operation requires a public utility franchise must
thereof, becoming indispensable to the pursuit, conduct, be in accordance with the Constitution: Provided, however,
administration and control of the highly technical and That in the case of corporate investors in the build-
sophisticated lottery system. In effect, the PCSO leased out operate-and-transfer corporation, the citizenship of each
its franchise to PGMC which actually operated and stockholder in the corporate investors shall be the basis for
managed the same. the computation of Filipino equity in the said corporation:
Provided, further, That, in the case of foreign constructors
Indeed, a mere owner and lessor of the facilities used by a [sic], Filipino labor shall be employed or hired in the
public utility is not a public utility (Providence and W.R. different phases of the construction where Filipino skills
Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa are available: Provided, furthermore, that the financing of
Power Co. v. Railroad Commission of Wisconsin, 205 N.W. a foreign or foreign-controlled contractor from Philippine
900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce government financing institutions shall not exceed twenty
Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. percent (20%) of the total cost of the infrastructure facility
1036 [1914]). Neither are owners of tank, refrigerator, wine, or project: Provided, finally, That financing from foreign
poultry and beer cars who supply cars under contract to sources shall not require a guarantee by the Government
railroad companies considered as public utilities (Crystal or by government-owned or controlled corporations. The
Car Line v. State Tax Commission, 174 p. 2d 984, 987 build-operate-and-transfer scheme shall include a supply-
[1946]). and-operate situation which is a contractual agreement
whereby the supplier of equipment and machinery for a
Even the mere formation of a public utility corporation given infrastructure facility, if the interest of the
does not ipso facto characterize the corporation as one Government so requires, operates the facility providing in
operating a public utility. The moment for determining the the process technology transfer and training to Filipino
requisite Filipino nationality is when the entity applies for nationals.
a franchise, certificate or any other form of authorization
for that purpose (People v. Quasha, 93 Phil. 333 [1953]). Build-and-transfer scheme "A contractual arrangement
whereby the contractor undertakes the construction
Petitioners further assert that the BLT scheme under the including financing, of a given infrastructure facility, and
Agreements in question is not recognized in the BOT Law its turnover after completion to the government agency or
and its Implementing Rules and Regulations. local government unit concerned which shall pay the
contractor its total investment expended on the project,
Section 2 of the BOT Law defines the BOT and BT schemes plus a reasonable rate of return thereon. This arrangement
as follows: may be employed in the construction of any infrastructure
project including critical facilities which for security or
Build-operate-and-transfer scheme A contractual strategic reasons, must be operated directly by the
arrangement whereby the contractor undertakes the government (Emphasis supplied).
construction including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The The BOT scheme is expressly defined as one where the
contractor operates the facility over a fixed term during contractor undertakes the construction and financing in
which it is allowed to charge facility users appropriate infrastructure facility, and operates and maintains the
tolls, fees, rentals and charges sufficient to enable the same. The contractor operates the facility for a fixed period
contractor to recover its operating and maintenance during which it may recover its expenses and investment
55 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
in the project plus a reasonable rate of return thereon. DOTC, free from any lien or encumbrances, all its title to,
After the expiration of the agreed term, the contractor rights and interest in, the project for only U.S. $1.00
transfers the ownership and operation of the project to the (Revised and Restated Agreement, Sec. 11.1; Supplemental
government. Agreement, Sec; 7; Rollo, pp. 67, .87).

In the BT scheme, the contractor undertakes the A lease is a contract where one of the parties binds himself
construction and financing of the facility, but after to give to another the enjoyment or use of a thing for a
completion, the ownership and operation thereof are certain price and for a period which may be definite or
turned over to the government. The government, in turn, indefinite but not longer than 99 years (Civil Code of the
shall pay the contractor its total investment on the project Philippines, Art. 1643). There is no transfer of ownership
in addition to a reasonable rate of return. If payment is to at the end of the lease period. But if the parties stipulate
be effected through amortization payments by the that title to the leased premises shall be transferred to the
government infrastructure agency or local government lessee at the end of the lease period upon the payment of
unit concerned, this shall be made in accordance with a an agreed sum, the lease becomes a lease-purchase
scheme proposed in the bid and incorporated in the agreement.
contract (R.A. No. 6957, Sec. 6).
Furthermore, it is of no significance that the rents shall be
Emphasis must be made that under the BOT scheme, the paid in United States currency, not Philippine pesos. The
owner of the infrastructure facility must comply with the EDSA LRT III Project is a high priority project certified by
citizenship requirement of the Constitution on the Congress and the National Economic and Development
operation of a public utility. No such a requirement is Authority as falling under the Investment Priorities Plan of
imposed in the BT scheme. Government (Rollo, pp. 310-311). It is, therefore, outside
the application of the Uniform Currency Act (R.A. No.
There is no mention in the BOT Law that the BOT and BT 529), which reads as follows:
schemes bar any other arrangement for the payment by
the government of the project cost. The law must not be Sec. 1. Every provision contained in, or made with
read in such a way as to rule out or unduly restrict any respect to, any domestic obligation to wit, any obligation
variation within the context of the two schemes. Indeed, contracted in the Philippines which provisions purports to
no statute can be enacted to anticipate and provide all the give the obligee the right to require payment in gold or in
fine points and details for the multifarious and complex a particular kind of coin or currency other than Philippine
situations that may be encountered in enforcing the law currency or in an amount of money of the Philippines
(Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; measured thereby, be as it is hereby declared against
People v. Exconde, 101 Phil. 1125 [1957]; United States v. public policy, and null, void, and of no effect, and no such
Tupasi Molina, 29 Phil. 119 [1914]). provision shall be contained in, or made with respect to,
any obligation hereafter incurred. The above prohibition
The BLT scheme in the challenged agreements is but a shall not apply to (a) . . .; (b) transactions affecting high-
variation of the BT scheme under the law. priority economic projects for agricultural, industrial and
power development as may be determined by
As a matter of fact, the burden on the government in the National Economic Council which are financed by or
raising funds to pay for the project is made lighter by through foreign funds; . . . .
allowing it to amortize payments out of the income from
the operation of the LRT System. The fact that the contract for the construction of the EDSA
LRT III was awarded through negotiation and before
In form and substance, the challenged agreements provide congressional approval on January 22 and 23, 1992 of the
that rentals are to be paid on a monthly basis according to List of National Projects to be undertaken by the private
a schedule of rates through and under the terms of a sector pursuant to the BOT Law (Rollo, pp. 309-312) does
confirmed Irrevocable Revolving Letter of Credit not suffice to invalidate the award.
(Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end
of 25 years and when full payment shall have been made Subsequent congressional approval of the list including
to and received by private respondent, it shall transfer to "rail-based projects packaged with commercial
56 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
development opportunities" (Rollo, p. 310) under which No. 1594 is the general law on government infrastructure
the EDSA LRT III projects falls, amounts to a ratification of contracts while the BOT Law governs particular
the prior award of the EDSA LRT III contract under the arrangements or schemes aimed at encouraging private
BOT Law. sector participation in government infrastructure projects.
The two laws are not inconsistent with each other but are
Petitioners insist that the prequalifications process which in pari materia and should be read together accordingly.
led to the negotiated award of the contract appears to have
been rigged from the very beginning to do away with the In the instant case, if the prequalification process was
usual open international public bidding where qualified actually tainted by foul play, one wonders why none of the
internationally known applicants could fairly participate. competing firms ever brought the matter before the PBAC,
or intervened in this case before us (cf. Malayan Integrated
The records show that only one applicant passed the Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992];
prequalification process. Since only one was left, to Bureau Veritas v. Office of the President, 205 SCRA 705
conduct a public bidding in accordance with Section 5 of [1992]).
the BOT Law for that lone participant will be an absurb
and pointless exercise (cf. Deloso v. Sandiganbayan, 217 The challenged agreements have been approved by
SCRA 49, 61 [1993]). President Ramos himself. Although then Executive
Secretary Drilon may have disapproved the "Agreement to
Contrary to the comments of the Executive Secretary Build, Lease and Transfer a Light Rail Transit System for
Drilon, Section 5 of the BOT Law in relation to Presidential EDSA," there is nothing in our laws that prohibits parties
Decree No. 1594 allows the negotiated award of to a contract from renegotiating and modifying in good
government infrastructure projects. faith the terms and conditions thereof so as to meet legal,
statutory and constitutional requirements. Under the
Presidential Decree No. 1594, "Prescribing Policies, circumstances, to require the parties to go back to step one
Guidelines, Rules and Regulations for Government of the prequalification process would just be an idle
Infrastructure Contracts," allows the negotiated award of ceremony. Useless bureaucratic "red tape" should be
government projects in exceptional cases. Sections 4 of the eschewed because it discourages private sector
said law reads as follows: participation, the "main engine" for national growth and
development (R.A. No. 6957, Sec. 1), and renders the BOT
Bidding. Construction projects shall generally be Law nugatory.
undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force Republic Act No. 7718 recognizes and defines a BLT
account or by negotiated contract only in exceptional cases scheme in Section 2 thereof as:
where time is of the essence, or where there is lack of qualified
bidders or contractors, or where there is conclusive evidence that (e) Build-lease-and-transfer A contractual arrangement
greater economy and efficiency would be achieved through this whereby a project proponent is authorized to finance and
arrangement, and in accordance with provision of laws and construct an infrastructure or development facility and
acts on the matter, subject to the approval of the Minister upon its completion turns it over to the government
of Public Works and Transportation and Communications, agency or local government unit concerned on a lease
the Minister of Public Highways, or the Minister of arrangement for a fixed period after which ownership of
Energy, as the case may be, if the project cost is less than the facility is automatically transferred to the government
P1 Million, and the President of the Philippines, upon unit concerned.
recommendation of the Minister, if the project cost is P1
Million or more (Emphasis supplied). Section 5-A of the law, which expressly allows direct
negotiation of contracts, provides:
xxx xxx xxx
Direct Negotiation of Contracts. Direct negotiation shall
Indeed, where there is a lack of qualified bidders or be resorted to when there is only one complying bidder
contractors, the award of government infrastructure left as defined hereunder.
contracts may he made by negotiation. Presidential Decree
57 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
If, after advertisement, only one contractor applies for Republic Act No. 7718 is a curative statute. It is intended to
prequalification and it meets the prequalification provide financial incentives and "a climate of minimum
requirements, after which it is required to submit a bid government regulations and procedures and specific
proposal which is subsequently found by the agency/local government undertakings in support of the private sector"
government unit (LGU) to be complying. (Sec. 1). A curative statute makes valid that which before
enactment of the statute was invalid. Thus, whatever
If, after advertisement, more than one contractor applied doubts and alleged procedural lapses private respondent
for prequalification but only one meets the and DOTC may have engendered and committed in
prequalification requirements, after which it submits entering into the questioned contracts, these have now
bid/proposal which is found by the agency/local been cured by R.A. No. 7718 (cf. Development Bank of the
government unit (LGU) to be complying. Philippines v. Court of Appeals, 96 SCRA 342 [1980];
Santos V. Duata, 14 SCRA 1041 [1965]; Adong V. Cheong
If, after prequalification of more than one contractor only Seng Gee, 43 Phil. 43 [1922].
one submits a bid which is found by the agency/LGU to
be complying. Lastly, petitioners claim that the agreements are grossly
disadvantageous to the government because the rental
If, after prequalification, more than one contractor submit rates are excessive and private respondent's development
bids but only one is found by the agency/LGU to be rights over the 13 stations and the depot will rob DOTC of
complying. Provided, That, any of the disqualified the best terms during the most productive years of the
prospective bidder [sic] may appeal the decision of the project.
implementing agency, agency/LGUs prequalification bids
and awards committee within fifteen (15) working days to It must be noted that as part of the EDSA LRT III project,
the head of the agency, in case of national projects or to the private respondent has been granted, for a period of 25
Department of the Interior and Local Government, in case years, exclusive rights over the depot and the air space
of local projects from the date the disqualification was above the stations for development into commercial
made known to the disqualified bidder: Provided, premises for lease, sublease, transfer, or advertising
furthermore, That the implementing agency/LGUs (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For
concerned should act on the appeal within forty-five (45) and in consideration of these development rights, private
working days from receipt thereof. respondent shall pay DOTC in Philippine currency
guaranteed revenues generated therefrom in the amounts
Petitioners' claim that the BLT scheme and direct set forth in the Supplemental Agreement (Sec. 11; Rollo, p.
negotiation of contracts are not contemplated by the BOT 93). In the event that DOTC shall be unable to collect the
Law has now been rendered moot and academic by R.A. guaranteed revenues, DOTC shall be allowed to deduct
No. 7718. Section 3 of this law authorizes all government any shortfalls from the monthly rent due private
infrastructure agencies, government-owned and controlled respondent for the construction of the EDSA LRT III
corporations and local government units to enter into (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All
contract with any duly prequalified proponent for the rights, titles, interests and income over all contracts on the
financing, construction, operation and maintenance of any commercial spaces shall revert to DOTC upon expiration
financially viable infrastructure or development facility of the 25-year period. (Supplemental Agreement, Sec.
through a BOT, BT, BLT, BOO (Build-own-and-operate), 11; Rollo, pp. 91-92).
CAO (Contract-add-operate), DOT (Develop-operate-and-
transfer), ROT (Rehabilitate-operate-and-transfer), and The terms of the agreements were arrived at after a
ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b- painstaking study by DOTC. The determination by the
j]). proper administrative agencies and officials who have
acquired expertise, specialized skills and knowledge in the
From the law itself, once and applicant has prequalified, it performance of their functions should be accorded respect
can enter into any of the schemes enumerated in Section 2 absent any showing of grave abuse of discretion (Felipe
thereof, including a BLT arrangement, enumerated and Ysmael, Jr. & Co. v. Deputy Executive Secretary, 190 SCRA
defined therein (Sec. 3). 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA
304 [1989]).
58 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Government officials are presumed to perform their This petition seeks the reversal of the decision of the
functions with regularity and strong evidence is necessary National Telecommunications Commission (NTC) which
to rebut this presumption. Petitioners have not presented ordered petitioner Radio Communications of the
evidence on the reasonable rentals to be paid by the Philippines, Incorporated (RCPI) to desist from operating
parties to each other. The matter of valuation is an esoteric its radio telephone services in Catarman, Northern Samar;
field which is better left to the experts and which this San Jose, Occidental Mindoro; and Sorsogon, Sorsogon.
Court is not eager to undertake.
Petitioner has been operating a radio communications
That the grantee of a government contract will profit system since 1957 under its legislative franchise granted by
therefrom and to that extent the government is deprived Republic Act No. 2036 which was enacted on June 23,
of the profits if it engages in the business itself, is not 1957.
worthy of being raised as an issue. In all cases where a
party enters into a contract with the government, he does In 1968, the petitioner established a radio telegraph service
so, not out of charity and not to lose money, but to gain in Sorsogon, Sorsogon. In 1971, another radio telegraph
pecuniarily. service was put up in San Jose, Mindoro followed by
another in Catarman, Samar in 1976. The installation of
Definitely, the agreements in question have been entered radio telephone services started in 1971 in San Jose,
into by DOTC in the exercise of its governmental function. Mindoro; then in Sorsogon, Sorsogon and Catarman,
DOTC is the primary policy, planning, programming, Samar in 1983.
regulating and administrative entity of the Executive
branch of government in the promotion, development and In a decision dated June 24, 1980 in NTC Case No. 80-08,
regulation of dependable and coordinated networks of private respondent Kayumanggi Radio Network
transportation and communications systems as well as in Incorporated was authorized by the public respondent to
the fast, safe, efficient and reliable postal, transportation operate radio communications systems in Catarman,
and communications services (Administrative Code of Samar and in San Jose, Mindoro.
1987, Book IV, Title XV, Sec. 2). It is the Executive
department, DOTC in particular that has the power, On December 14, 1983, the private respondent filed a
authority and technical expertise determine whether or complaint with the NTC alleging that the petitioner was
not a specific transportation or communication project is operating in Catarman, Samar and in San Jose, Mindoro
necessary, viable and beneficial to the people. The without a certificate of public covenience and necessity.
discretion to award a contract is vested in the government The petitioner, on the other hand, counter-alleged that its
agencies entrusted with that function (Bureau Veritas v. telephone services in the places subject of the complaint
Office of the President, 205 SCRA 705 [1992]). are covered by the legislative franchise recognized by both
the public respondent and its predecessor, the Public
WHEREFORE, the petition is DISMISSED. Service Commission. In its supplemental reply, the
petitioner further stated that it has been in operation in the
SO ORDERED questioned places long before private respondent
Kayumanggi filed its application to operate in the same
G.R. No. L-68729 May 29, 1987 places.

RADIO COMMUNICATIONS OF THE PHILIPPINES, After conducting a hearing, NTC, in its decision dated
INC., petitioner, August 22, 1984 ordered petitioner RCPI to immediately
vs. cease or desist from the operation of its radio telephone
NATIONAL TELECOMMUNICATIONS services in Catarman Northern Samar; San Jose,
COMMISSION and KAYUMANGGI RADIO Occidental Mindoro; and Sorsogon, Sorsogon stating that
NETWORK INCORPORATED, respondents. under Executive Order No. 546, a certificate of public
convenience and necessity is mandatory for the operation
of communication utilities and services including radio
communications.
GUTIERREZ, JR, J.:
59 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
On September 4, 1984, the petitioner filed a motion for Pursuant to Presidential Decree No. 1 dated September
reconsideration which was denied in an order dated 23,1972, reorganizing the executive branch of the National
September 12, 1984. Government, the Public Service Commission was
abolished and its functions were transferred to three
On October 1, 1984, the present petition was filed raising specialized regulatory boards, as follows: the Board of
the issue of whether or not petitioner RCPI, a grantee of a Transportation, the Board of Communications and the
legislative franchise to operate a radio company, is Board of Power and Waterworks. The functions so
required to secure a certificate of public convenience and transferred were still subject to the limitations provided in
necessity before it can validly operate its radio stations sections 14 and 15 of the Public Service Law, as amended.
including radio telephone services in Catarman, Northern With the enactment of Executive Order No. 546 on July 23,
Samar; San Jose, Occidental Mindoro; and Sorsogon, 1979 implementing P.D. No.1, the Board of
Sorsogon. Communications and the Telecommunications Control
Bureau were abolished and their functions were
The petitioner's main argument states that the abolition of transferred to the National Telecommunications
the Public Service Commission under Presidential Decree Commission (Sec. 19(d), Executive Order No. 546). Section
No. 1 and the creation of the National Telecommunications 15 of said Executive Order spells out the functions of the
Commission under Executive Order No. 546 to replace the National Telecommunications Commission as follows:
defunct Public Service Commission did not affect sections
14 and 15 of the Public Service Law (Commonwealth Act. Sec. 15. Functions of the Commission.-The Commission
No. 146, as amended). shall exercise the following functions:

The provisions of the Public Service Law pertinent to the Issue Certificate of Public Convenience for the operation of
petitioner's allegation are as follows: communications utilities and services, radio
communications petitions systems, wire or wireless
Section 13. (a) the Commission shall have jurisdiction, telephone or telegraph system, radio and television
supervision, and control over all public services and their broadcasting system and other similar public utilities;
franchises, equipment and other properties, and in the
exercise of its authority, it shall have the necessary powers Establish, prescribe and regulate areas of operation of
and the aid of public force: ... particular operators of public service communications;
and determine and prescribe charges or rates pertinent to
Section 14. The following are exempted from the the operation of such public utility facilities and services
provisions of the preceding section: except in cases where charges or rates are established by
international bodies or associations of which the
xxx xxx xxx Philippines is a participating member or by bodies
recognized by the Philippine Government as the proper
Radio companies except with respect to the fixing of rates; arbiter of such charges or rates;

xxx xxx xxx Grant permits for the use of radio frequencies for wireless
telephone and telegraph systems and radio
Section 15. With the exception of those enumerated in the communication systems including amateur radio stations
preceding section, no public service shall operate in the and radio and television broadcasting systems;
Philippines without possessing a valid and subsisting
certificate from the Public Service Commission, known as Sub-allocate series of frequencies of bands allocated by the
"certificate of public convenience," or "certificate of International Telecommunications Union to the specific
convenience and public necessity," as the case may be, to services;
the effect that the operation of said service and the
authorization to do business will promote the public Establish and prescribe rules, regulations, standards,
interests in a proper and suitable manner. ... specifications in all cases related to the issued Certificate
of Public Convenience and administer and enforce the
We find no merit in the petitioner's contention. same;
60 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Coordinate and cooperate with government agencies and Executive Order No. 546, being an implementing measure
other entities concerned with any aspect involving of P.D. No. I insofar as it amends the Public Service Law
communications with a view to continuously improve the (CA No. 146, as amended) is applicable to the petitioner
communications service in the country; who must be bound by its provisions. The petitioner
cannot install and operate radio telephone services on the
Promulgate such rules and regulations, as public safety basis of its legislative franchise alone.
and interest may require, to encourage a larger and more
effective use of communications, radio and television The position of the petitioner that by the mere grant of its
broadcasting facilities, and to maintain effective franchise under RA No. 2036 it can operate a radio
competition among private entities in these activities communications system anywhere within the Philippines
whenever the Commission finds it reasonably feasible; is erroneous. Section 1 of said statute reads:

Supervise and inspect the operation of radio stations and Section 1. Subject to the provisions of the Constitution,
telecommunications facilities; and to the provisions, not inconsistent herewith, of Act
Numbered Three thousand eight hundred and forty-six,
Undertake the examination and licensing of radio entitled.' An Act providing for the regulation of radio
operators; stations and radio communications in the Philippine
Islands, and for other purposes;' Commonwealth Act
Undertake, whenever necessary, the registration of radio Numbered One hundred forty-six, known as the Public
transmitters and transceivers; and Service Act, and their amendments, and other applicable
laws, there is hereby granted to the Radio Communications of
Perform such other functions as may be prescribed by law. the Philippines, its successors or assigns, the right and privilege
of constructing, installing, establishing and operating in the
It is clear from the aforequoted provision that the Philippines, at such places as the said corporation may select
exemption enjoyed by radio companies from the and the Secretary of Public Works and Communications may
jurisdiction of the Public Service Commission and the approve, radio stations for the reception and transmission
Board of Communications no longer exists because of the of wireless messages on radiotelegraphy and/or
changes effected by the Reorganization Law and radiotelephone, including both coastal and marine
implementing executive orders. The petitioner's claim that telecommunications, each station to consist of two radio
its franchise cannot be affected by Executive Order No. 546 apparatus comprising of a receiving and sending radio
on the ground that it has long been in operation since 1957 apparatus. (Emphasis supplied).
cannot be sustained.
Section 4(a) of the same Act further provides that:
A franchise started out as a "royal privilege or (a) branch
of the King's prerogative, subsisting in the hands of a Sec. 4(a). This franchise shall not take effect nor shall any
subject." This definition was given by Finch, adopted by powers thereunder be exercised by the grantee until
Blackstone, and accepted by every authority since (State v. the Secretary of Public works and Communications shall have
Twin Village Water Co., 98 Me 214, 56 A 763 (1903)). Today, allotted to the grantee the frequencies and wave lengths to be
a franchise, being merely a privilege emanating from the used, and issued to the grantee a license for such case.
sovereign power of the state and owing its existence to a (Emphasis supplied)
grant, is subject to regulation by the state itself by virtue of
its police power through its administrative agencies. We Thus, in the words of R.A. No. 2036 itself, approval of the
ruled in Pangasinan transportation Co., Inc. v. Public Service then Secretary of Public Works and Communications was
Commission (70 Phil. 221) that: a precondition before the petitioner could put up radio
stations in areas where it desires to operate. It has been
... statutes enacted for the regulation of public utilities, repeated time and again that where the statutory norm
being a proper exercise by the State of its police power, are speaks unequivocally, there is nothing for the courts to do
applicable not only to those public utilities coming into except to apply it. The law, leaving no doubt as to the
existence after its passage, but likewise to those already scope of its operation, must be obeyed. (Gonzaga v. Court
established and in operation ... of Appeals, 51 SCRA 381).
61 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
The records of the case do not show any grant of authority WHEREFORE, the challenged order of the public
from the then Secretary of Public Works and respondent dated August 22, 1984 is hereby AFFIRMED.
Communications before the petitioner installed the The petition is dismissed for lack of merit.
questioned radio telephone services in San Jose, Mindoro
in 1971. The same is true as regards the radio telephone SO ORDERED.
services opened in Sorsogon, Sorsogon and Catarman,
Samar in 1983. No certificate of public convenience and G.R. No. 186312 June 29, 2010
necessity appears to have been secured by the petitioner
from the public respondent when such certificate,was SPOUSES DANTE CRUZ and LEONORA
CRUZ, Petitioners,
required by the applicable public utility regulations (See
vs.
executive Order No. 546, sec. 15, supra.; Philippine Long
SUN HOLIDAYS, INC., Respondent.
Distance Telephone Co. v. City of Davao, 15 SCRA 75;
Olongapo Electric Light and Power Corp. v. National DECISION
Power Corporation, et al., G.R. No. L-24912, promulgated
April 9, 1987.) CARPIO MORALES, J.:

It was well within the powers of the public respondent to Spouses Dante and Leonora Cruz (petitioners) lodged a
authorize the installation by the private respondent Complaint on January 25, 20011 against Sun Holidays, Inc.
network of radio communications systems in Catarman, (respondent) with the Regional Trial Court (RTC) of Pasig
City for damages arising from the death of their son
Samar and San Jose, Mindoro. Under the circumstances of
Ruelito C. Cruz (Ruelito) who perished with his wife on
this case, the mere fact that the petitioner possesses a
September 11, 2000 on board the boat M/B Coco Beach III
franchise to put up and operate a radio communications that capsized en route to Batangas from Puerto Galera,
system in certain areas is not an insuperable obstacle to the Oriental Mindoro where the couple had stayed at Coco
public respondent's issuing the proper certificate to an Beach Island Resort (Resort) owned and operated by
applicant desiring to extend the same services to those respondent.
areas. The Constitution mandates that a franchise cannot
The stay of the newly wed Ruelito and his wife at the
be exclusive in nature nor can a franchise be granted
Resort from September 9 to 11, 2000 was by virtue of a tour
except that it must be subject to amendment, alteration, or
package-contract with respondent that included
even repeal by the legislature when the common good so transportation to and from the Resort and the point of
requires. (Art. XII, sec. 11 of the 1986 Constitution). There departure in Batangas.
is an express provision in the petitioner's franchise which
provides compliance with the above mandate R.A. 2036, Miguel C. Matute (Matute),2 a scuba diving instructor and
sec. 15). one of the survivors, gave his account of the incident that
led to the filing of the complaint as follows:
In view of the foregoing, we find no reason to disturb the
Matute stayed at the Resort from September 8 to 11, 2000.
public respondent's findings of fact, and conclusions of
He was originally scheduled to leave the Resort in the
law insofar as the private respondent was authorized to
afternoon of September 10, 2000, but was advised to stay
operate in Catarman, Samar and San Jose, Mindoro. As a for another night because of strong winds and heavy rains.
rule, the Commission's findings of fact, if supported by
substantial evidence, are conclusive upon this Court. We On September 11, 2000, as it was still windy, Matute and
may modify or ignore them only when it clearly appears 25 other Resort guests including petitioners son and his
that there is no evidence to support reasonably such a wife trekked to the other side of the Coco Beach mountain
that was sheltered from the wind where they boarded
conclusion. (Halili v. Daplas, 14 SCRA 14). The petitioner
M/B Coco Beach III, which was to ferry them to Batangas.
has not shown why the private respondent should be
denied the authority to operate its services in Samar and
Shortly after the boat sailed, it started to rain. As it moved
Mindoro. It has not overcome the presumption that when farther away from Puerto Galera and into the open seas,
the public respondent disturbed the petitioner's monopoly the rain and wind got stronger, causing the boat to tilt
in certain areas, it was doing so pursuant to public interest from side to side and the captain to step forward to the
and the common good. front, leaving the wheel to one of the crew members.
62 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
The waves got more unwieldy. After getting hit by two big Carlos Bonquin, captain of M/B Coco Beach III, averred
waves which came one after the other, M/B Coco Beach III that the Resort customarily requires four conditions to be
capsized putting all passengers underwater. met before a boat is allowed to sail, to wit: (1) the sea is
calm, (2) there is clearance from the Coast Guard, (3) there
The passengers, who had put on their life jackets, is clearance from the captain and (4) there is clearance
struggled to get out of the boat. Upon seeing the captain, from the Resorts assistant manager.8 He added that M/B
Matute and the other passengers who reached the surface Coco Beach III met all four conditions on September 11,
asked him what they could do to save the people who 2000,9 but a subasco or squall, characterized by strong
were still trapped under the boat. The captain replied winds and big waves, suddenly occurred, causing the boat
"Iligtas niyo na lang ang sarili niyo" (Just save yourselves). to capsize.10

Help came after about 45 minutes when two boats owned By Decision of February 16, 2005,11 Branch 267 of the Pasig
by Asia Divers in Sabang, Puerto Galera passed by the RTC dismissed petitioners Complaint and respondents
capsized M/B Coco Beach III. Boarded on those two boats Counterclaim.
were 22 persons, consisting of 18 passengers and four crew
members, who were brought to Pisa Island. Eight Petitioners Motion for Reconsideration having been
passengers, including petitioners son and his wife, died denied by Order dated September 2, 2005,12 they appealed
during the incident. to the Court of Appeals.

At the time of Ruelitos death, he was 28 years old and By Decision of August 19, 2008,13 the appellate court
employed as a contractual worker for Mitsui Engineering denied petitioners appeal, holding, among other things,
& Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic that the trial court correctly ruled that respondent is a
monthly salary of $900.3 private carrier which is only required to observe ordinary
diligence; that respondent in fact observed extraordinary
Petitioners, by letter of October 26, 2000,4 demanded diligence in transporting its guests on board M/B Coco
indemnification from respondent for the death of their son Beach III; and that the proximate cause of the incident was
in the amount of at least P4,000,000. a squall, a fortuitous event.

Replying, respondent, by letter dated November 7, Petitioners Motion for Reconsideration having been
2000,5 denied any responsibility for the incident which it denied by Resolution dated January 16, 2009,14 they filed
considered to be a fortuitous event. It nevertheless offered, the present Petition for Review.15
as an act of commiseration, the amount of P10,000 to
petitioners upon their signing of a waiver. Petitioners maintain the position they took before the trial
court, adding that respondent is a common carrier since
As petitioners declined respondents offer, they filed the by its tour package, the transporting of its guests is an
Complaint, as earlier reflected, alleging that respondent, as integral part of its resort business. They inform that
a common carrier, was guilty of negligence in allowing another division of the appellate court in fact held
M/B Coco Beach III to sail notwithstanding storm respondent liable for damages to the other survivors of the
warning bulletins issued by the Philippine Atmospheric, incident.
Geophysical and Astronomical Services Administration
(PAGASA) as early as 5:00 a.m. of September 11, 2000.6 Upon the other hand, respondent contends that petitioners
failed to present evidence to prove that it is a common
In its Answer,7 respondent denied being a common carrier, carrier; that the Resorts ferry services for guests cannot be
alleging that its boats are not available to the general considered as ancillary to its business as no income is
public as they only ferry Resort guests and crew members. derived therefrom; that it exercised extraordinary
Nonetheless, it claimed that it exercised the utmost diligence as shown by the conditions it had imposed
diligence in ensuring the safety of its passengers; contrary before allowing M/B Coco Beach III to sail; that the
to petitioners allegation, there was no storm on September incident was caused by a fortuitous event without any
11, 2000 as the Coast Guard in fact cleared the voyage; and contributory negligence on its part; and that the other case
M/B Coco Beach III was not filled to capacity and had wherein the appellate court held it liable for damages
sufficient life jackets for its passengers. By way of involved different plaintiffs, issues and evidence.16
Counterclaim, respondent alleged that it is entitled to an
award for attorneys fees and litigation expenses The petition is impressed with merit.
amounting to not less than P300,000.
63 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Petitioners correctly rely on De Guzman v. Court of considered ancillary thereto. The constancy of
Appeals17 in characterizing respondent as a common respondents ferry services in its resort operations is
carrier. underscored by its having its own Coco Beach boats. And
the tour packages it offers, which include the ferry
The Civil Code defines "common carriers" in the following services, may be availed of by anyone who can afford to
terms: pay the same. These services are thus available to the
public.
Article 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying That respondent does not charge a separate fee or fare for
or transporting passengers or goods or both, by land, its ferry services is of no moment. It would be imprudent
water, or air for compensation, offering their services to to suppose that it provides said services at a loss. The
the public. Court is aware of the practice of beach resort operators
offering tour packages to factor the transportation fee in
The above article makes no distinction between one arriving at the tour package price. That guests who opt not
whose principal business activity is the carrying of to avail of respondents ferry services pay the same
persons or goods or both, and one who does such carrying amount is likewise inconsequential. These guests may only
only as an ancillary activity (in local idiom, as "a sideline"). be deemed to have overpaid.
Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation As De Guzman instructs, Article 1732 of the Civil Code
service on a regular or scheduled basis and one offering defining "common carriers" has deliberately refrained
such service on an occasional, episodic or unscheduled from making distinctions on whether the carrying of
basis. Neither does Article 1732 distinguish between a persons or goods is the carriers principal business,
carrier offering its services to the "general public," i.e., the whether it is offered on a regular basis, or whether it is
general community or population, and one who offers offered to the general public. The intent of the law is thus
services or solicits business only from a narrow segment of to not consider such distinctions. Otherwise, there is no
the general population. We think that Article 1733 telling how many other distinctions may be concocted by
deliberately refrained from making such distinctions. unscrupulous businessmen engaged in the carrying of
persons or goods in order to avoid the legal obligations
So understood, the concept of "common carrier" under and liabilities of common carriers.
Article 1732 may be seen to coincide neatly with the notion
of "public service," under the Public Service Act Under the Civil Code, common carriers, from the nature of
(Commonwealth Act No. 1416, as amended) which at least their business and for reasons of public policy, are bound
partially supplements the law on common carriers set to observe extraordinary diligence for the safety of the
forth in the Civil Code. Under Section 13, paragraph (b) of passengers transported by them, according to all the
the Public Service Act, "public service" includes: circumstances of each case.19 They are bound to carry the
passengers safely as far as human care and foresight can
. . . every person that now or hereafter may own, operate, provide, using the utmost diligence of very cautious
manage, or control in the Philippines, for hire or persons, with due regard for all the circumstances.20
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general When a passenger dies or is injured in the discharge of a
business purposes, any common carrier, railroad, street contract of carriage, it is presumed that the common
railway, traction railway, subway motor vehicle, either for carrier is at fault or negligent. In fact, there is even no need
freight or passenger, or both, with or without fixed route for the court to make an express finding of fault or
and whatever may be its classification, freight or carrier negligence on the part of the common carrier. This
service of any class, express service, steamboat, or statutory presumption may only be overcome by evidence
steamship line, pontines, ferries and water craft, engaged that the carrier exercised extraordinary diligence.21
in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant, ice- Respondent nevertheless harps on its strict compliance
refrigeration plant, canal, irrigation system, gas, electric with the earlier mentioned conditions of voyage before it
light, heat and power, water supply and power petroleum, allowed M/B Coco Beach III to sail on September 11, 2000.
sewerage system, wire or wireless communications Respondents position does not impress.
systems, wire or wireless broadcasting stations and other
similar public services . . .18 (emphasis and underscoring The evidence shows that PAGASA issued 24-hour public
supplied.) weather forecasts and tropical cyclone warnings for
shipping on September 10 and 11, 2000 advising of
Indeed, respondent is a common carrier. Its ferry services tropical depressions in Northern Luzon which would also
are so intertwined with its main business as to be properly affect the province of Mindoro.22 By the testimony of Dr.
64 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Frisco Nilo, supervising weather specialist of PAGASA, Net Earning Capacity = life expectancy x (gross annual
squalls are to be expected under such weather condition.23 income - reasonable and necessary living expenses).

A very cautious person exercising the utmost diligence Life expectancy is determined in accordance with the
would thus not brave such stormy weather and put other formula:
peoples lives at risk. The extraordinary diligence required
of common carriers demands that they take care of the 2 / 3 x [80 age of deceased at the time of death]30
goods or lives entrusted to their hands as if they were their
own. This respondent failed to do. The first factor, i.e., life expectancy, is computed by
applying the formula (2/3 x [80 age at death]) adopted
Respondents insistence that the incident was caused by a in the American Expectancy Table of Mortality or the
fortuitous event does not impress either. Actuarial of Combined Experience Table of Mortality.31

The elements of a "fortuitous event" are: (a) the cause of The second factor is computed by multiplying the life
the unforeseen and unexpected occurrence, or the failure expectancy by the net earnings of the deceased, i.e., the
of the debtors to comply with their obligations, must have total earnings less expenses necessary in the creation of
been independent of human will; (b) the event that such earnings or income and less living and other
constituted the caso fortuito must have been impossible to incidental expenses.32 The loss is not equivalent to the
foresee or, if foreseeable, impossible to avoid; (c) the entire earnings of the deceased, but only such portion as
occurrence must have been such as to render it impossible he would have used to support his dependents or heirs.
for the debtors to fulfill their obligation in a normal Hence, to be deducted from his gross earnings are the
manner; and (d) the obligor must have been free from any necessary expenses supposed to be used by the deceased
participation in the aggravation of the resulting injury to for his own needs.33
the creditor.24
In computing the third factor necessary living expense,
To fully free a common carrier from any liability, the Smith Bell Dodwell Shipping Agency Corp. v.
fortuitous event must have been the proximate and only Borja34teaches that when, as in this case, there is no
cause of the loss. And it should have exercised due showing that the living expenses constituted the smaller
diligence to prevent or minimize the loss before, during percentage of the gross income, the living expenses are
and after the occurrence of the fortuitous event.25 fixed at half of the gross income.

Respondent cites the squall that occurred during the Applying the above guidelines, the Court determines
voyage as the fortuitous event that overturned M/B Coco Ruelito's life expectancy as follows:
Beach III. As reflected above, however, the occurrence of
squalls was expected under the weather condition of
Life expectancy 2/3 x [80 - age of deceased at the
September 11, 2000. Moreover, evidence shows that M/B
= time of death]
Coco Beach III suffered engine trouble before it capsized
2/3 x [80 - 28]
and sank.26 The incident was, therefore, not completely
2/3 x [52]
free from human intervention.
Life expectancy
35
The Court need not belabor how respondents evidence =
likewise fails to demonstrate that it exercised due diligence
to prevent or minimize the loss before, during and after
Documentary evidence shows that Ruelito was earning a
the occurrence of the squall.
basic monthly salary of $90035 which, when converted to
Philippine peso applying the annual average exchange rate
Article 176427 vis--vis Article 220628 of the Civil Code of $1 = P44 in 2000,36 amounts to P39,600. Ruelitos net
holds the common carrier in breach of its contract of earning capacity is thus computed as follows:
carriage that results in the death of a passenger liable to
pay the following: (1) indemnity for death, (2) indemnity
for loss of earning capacity and (3) moral damages. Net Earning = life expectancy x (gross annual
Capacity income - reasonable and necessary
living expenses).
Petitioners are entitled to indemnity for the death of
= 35 x (P475,200 - P237,600)
Ruelito which is fixed at P50,000.29
= 35 x (P237,600)

As for damages representing unearned income, the Net Earning


= P8,316,000
formula for its computation is: Capacity
65 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Respecting the award of moral damages, since respondent computation of legal interest shall, in any case, be on the
common carriers breach of contract of carriage resulted in amount finally adjudged.
the death of petitioners son, following Article 1764 vis--
vis Article 2206 of the Civil Code, petitioners are entitled When the judgment of the court awarding a sum of money
to moral damages. becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2,
Since respondent failed to prove that it exercised the above, shall be 12% per annum from such finality until its
extraordinary diligence required of common carriers, it is satisfaction, this interim period being deemed to be by
presumed to have acted recklessly, thus warranting the then an equivalent to a forbearance of credit. (emphasis
award too of exemplary damages, which are granted in supplied).
contractual obligations if the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.37 Since the amounts payable by respondent have been
determined with certainty only in the present petition, the
Under the circumstances, it is reasonable to award interest due shall be computed upon the finality of this
petitioners the amount of P100,000 as moral damages decision at the rate of 12% per annum until satisfaction, in
and P100,000 as exemplary damages.381avvphi1 accordance with paragraph number 3 of the immediately
cited guideline in Easter Shipping Lines, Inc.
Pursuant to Article 220839 of the Civil Code, attorney's fees
may also be awarded where exemplary damages are WHEREFORE, the Court of Appeals Decision of August
awarded. The Court finds that 10% of the total amount 19, 2008 is REVERSED and SET ASIDE. Judgment is
adjudged against respondent is reasonable for the rendered in favor of petitioners ordering respondent to
purpose. pay petitioners the following: (1) P50,000 as indemnity for
the death of Ruelito Cruz; (2) P8,316,000 as indemnity for
Finally, Eastern Shipping Lines, Inc. v. Court of Ruelitos loss of earning capacity; (3) P100,000 as moral
Appeals40 teaches that when an obligation, regardless of its damages; (4) P100,000 as exemplary damages; (5) 10% of
source, i.e., law, contracts, quasi-contracts, delicts or quasi- the total amount adjudged against respondent as attorneys
delicts is breached, the contravenor can be held liable for fees; and (6) the costs of suit.
payment of interest in the concept of actual and
compensatory damages, subject to the following rules, to The total amount adjudged against respondent shall earn
wit interest at the rate of 12% per annum computed from the
finality of this decision until full payment.
When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of SO ORDERED.
money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due G.R. No. 147079 December 21, 2004
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of A.F. SANCHEZ BROKERAGE INC., petitioners,
interest shall be 12% per annum to be computed from vs.
default, i.e., from judicial or extrajudicial demand under THE HON. COURT OF APPEALS and FGU
and subject to the provisions of Article 1169 of the Civil INSURANCE CORPORATION, respondents.
Code.

When an obligation, not constituting a loan or forbearance


of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the
DECISION
court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or CARPIO MORALES, J.:
extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time Before this Court on a petition for Certiorari is the
the demand is made, the interest shall begin to run only appellate courts Decision1 of August 10, 2000 reversing
from the date the judgment of the court is made (at which and setting aside the judgment of Branch 133, Regional
time the quantification of damages may be deemed to have Trial Court of Makati City, in Civil Case No. 93-76B which
been reasonably ascertained). The actual base for the dismissed the complaint of respondent FGU Insurance
66 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Corporation (FGU Insurance) against petitioner A.F. quality control check.17 The delivery receipt, bearing No.
Sanchez Brokerage, Inc. (Sanchez Brokerage). 07037 dated July 29, 1992, indicated that the delivery
consisted of one container with 144 cartons of Femenal
On July 8, 1992, Wyeth-Pharma GMBH shipped on board and Nordiol and 1 pallet containing Trinordiol.18
an aircraft of KLM Royal Dutch Airlines at Dusseldorf,
Germany oral contraceptives consisting of 86,800 Blisters On July 31, 1992, Ronnie Likas, a representative of Wyeth-
Femenal tablets, 14,000 Blisters Nordiol tablets and 42,000 Suaco, acknowledged the delivery of the cargoes by
Blisters Trinordiol tablets for delivery to Manila in favor of affixing his signature on the delivery receipt.19 Upon
the consignee, Wyeth-Suaco Laboratories, Inc.2The inspection, however, he, together with Ruben Alonzo of
Femenal tablets were placed in 124 cartons and the Elite Surveyors, discovered that 44 cartons containing
Nordiol tablets were placed in 20 cartons which were Femenal and Nordiol tablets were in bad order.20 He thus
packed together in one (1) LD3 aluminum container, while placed a note above his signature on the delivery receipt
the Trinordial tablets were packed in two pallets, each of stating that 44 cartons of oral contraceptives were in bad
which contained 30 cartons.3 order. The remaining 160 cartons of oral contraceptives
were accepted as complete and in good order.
Wyeth-Suaco insured the shipment against all risks with
FGU Insurance which issued Marine Risk Note No. 4995 Ruben Alonzo thus prepared and signed, along with
pursuant to Marine Open Policy No. 138.4 Ronnie Likas, a survey report21 dated July 31, 1992 stating
that 41 cartons of Femenal tablets and 3 cartons of Nordiol
Upon arrival of the shipment on July 11, 1992 at the Ninoy tablets were "wetted" (sic).22
Aquino International Airport (NAIA),5 it was discharged
"without exception"6 and delivered to the warehouse of the The Elite Surveyors later issued Certificate No. CS-0731-
Philippine Skylanders, Inc. (PSI) located also at the NAIA 1538/9223 attached to which was an "Annexed Schedule"
for safekeeping.7 whereon it was indicated that prior to the loading of the
cargoes to the brokers trucks at the NAIA, they were
In order to secure the release of the cargoes from the PSI inspected and found to be in "apparent good
and the Bureau of Customs, Wyeth-Suaco engaged the condition."24 Also noted was that at the time of delivery to
services of Sanchez Brokerage which had been its licensed the warehouse of Hizon Laboratories Inc., slight to heavy
broker since 1984.8 As its customs broker, Sanchez rains fell, which could account for the wetting of the 44
Brokerage calculates and pays the customs duties, taxes cartons of Femenal and Nordiol tablets.25
and storage fees for the cargo and thereafter delivers it to
Wyeth-Suaco.9 On August 4, 1992, the Hizon Laboratories Inc. issued a
Destruction Report26 confirming that 38 x 700 blister packs
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, of Femenal tablets, 3 x 700 blister packs of Femenal tablets
representatives of Sanchez Brokerage, paid PSI storage fee and 3 x 700 blister packs of Nordiol tablets were heavily
amounting to P8,572.35 a receipt for which, Official damaged with water and emitted foul smell.
Receipt No. 016992,10 was issued. On the receipt, another
representative of Sanchez Brokerage, M. On August 5, 1992, Wyeth-Suaco issued a Notice of
Sison,11 acknowledged that he received the cargoes Materials Rejection27 of 38 cartons of Femenal and 3
consisting of three pieces in good condition.12 cartons of Nordiol on the ground that they were
"delivered to Hizon Laboratories with heavy water
Wyeth-Suaco being a regular importer, the customs damaged (sic) causing the cartons to sagged (sic) emitting
examiner did not inspect the cargoes13 which were a foul order and easily attracted flies."28
thereupon stripped from the aluminum containers14 and
loaded inside two transport vehicles hired by Sanchez Wyeth-Suaco later demanded, by letter29 of August 25,
Brokerage.15 1992, from Sanchez Brokerage the payment of P191,384.25
representing the value of its loss arising from the damaged
Among those who witnessed the release of the cargoes tablets.
from the PSI warehouse were Ruben Alonso and Tony
Akas,16 employees of Elite Adjusters and Surveyors Inc. As the Sanchez Brokerage refused to heed the demand,
(Elite Surveyors), a marine and cargo surveyor and Wyeth-Suaco filed an insurance claim against FGU
insurance claim adjusters firm engaged by Wyeth-Suaco Insurance which paid Wyeth-Suaco the amount
on behalf of FGU Insurance. of P181,431.49 in settlement of its claim under Marine Risk
Note Number 4995.
Upon instructions of Wyeth-Suaco, the cargoes were
delivered to Hizon Laboratories Inc. in Antipolo City for
67 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Wyeth-Suaco thus issued Subrogation Receipt in favor of
30
The Appellee is hereby ordered to pay to the Appellant the
FGU Insurance. amount of P20,000.00 as and by way of attorneys fees; and

On demand by FGU Insurance for payment of the amount The counterclaims of the Appellee are DISMISSED.38
of P181,431.49 it paid Wyeth-Suaco, Sanchez Brokerage, by
letter31 of January 7, 1993, disclaimed liability for the Sanchez Brokerages Motion for Reconsideration having
damaged goods, positing that the damage was due to been denied by the appellate courts Resolution of
improper and insufficient export packaging; that when the December 8, 2000 which was received by petitioner on
sealed containers were opened outside the PSI warehouse, January 5, 2001, it comes to this Court on petition for
it was discovered that some of the loose cartons were certiorari filed on March 6, 2001.
wet,32 prompting its (Sanchez Brokerages) representative
Morales to inform the Import-Export Assistant of Wyeth- In the main, petitioner asserts that the appellate court
Suaco, Ramir Calicdan, about the condition of the cargoes committed grave and reversible error tantamount to abuse
but that the latter advised to still deliver them to Hizon of discretion when it found petitioner a "common carrier"
Laboratories where an adjuster would assess the damage.33 within the context of Article 1732 of the New Civil Code.

Hence, the filing by FGU Insurance of a complaint for Respondent FGU Insurance avers in its Comment that the
damages before the Regional Trial Court of Makati City proper course of action which petitioner should have
against the Sanchez Brokerage. taken was to file a petition for review on certiorari since
the sole office of a writ of certiorari is the correction of
The trial court, by Decision34 of July 29, 1996, dismissed errors of jurisdiction including the commission of grave
the complaint, holding that the Survey Report prepared by abuse of discretion amounting to lack or excess of
the Elite Surveyors is bereft of any evidentiary support jurisdiction and does not include correction of the
and a mere product of pure guesswork.35 appellate courts evaluation of the evidence and factual
findings thereon.
On appeal, the appellate court reversed the decision of the
trial court, it holding that the Sanchez Brokerage engaged On the merits, respondent FGU Insurance contends that
not only in the business of customs brokerage but also in petitioner, as a common carrier, failed to overcome the
the transportation and delivery of the cargo of its clients, presumption of negligence, it being documented that
hence, a common carrier within the context of Article 1732 petitioner withdrew from the warehouse of PSI the subject
of the New Civil Code.36 shipment entirely in good order and condition.39

Noting that Wyeth-Suaco adduced evidence that the The petition fails.
cargoes were delivered to petitioner in good order and
condition but were in a damaged state when delivered to Rule 45 is clear that decisions, final orders or resolutions of
Wyeth-Suaco, the appellate court held that Sanchez the Court of Appeals in any case, i.e., regardless of the
Brokerage is presumed negligent and upon it rested the nature of the action or proceedings involved, may be
burden of proving that it exercised extraordinary appealed to this Court by filing a petition for review,
negligence not only in instances when negligence is which would be but a continuation of the appellate
directly proven but also in those cases when the cause of process over the original case.40
the damage is not known or unknown.37
The Resolution of the Court of Appeals dated December 8,
The appellate court thus disposed: 2000 denying the motion for reconsideration of its
Decision of August 10, 2000 was received by petitioner on
IN THE LIGHT OF ALL THE FOREGOING, the appeal of January 5, 2001. Since petitioner failed to appeal within 15
the Appellant is GRANTED. The Decision of the Court a days or on or before January 20, 2001, the appellate courts
quo is REVERSED. Another Decision is hereby rendered decision had become final and executory. The filing by
in favor of the Appellant and against the Appellee as petitioner of a petition for certiorari on March 6, 2001
follows: cannot serve as a substitute for the lost remedy of appeal.

The Appellee is hereby ordered to pay the Appellant the In another vein, the rule is well settled that in a petition for
principal amount of P181, 431.49, with interest thereupon certiorari, the petitioner must prove not merely reversible
at the rate of 6% per annum, from the date of the Decision error but also grave abuse of discretion amounting to lack
of the Court, until the said amount is paid in full; or excess of jurisdiction.
68 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Petitioner alleges that the appellate court erred in In this light, petitioner as a common carrier is mandated to
reversing and setting aside the decision of the trial court observe, under Article 173345 of the Civil Code,
based on its finding that petitioner is liable for the damage extraordinary diligence in the vigilance over the goods it
to the cargo as a common carrier. What petitioner is transports according to all the circumstances of each case.
ascribing is an error of judgment, not of jurisdiction, In the event that the goods are lost, destroyed or
which is properly the subject of an ordinary appeal. deteriorated, it is presumed to have been at fault or to have
acted negligently, unless it proves that it observed
Where the issue or question involves or affects the wisdom extraordinary diligence.46
or legal soundness of the decision not the jurisdiction of
the court to render said decision the same is beyond the The concept of "extra-ordinary diligence" was explained
province of a petition for certiorari.41 The supervisory in Compania Maritima v. Court of Appeals:47
jurisdiction of this Court to issue a cert writ cannot be
exercised in order to review the judgment of lower courts The extraordinary diligence in the vigilance over the
as to its intrinsic correctness, either upon the law or the goods tendered for shipment requires the common carrier
facts of the case.42 to know and to follow the required precaution for
avoiding damage to, or destruction of the goods entrusted
Procedural technicalities aside, the petition still fails. to it for sale, carriage and delivery. It requires common
carriers to render service with the greatest skill and
The appellate court did not err in finding petitioner, a foresight and "to use all reasonable means to ascertain the
customs broker, to be also a common carrier, as defined nature and characteristics of goods tendered for shipment,
under Article 1732 of the Civil Code, to wit: and to exercise due care in the handling and stowage,
including such methods as their nature requires."48
Art. 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying In the case at bar, it was established that petitioner
or transporting passengers or goods or both, by land, received the cargoes from the PSI warehouse in NAIA in
water, or air, for compensation, offering their services to good order and condition;49 and that upon delivery by
the public. petitioner to Hizon Laboratories Inc., some of the cargoes
were found to be in bad order, as noted in the Delivery
Anacleto F. Sanchez, Jr., the Manager and Principal Broker Receipt50 issued by petitioner, and as indicated in the
of Sanchez Brokerage, himself testified that the services Survey Report of Elite Surveyors51 and the Destruction
the firm offers include the delivery of goods to the Report of Hizon Laboratories, Inc.52
warehouse of the consignee or importer.
In an attempt to free itself from responsibility for the
ATTY. FLORES: damage to the goods, petitioner posits that they were
damaged due to the fault or negligence of the shipper for
failing to properly pack them and to the inherent
Q: What are the functions of these license brokers, license
characteristics of the goods53; and that it should not be
customs broker?
faulted for following the instructions of Calicdan of
Wyeth-Suaco to proceed with the delivery despite
WITNESS:
information conveyed to the latter that some of the
cartons, on examination outside the PSI warehouse, were
As customs broker, we calculate the taxes that has to be
found to be wet.54
paid in cargos, and those upon approval of the importer,
we prepare the entry together for processing and claims
While paragraph No. 4 of Article 173455 of the Civil Code
from customs and finally deliver the goods to the
exempts a common carrier from liability if the loss or
warehouse of the importer.43
damage is due to the character of the goods or defects in
the packing or in the containers, the rule is that if the
Article 1732 does not distinguish between one whose
improper packing is known to the carrier or his employees
principal business activity is the carrying of goods and
or is apparent upon ordinary observation, but he
one who does such carrying only as an ancillary
nevertheless accepts the same without protest or exception
activity.44 The contention, therefore, of petitioner that it is
notwithstanding such condition, he is not relieved of
not a common carrier but a customs broker whose
liability for the resulting damage.56
principal function is to prepare the correct customs
declaration and proper shipping documents as required
If the claim of petitioner that some of the cartons were
by law is bereft of merit. It suffices that petitioner
already damaged upon delivery to it were true, then it
undertakes to deliver the goods for pecuniary
should naturally have received the cargo under protest or
consideration.
69 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
with reservations duly noted on the receipt issued by PSI. A: Yes sir, there was an instance that one cartoon (sic) were
But it made no such protest or reservation.57 wetted (sic) but Wyeth-Suaco did not claim anything
against us.
Moreover, as observed by the appellate court, if indeed
petitioners employees only examined the cargoes outside ATTY. FLORES:
the PSI warehouse and found some to be wet, they would
certainly have gone back to PSI, showed to the Q: HOW IS IT?
warehouseman the damage, and demanded then and
there for Bad Order documents or a certification WITNESS:
confirming the damage.58 Or, petitioner would have
presented, as witness, the employees of the PSI from
A: We experienced, there was a time that we experienced
whom Morales and Domingo took delivery of the cargo to
that there was a cartoon (sic) wetted (sic) up to the bottom
prove that, indeed, part of the cargoes was already
are wet specially during rainy season.62
damaged when the container was allegedly opened
outside the warehouse.59
Since petitioner received all the cargoes in good order and
condition at the time they were turned over by the PSI
Petitioner goes on to posit that contrary to the report of
warehouseman, and upon their delivery to Hizon
Elite Surveyors, no rain fell that day. Instead, it asserts that
Laboratories, Inc. a portion thereof was found to be in bad
some of the cargoes were already wet on delivery by PSI
order, it was incumbent on petitioner to prove that it
outside the PSI warehouse but such notwithstanding
exercised extraordinary diligence in the carriage of the
Calicdan directed Morales to proceed with the delivery to
goods. It did not, however. Hence, its presumed
Hizon Laboratories, Inc.
negligence under Article 1735 of the Civil Code remains
unrebutted.
While Calicdan testified that he received the purported
telephone call of Morales on July 29, 1992, he failed to
WHEREFORE, the August 10, 2000 Decision of the Court
specifically declare what time he received the call. As to
of Appeals is hereby AFFIRMED.
whether the call was made at the PSI warehouse when the
shipment was stripped from the airport containers, or
Costs against petitioner.
when the cargoes were already in transit to Antipolo, it is
not determinable. Aside from that phone call, petitioner
SO ORDERED.
admitted that it had no documentary evidence to prove
that at the time it received the cargoes, a part of it was wet,
damaged or in bad condition.60 G.R. No. 138334 August 25, 2003

The 4-page weather data furnished by PAGASA61 on ESTELA L. CRISOSTOMO, Petitioner,


request of Sanchez Brokerage hardly impresses, no witness vs.
having identified it and interpreted the technical terms The Court of Appeals and CARAVAN TRAVEL &
thereof. TOURS INTERNATIONAL, INC., Respondents.

The possibility on the other hand that, as found by Hizon


DECISION
Laboratories, Inc., the oral contraceptives were damaged
by rainwater while in transit to Antipolo City is more
likely then. Sanchez himself testified that in the past, there YNARES-SANTIAGO, J.:
was a similar instance when the shipment of Wyeth-Suaco
was also found to be wet by rain. In May 1991, petitioner Estela L. Crisostomo contracted
the services of respondent Caravan Travel and Tours
ATTY. FLORES: International, Inc. to arrange and facilitate her booking,
ticketing and accommodation in a tour dubbed "Jewels of
Q: Was there any instance that a shipment of this nature, Europe". The package tour included the countries of
oral contraceptives, that arrived at the NAIA were
England, Holland, Germany, Austria, Liechstenstein,
damaged and claimed by the Wyeth-Suaco without any
Switzerland and France at a total cost of P74,322.70.
question?
Petitioner was given a 5% discount on the amount, which
WITNESS: included airfare, and the booking fee was also waived
because petitioners niece, Meriam Menor, was respondent
companys ticketing manager.
70 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Pursuant to said contract, Menor went to her aunts that petitioner was informed of the correct departure date,
residence on June 12, 1991 a Wednesday to deliver which was clearly and legibly printed on the plane ticket.
petitioners travel documents and plane tickets. Petitioner, The travel documents were given to petitioner two days
in turn, gave Menor the full payment for the package tour. ahead of the scheduled trip. Petitioner had only herself to
Menor then told her to be at the Ninoy Aquino blame for missing the flight, as she did not bother to read
International Airport (NAIA) on Saturday, two hours or confirm her flight schedule as printed on the ticket.
before her flight on board British Airways.
Respondent explained that it can no longer reimburse the
Without checking her travel documents, petitioner went to amount paid for "Jewels of Europe", considering that the
NAIA on Saturday, June 15, 1991, to take the flight for the same had already been remitted to its principal in
first leg of her journey from Manila to Hongkong. To Singapore, Lotus Travel Ltd., which had already billed the
petitioners dismay, she discovered that the flight she was same even if petitioner did not join the tour. Lotus
supposed to take had already departed the previous day. European tour organizer, Insight International Tours Ltd.,
She learned that her plane ticket was for the flight determines the cost of a package tour based on a
scheduled on June 14, 1991. She thus called up Menor to minimum number of projected participants. For this
complain. reason, it is accepted industry practice to disallow refund
for individuals who failed to take a booked tour.3
Subsequently, Menor prevailed upon petitioner to take
another tour the "British Pageant" which included Lastly, respondent maintained that the "British Pageant"
England, Scotland and Wales in its itinerary. For this tour was not a substitute for the package tour that petitioner
package, petitioner was asked anew to pay US$785.00 or missed. This tour was independently procured by
P20,881.00 (at the then prevailing exchange rate of P26.60). petitioner after realizing that she made a mistake in
She gave respondent US$300 or P7,980.00 as partial missing her flight for "Jewels of Europe". Petitioner was
payment and commenced the trip in July 1991. allowed to make a partial payment of only US$300.00 for
the second tour because her niece was then an employee of
Upon petitioners return from Europe, she demanded the travel agency. Consequently, respondent prayed that
from respondent the reimbursement of P61,421.70, petitioner be ordered to pay the balance of P12,901.00 for
representing the difference between the sum she paid for the "British Pageant" package tour.
"Jewels of Europe" and the amount she owed respondent
for the "British Pageant" tour. Despite several demands, After due proceedings, the trial court rendered a
respondent company refused to reimburse the amount, decision,4 the dispositive part of which reads:
contending that the same was non-refundable.1 Petitioner
was thus constrained to file a complaint against WHEREFORE, premises considered, judgment is hereby
respondent for breach of contract of carriage and damages, rendered as follows:
which was docketed as Civil Case No. 92-133 and raffled
to Branch 59 of the Regional Trial Court of Makati City. Ordering the defendant to return and/or refund to the
plaintiff the amount of Fifty Three Thousand Nine
In her complaint, petitioner alleged that her failure to join
2
Hundred Eighty Nine Pesos and Forty Three Centavos
"Jewels of Europe" was due to respondents fault since it (P53,989.43) with legal interest thereon at the rate of
did not clearly indicate the departure date on the plane twelve percent (12%) per annum starting January 16, 1992,
ticket. Respondent was also negligent in informing her of the date when the complaint was filed;
the wrong flight schedule through its employee Menor.
She insisted that the "British Pageant" was merely a Ordering the defendant to pay the plaintiff the amount of
substitute for the "Jewels of Europe" tour, such that the Five Thousand (P5,000.00) Pesos as and for reasonable
cost of the former should be properly set-off against the attorneys fees;
sum paid for the latter.
Dismissing the defendants counterclaim, for lack of merit;
For its part, respondent company, through its Operations and
Manager, Concepcion Chipeco, denied responsibility for
petitioners failure to join the first tour. Chipeco insisted With costs against the defendant.
71 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
SO ORDERED. 5
setting aside the decision of the trial court by ruling that
the petitioner is not entitled to a refund of the cost of
The trial court held that respondent was negligent in unavailed "Jewels of Europe" tour she being equally, if not
erroneously advising petitioner of her departure date more, negligent than the private respondent, for in the
through its employee, Menor, who was not presented as contract of carriage the common carrier is obliged to
witness to rebut petitioners testimony. However, observe utmost care and extra-ordinary diligence which is
petitioner should have verified the exact date and time of higher in degree than the ordinary diligence required of
departure by looking at her ticket and should have simply the passenger. Thus, even if the petitioner and private
not relied on Menors verbal representation. The trial court respondent were both negligent, the petitioner cannot be
thus declared that petitioner was guilty of contributory considered to be equally, or worse, more guilty than the
negligence and accordingly, deducted 10% from the private respondent. At best, petitioners negligence is only
amount being claimed as refund. contributory while the private respondent [is guilty] of
gross negligence making the principle of pari delicto
Respondent appealed to the Court of Appeals, which inapplicable in the case;
likewise found both parties to be at fault. However, the
appellate court held that petitioner is more negligent than II
respondent because as a lawyer and well-traveled person,
she should have known better than to simply rely on what The Honorable Court of Appeals also erred in not ruling
was told to her. This being so, she is not entitled to any that the "Jewels of Europe" tour was not indivisible and
form of damages. Petitioner also forfeited her right to the the amount paid therefor refundable;
"Jewels of Europe" tour and must therefore pay
respondent the balance of the price for the "British III
Pageant" tour. The dispositive portion of the judgment
appealed from reads as follows: The Honorable Court erred in not granting to the
petitioner the consequential damages due her as a result of
WHEREFORE, premises considered, the decision of the breach of contract of carriage.8
Regional Trial Court dated October 26, 1995 is hereby
REVERSED and SET ASIDE. A new judgment is hereby Petitioner contends that respondent did not observe the
ENTERED requiring the plaintiff-appellee to pay to the standard of care required of a common carrier when it
defendant-appellant the amount of P12,901.00, informed her wrongly of the flight schedule. She could not
representing the balance of the price of the British Pageant be deemed more negligent than respondent since the latter
Package Tour, the same to earn legal interest at the rate of is required by law to exercise extraordinary diligence in
SIX PERCENT (6%) per annum, to be computed from the the fulfillment of its obligation. If she were negligent at all,
time the counterclaim was filed until the finality of this the same is merely contributory and not the proximate
decision. After this decision becomes final and executory, cause of the damage she suffered. Her loss could only be
the rate of TWELVE PERCENT (12%) interest per annum attributed to respondent as it was the direct consequence
shall be additionally imposed on the total obligation until of its employees gross negligence.
payment thereof is satisfied. The award of attorneys fees
is DELETED. Costs against the plaintiff-appellee. Petitioners contention has no merit.

SO ORDERED.6 By definition, a contract of carriage or transportation is


one whereby a certain person or association of persons
Upon denial of her motion for reconsideration, petitioner
7
obligate themselves to transport persons, things, or news
filed the instant petition under Rule 45 on the following from one place to another for a fixed price.9 Such person or
grounds: association of persons are regarded as carriers and are
classified as private or special carriers and common or
I public carriers.10 A common carrier is defined under
Article 1732 of the Civil Code as persons, corporations,
It is respectfully submitted that the Honorable Court of firms or associations engaged in the business of carrying
Appeals committed a reversible error in reversing and or transporting passengers or goods or both, by land,
72 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
water or air, for compensation, offering their services to that of a good father of a family under Article 1173 of the
the public. Civil Code.12 This connotes reasonable care consistent with
that which an ordinarily prudent person would have
It is obvious from the above definition that respondent is observed when confronted with a similar situation. The
not an entity engaged in the business of transporting test to determine whether negligence attended the
either passengers or goods and is therefore, neither a performance of an obligation is: did the defendant in
private nor a common carrier. Respondent did not doing the alleged negligent act use that reasonable care
undertake to transport petitioner from one place to and caution which an ordinarily prudent person would
another since its covenant with its customers is simply to have used in the same situation? If not, then he is guilty of
make travel arrangements in their behalf. Respondents negligence.13
services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking In the case at bar, the lower court found Menor negligent
customers for tours. when she allegedly informed petitioner of the wrong day
of departure. Petitioners testimony was accepted as
While petitioner concededly bought her plane ticket indubitable evidence of Menors alleged negligent act
through the efforts of respondent company, this does not since respondent did not call Menor to the witness stand
mean that the latter ipso facto is a common carrier. At to refute the allegation. The lower court applied the
most, respondent acted merely as an agent of the airline, presumption under Rule 131, Section 3 (e)14 of the Rules of
with whom petitioner ultimately contracted for her Court that evidence willfully suppressed would be
carriage to Europe. Respondents obligation to petitioner adverse if produced and thus considered petitioners
in this regard was simply to see to it that petitioner was uncontradicted testimony to be sufficient proof of her
properly booked with the airline for the appointed date claim.
and time. Her transport to the place of destination,
meanwhile, pertained directly to the airline. On the other hand, respondent has consistently denied
that Menor was negligent and maintains that petitioners
The object of petitioners contractual relation with assertion is belied by the evidence on record. The date and
respondent is the latters service of arranging and time of departure was legibly written on the plane ticket
facilitating petitioners booking, ticketing and and the travel papers were delivered two days in advance
accommodation in the package tour. In contrast, the object precisely so that petitioner could prepare for the trip. It
of a contract of carriage is the transportation of passengers performed all its obligations to enable petitioner to join the
or goods. It is in this sense that the contract between the tour and exercised due diligence in its dealings with the
parties in this case was an ordinary one for services and latter.
not one of carriage. Petitioners submission is premised on
a wrong assumption. We agree with respondent.

The nature of the contractual relation between petitioner Respondents failure to present Menor as witness to rebut
and respondent is determinative of the degree of care petitioners testimony could not give rise to an inference
required in the performance of the latters obligation unfavorable to the former. Menor was already working in
under the contract. For reasons of public policy, a common France at the time of the filing of the complaint,15 thereby
carrier in a contract of carriage is bound by law to carry making it physically impossible for respondent to present
passengers as far as human care and foresight can provide her as a witness. Then too, even if it were possible for
using the utmost diligence of very cautious persons and respondent to secure Menors testimony, the presumption
with due regard for all the circumstances. As earlier
11
under Rule 131, Section 3(e) would still not apply. The
stated, however, respondent is not a common carrier but a opportunity and possibility for obtaining Menors
travel agency. It is thus not bound under the law to testimony belonged to both parties, considering that
observe extraordinary diligence in the performance of its Menor was not just respondents employee, but also
obligation, as petitioner claims. petitioners niece. It was thus error for the lower court to
invoke the presumption that respondent willfully
Since the contract between the parties is an ordinary one suppressed evidence under Rule 131, Section 3(e). Said
for services, the standard of care required of respondent is presumption would logically be inoperative if the evidence
73 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
is not intentionally omitted but is simply unavailable, or nature of the obligation so demands.20 There is no fixed
when the same could have been obtained by both parties.16 standard of diligence applicable to each and every
contractual obligation and each case must be determined
In sum, we do not agree with the finding of the lower upon its particular facts. The degree of diligence required
court that Menors negligence concurred with the depends on the circumstances of the specific obligation
negligence of petitioner and resultantly caused damage to and whether one has been negligent is a question of fact
the latter. Menors negligence was not sufficiently proved, that is to be determined after taking into account the
considering that the only evidence presented on this score particulars of each case.211wphi1
was petitioners uncorroborated narration of the events. It
is well-settled that the party alleging a fact has the burden The lower court declared that respondents employee was
of proving it and a mere allegation cannot take the place of negligent. This factual finding, however, is not supported
evidence.17 If the plaintiff, upon whom rests the burden of by the evidence on record. While factual findings below
proving his cause of action, fails to show in a satisfactory are generally conclusive upon this court, the rule is subject
manner facts upon which he bases his claim, the to certain exceptions, as when the trial court overlooked,
defendant is under no obligation to prove his exception or misunderstood, or misapplied some facts or circumstances
defense. 18
of weight and substance which will affect the result of the
case.22
Contrary to petitioners claim, the evidence on record
shows that respondent exercised due diligence in In the case at bar, the evidence on record shows that
performing its obligations under the contract and followed respondent company performed its duty diligently and
standard procedure in rendering its services to petitioner. did not commit any contractual breach. Hence, petitioner
As correctly observed by the lower court, the plane cannot recover and must bear her own damage.
ticket19 issued to petitioner clearly reflected the departure
date and time, contrary to petitioners contention. The WHEREFORE, the instant petition is DENIED for lack of
travel documents, consisting of the tour itinerary, vouchers merit. The decision of the Court of Appeals in CA-G.R. CV
and instructions, were likewise delivered to petitioner two No. 51932 is AFFIRMED. Accordingly, petitioner is
days prior to the trip. Respondent also properly booked ordered to pay respondent the amount of P12,901.00
petitioner for the tour, prepared the necessary documents representing the balance of the price of the British Pageant
and procured the plane tickets. It arranged petitioners Package Tour, with legal interest thereon at the rate of 6%
hotel accommodation as well as food, land transfers and per annum, to be computed from the time the
sightseeing excursions, in accordance with its avowed counterclaim was filed until the finality of this Decision.
undertaking. After this Decision becomes final and executory, the rate of
12% per annum shall be imposed until the obligation is
Therefore, it is clear that respondent performed its fully settled, this interim period being deemed to be by
prestation under the contract as well as everything else then an equivalent to a forbearance of credit.23
that was essential to book petitioner for the tour. Had
petitioner exercised due diligence in the conduct of her SO ORDERED
affairs, there would have been no reason for her to miss
the flight. Needless to say, after the travel papers were G.R. No. L-47822 December 22, 1988
delivered to petitioner, it became incumbent upon her to
take ordinary care of her concerns. This undoubtedly PEDRO DE GUZMAN, petitioner,
would require that she at least read the documents in vs.
order to assure herself of the important details regarding COURT OF APPEALS and ERNESTO
the trip. CENDANA, respondents.

The negligence of the obligor in the performance of the Vicente D. Millora for petitioner.
obligation renders him liable for damages for the resulting
loss suffered by the obligee. Fault or negligence of the Jacinto Callanta for private respondent.
obligor consists in his failure to exercise due care and
prudence in the performance of the obligation as the
74 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings

FELICIANO, J.: carrier and holding him liable for the value of the
undelivered goods (P 22,150.00) as well as for P 4,000.00 as
Respondent Ernesto Cendana, a junk dealer, was engaged damages and P 2,000.00 as attorney's fees.
in buying up used bottles and scrap metal in Pangasinan.
Upon gathering sufficient quantities of such scrap On appeal before the Court of Appeals, respondent urged
material, respondent would bring such material to Manila that the trial court had erred in considering him a
for resale. He utilized two (2) six-wheeler trucks which he common carrier; in finding that he had habitually offered
owned for hauling the material to Manila. On the return trucking services to the public; in not exempting him from
trip to Pangasinan, respondent would load his vehicles liability on the ground of force majeure; and in ordering
with cargo which various merchants wanted delivered to him to pay damages and attorney's fees.
differing establishments in Pangasinan. For that service,
respondent charged freight rates which were commonly The Court of Appeals reversed the judgment of the trial
lower than regular commercial rates. court and held that respondent had been engaged in
transporting return loads of freight "as a casual
Sometime in November 1970, petitioner Pedro de Guzman occupation a sideline to his scrap iron business" and not
a merchant and authorized dealer of General Milk as a common carrier. Petitioner came to this Court by way
Company (Philippines), Inc. in Urdaneta, Pangasinan, of a Petition for Review assigning as errors the following
contracted with respondent for the hauling of 750 cartons conclusions of the Court of Appeals:
of Liberty filled milk from a warehouse of General Milk in
Makati, Rizal, to petitioner's establishment in Urdaneta on that private respondent was not a common carrier;
or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to that the hijacking of respondent's truck was force majeure;
his trucks: 150 cartons were loaded on a truck driven by and
respondent himself, while 600 cartons were placed on
board the other truck which was driven by Manuel that respondent was not liable for the value of the
Estrada, respondent's driver and employee. undelivered cargo. (Rollo, p. 111)

Only 150 boxes of Liberty filled milk were delivered to We consider first the issue of whether or not private
petitioner. The other 600 boxes never reached petitioner, respondent Ernesto Cendana may, under the facts earlier
since the truck which carried these boxes was hijacked set forth, be properly characterized as a common carrier.
somewhere along the MacArthur Highway in Paniqui,
Tarlac, by armed men who took with them the truck, its The Civil Code defines "common carriers" in the following
driver, his helper and the cargo. terms:

On 6 January 1971, petitioner commenced action against Article 1732. Common carriers are persons, corporations,
private respondent in the Court of First Instance of firms or associations engaged in the business of carrying
Pangasinan, demanding payment of P 22,150.00, the or transporting passengers or goods or both, by land,
claimed value of the lost merchandise, plus damages and water, or air for compensation, offering their services to
attorney's fees. Petitioner argued that private respondent, the public.
being a common carrier, and having failed to exercise the
extraordinary diligence required of him by the law, should The above article makes no distinction between one
be held liable for the value of the undelivered goods. whose principal business activity is the carrying of persons
or goods or both, and one who does such carrying only as
In his Answer, private respondent denied that he was a an ancillary activity (in local Idiom as "a sideline"). Article
common carrier and argued that he could not be held 1732 also carefully avoids making any distinction between
responsible for the value of the lost goods, such loss a person or enterprise offering transportation service on
having been due to force majeure. a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does
On 10 December 1975, the trial court rendered a Article 1732 distinguish between a carrier offering its
Decision finding private respondent to be a common
1
services to the "general public," i.e., the general community
75 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
or population, and one who offers services or solicits arises the moment a person or firm acts as a common
business only from a narrow segment of the general carrier, without regard to whether or not such carrier has
population. We think that Article 1733 deliberaom making also complied with the requirements of the applicable
such distinctions. regulatory statute and implementing regulations and has
been granted a certificate of public convenience or other
So understood, the concept of "common carrier" under franchise. To exempt private respondent from the
Article 1732 may be seen to coincide neatly with the notion liabilities of a common carrier because he has not secured
of "public service," under the Public Service Act the necessary certificate of public convenience, would be
(Commonwealth Act No. 1416, as amended) which at least offensive to sound public policy; that would be to reward
partially supplements the law on common carriers set private respondent precisely for failing to comply with
forth in the Civil Code. Under Section 13, paragraph (b) of applicable statutory requirements. The business of a
the Public Service Act, "public service" includes: common carrier impinges directly and intimately upon the
safety and well being and property of those members of
... every person that now or hereafter may own, operate, the general community who happen to deal with such
manage, or control in the Philippines, for hire or carrier. The law imposes duties and liabilities upon
compensation, with general or limited clientele, whether common carriers for the safety and protection of those
permanent, occasional or accidental, and done for general who utilize their services and the law cannot allow a
business purposes, any common carrier, railroad, street common carrier to render such duties and liabilities
railway, traction railway, subway motor vehicle, either for merely facultative by simply failing to obtain the necessary
freight or passenger, or both, with or without fixed route permits and authorizations.
and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or We turn then to the liability of private respondent as a
steamship line, pontines, ferries and water craft, engaged common carrier.
in the transportation of passengers or freight or both,
shipyard, marine repair shop, wharf or dock, ice plant, Common carriers, "by the nature of their business and for
ice-refrigeration plant, canal, irrigation system, gas, reasons of public policy" 2 are held to a very high degree of
electric light, heat and power, water supply and power care and diligence ("extraordinary diligence") in the
petroleum, sewerage system, wire or wireless carriage of goods as well as of passengers. The specific
communications systems, wire or wireless broadcasting import of extraordinary diligence in the care of goods
stations and other similar public services. ... (Emphasis transported by a common carrier is, according to Article
supplied) 1733, "further expressed in Articles 1734,1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.
It appears to the Court that private respondent is properly
characterized as a common carrier even though he merely Article 1734 establishes the general rule that common
"back-hauled" goods for other merchants from Manila to carriers are responsible for the loss, destruction or
Pangasinan, although such back-hauling was done on a deterioration of the goods which they carry, "unless the
periodic or occasional rather than regular or scheduled same is due to any of the following causes only:
manner, and even though private
respondent's principal occupation was not the carriage of Flood, storm, earthquake, lightning or other natural
goods for others. There is no dispute that private disaster or calamity;
respondent charged his customers a fee for hauling their (2) Act of the public enemy in war, whether international
goods; that fee frequently fell below commercial freight or civil;
rates is not relevant here. (3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-
The Court of Appeals referred to the fact that private in the containers; and
respondent held no certificate of public convenience, and (5) Order or act of competent public authority.
concluded he was not a common carrier. This is palpable
error. A certificate of public convenience is not a requisite It is important to point out that the above list of causes of
for the incurring of liability under the Civil Code loss, destruction or deterioration which exempt the
provisions governing common carriers. That liability common carrier for responsibility therefor, is a closed list.
76 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Causes falling outside the foregoing list, even if they xxx xxx xxx
appear to constitute a species of force majeure fall within
the scope of Article 1735, which provides as follows: (5) that the common carrier shall not be responsible for the
acts or omissions of his or its employees;
In all cases other than those mentioned in numbers 1, 2, 3, 4 and
5 of the preceding article, if the goods are lost, destroyed or (6) that the common carrier's liability for acts committed
deteriorated, common carriers are presumed to have been at fault by thieves, or of robbers who do not act with grave or
or to have acted negligently, unless they prove that they observed irresistible threat, violence or force, is dispensed with or
extraordinary diligence as required in Article 1733. diminished; and
(Emphasis supplied)
(7) that the common carrier shall not responsible for the
Applying the above-quoted Articles 1734 and 1735, we loss, destruction or deterioration of goods on account of
note firstly that the specific cause alleged in the instant the defective condition of the car vehicle, ship, airplane or
case the hijacking of the carrier's truck does not fall other equipment used in the contract of carriage.
within any of the five (5) categories of exempting causes (Emphasis supplied)
listed in Article 1734. It would follow, therefore, that the
hijacking of the carrier's vehicle must be dealt with under Under Article 1745 (6) above, a common carrier is held
the provisions of Article 1735, in other words, that the responsible and will not be allowed to divest or to
private respondent as common carrier is presumed to have diminish such responsibility even for acts of strangers
been at fault or to have acted negligently. This like thieves or robbers, except where such thieves or
presumption, however, may be overthrown by proof of robbers in fact acted "with grave or irresistible threat,
extraordinary diligence on the part of private respondent. violence or force." We believe and so hold that the limits of
the duty of extraordinary diligence in the vigilance over
Petitioner insists that private respondent had not observed the goods carried are reached where the goods are lost as
extraordinary diligence in the care of petitioner's goods. a result of a robbery which is attended by "grave or
Petitioner argues that in the circumstances of this case, irresistible threat, violence or force."
private respondent should have hired a security guard
presumably to ride with the truck carrying the 600 cartons In the instant case, armed men held up the second truck
of Liberty filled milk. We do not believe, however, that in owned by private respondent which carried petitioner's
the instant case, the standard of extraordinary diligence cargo. The record shows that an information for robbery in
required private respondent to retain a security guard to band was filed in the Court of First Instance of Tarlac,
ride with the truck and to engage brigands in a firelight at Branch 2, in Criminal Case No. 198 entitled "People of the
the risk of his own life and the lives of the driver and his Philippines v. Felipe Boncorno, Napoleon Presno, Armando
helper. Mesina, Oscar Oria and one John Doe." There, the accused
were charged with willfully and unlawfully taking and
The precise issue that we address here relates to the carrying away with them the second truck, driven by
specific requirements of the duty of extraordinary Manuel Estrada and loaded with the 600 cartons of Liberty
diligence in the vigilance over the goods carried in the filled milk destined for delivery at petitioner's store in
specific context of hijacking or armed robbery. Urdaneta, Pangasinan. The decision of the trial court
shows that the accused acted with grave, if not irresistible,
As noted earlier, the duty of extraordinary diligence in the threat, violence or force. 3 Three (3) of the five (5) hold-
vigilance over goods is, under Article 1733, given uppers were armed with firearms. The robbers not only
additional specification not only by Articles 1734 and 1735 took away the truck and its cargo but also kidnapped the
but also by Article 1745, numbers 4, 5 and 6, Article 1745 driver and his helper, detaining them for several days and
provides in relevant part: later releasing them in another province (in Zambales).
The hijacked truck was subsequently found by the police
Any of the following or similar stipulations shall be in Quezon City. The Court of First Instance convicted all
considered unreasonable, unjust and contrary to public the accused of robbery, though not of robbery in band. 4
policy:
77 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
In these circumstances, we hold that the occurrence of the Sometime in January 1995, petitioner applied for a
loss must reasonably be regarded as quite beyond the mayor's permit with the Office of the Mayor of Batangas
control of the common carrier and properly regarded as a City. However, before the mayor's permit could be
fortuitous event. It is necessary to recall that even common issued, the respondent City Treasurer required
carriers are not made absolute insurers against all risks of petitioner to pay a local tax based on its gross receipts
travel and of transport of goods, and are not held liable for for the fiscal year 1993 pursuant to the Local Government
acts or events which cannot be foreseen or are inevitable, Code 3. The respondent City Treasurer assessed a
provided that they shall have complied with the rigorous business tax on the petitioner amounting to P956,076.04
standard of extraordinary diligence. payable in four installments based on the gross receipts
for products pumped at GPS-1 for the fiscal year 1993
We, therefore, agree with the result reached by the Court which amounted to P181,681,151.00. In order not to
of Appeals that private respondent Cendana is not liable hamper its operations, petitioner paid the tax under
for the value of the undelivered merchandise which was protest in the amount of P239,019.01 for the first quarter
lost because of an event entirely beyond private of 1993.
respondent's control.
On January 20, 1994, petitioner filed a letter-protest
ACCORDINGLY, the Petition for Review on certiorari is addressed to the respondent City Treasurer, the
hereby DENIED and the Decision of the Court of Appeals pertinent portion of which reads:
dated 3 August 1977 is AFFIRMED. No pronouncement as
to costs. Please note that our Company (FPIC) is a pipeline
operator with a government concession granted under
SO ORDERED the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas
G.R. No. 125948 December 29, 1998 refineries, via pipeline, to Sucat and JTF Pandacan
Terminals. As such, our Company is exempt from paying
FIRST PHILIPPINE INDUSTRIAL CORPORATION, tax on gross receipts under Section 133 of the Local
petitioner, Government Code of 1991 . . . .
vs.
COURT OF APPEALS, HONORABLE PATERNO V. Moreover, Transportation contractors are not included in
TAC-AN, BATANGAS CITY and ADORACION C. the enumeration of contractors under Section 131,
ARELLANO, in her official capacity as City Treasurer of Paragraph (h) of the Local Government Code. Therefore,
Batangas, respondents. the authority to impose tax "on contractors and other
independent contractors" under Section 143, Paragraph
(e) of the Local Government Code does not include the
power to levy on transportation contractors.
MARTINEZ, J.:
The imposition and assessment cannot be categorized as
This petition for review on certiorari assails the a mere fee authorized under Section 147 of the Local
Decision of the Court of Appeals dated November 29, Government Code. The said section limits the
1995, in CA-G.R. SP No. 36801, affirming the decision of imposition of fees and charges on business to such
the Regional Trial Court of Batangas City, Branch 84, in amounts as may be commensurate to the cost of
Civil Case No. 4293, which dismissed petitioners' regulation, inspection, and licensing. Hence, assuming
complaint for a business tax refund imposed by the City arguendo that FPIC is liable for the license fee, the
of Batangas. imposition thereof based on gross receipts is violative of
the aforecited provision. The amount of P956,076.04
Petitioner is a grantee of a pipeline concession under (P239,019.01 per quarter) is not commensurate to the cost
Republic Act No. 387, as amended, to contract, install of regulation, inspection and licensing. The fee is
and operate oil pipelines. The original pipeline already a revenue raising measure, and not a mere
concession was granted in 1967 and renewed by the
1 regulatory imposition. 4
Energy Regulatory Board in 1992. 2
78 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
On March 8, 1994, the respondent City Treasurer denied Plaintiff claims that it is a grantee of a pipeline
the protest contending that petitioner cannot be concession under Republic Act 387. (Exhibit A) whose
considered engaged in transportation business, thus it concession was lately renewed by the Energy Regulatory
cannot claim exemption under Section 133 (j) of the Board (Exhibit B). Yet neither said law nor the deed of
Local Government Code. 5 concession grant any tax exemption upon the plaintiff.

On June 15, 1994, petitioner filed with the Regional Trial Even the Local Government Code imposes a tax on
Court of Batangas City a complaint for tax refund with
6
franchise holders under Sec. 137 of the Local Tax Code.
prayer for writ of preliminary injunction against Such being the situation obtained in this case
respondents City of Batangas and Adoracion Arellano in (exemption being unclear and equivocal) resort to
her capacity as City Treasurer. In its complaint, distinctions or other considerations may be of help:
petitioner alleged, inter alia, that: (1) the imposition and
collection of the business tax on its gross receipts That the exemption granted under Sec. 133 (j)
violates Section 133 of the Local Government Code; (2) encompasses only common carriers so as not to
the authority of cities to impose and collect a tax on the overburden the riding public or commuters with
gross receipts of "contractors and independent taxes. Plaintif is not a common carrier, but a special
contractors" under Sec. 141 (e) and 151 does not include carrier extending its services and facilities to a single
the authority to collect such taxes on transportation specific or "special customer" under a "special contract."
contractors for, as defined under Sec. 131 (h), the term
"contractors" excludes transportation contractors; and, (3) The Local Tax Code of 1992 was basically enacted to give
the City Treasurer illegally and erroneously imposed more and effective local autonomy to local governments
and collected the said tax, thus meriting the immediate than the previous enactments, to make them
refund of the tax paid. 7
economically and financially viable to serve the people
and discharge their functions with a concomitant
Traversing the complaint, the respondents argued that obligation to accept certain devolution of powers, . . . So,
petitioner cannot be exempt from taxes under Section consistent with this policy even franchise grantees are
133 (j) of the Local Government Code as said exemption taxed (Sec. 137) and contractors are also taxed under Sec.
applies only to "transportation contractors and persons 143 (e) and 151 of the Code. 9Petitioner assailed the
engaged in the transportation by hire and common aforesaid decision before this Court via a petition for
carriers by air, land and water." Respondents assert that review. On February 27, 1995, we referred the case to the
pipelines are not included in the term "common carrier" respondent Court of Appeals for consideration and
which refers solely to ordinary carriers such as trucks, adjudication. 10 On November 29, 1995, the respondent
trains, ships and the like. Respondents further posit that court rendered a decision 11 affirming the trial court's
the term "common carrier" under the said code pertains dismissal of petitioner's complaint. Petitioner's motion
to the mode or manner by which a product is delivered for reconsideration was denied on July 18, 1996. 12
to its destination. 8

Hence, this petition. At first, the petition was denied due


On October 3, 1994, the trial court rendered a decision course in a Resolution dated November 11,
dismissing the complaint, ruling in this wise: 1996. Petitioner moved for a reconsideration which was
granted by this Court in a Resolution 14 of January 22,
. . . Plaintiff is either a contractor or other independent 1997. Thus, the petition was reinstated.
contractor.
Petitioner claims that the respondent Court of Appeals
. . . the exemption to tax claimed by the plaintiff has erred in holding that (1) the petitioner is not a common
become unclear. It is a rule that tax exemptions are to be carrier or a transportation contractor, and (2) the
strictly construed against the taxpayer, taxes being the exemption sought for by petitioner is not clear under the
lifeblood of the government. Exemption may therefore law.
be granted only by clear and unequivocal provisions of
law. There is merit in the petition.
79 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
A "common carrier" may be defined, broadly, as one who distinguish between a carrier offering its services to the
holds himself out to the public as engaged in the "general public," i.e., the general community or
business of transporting persons or property from place population, and one who offers services or solicits
to place, for compensation, offering his services to the business only from a narrow segment of the general
public generally. population. We think that Article 1877 deliberately
refrained from making such distinctions.
Art. 1732 of the Civil Code defines a "common carrier" as
"any person, corporation, firm or association engaged in
the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, So understood, the concept of "common carrier" under
offering their services to the public." Article 1732 may be seen to coincide neatly with the
notion of "public service," under the Public Service Act
The test for determining whether a party is a common (Commonwealth Act No. 1416, as amended) which at
carrier of goods is: least partially supplements the law on common carriers
set forth in the Civil Code. Under Section 13, paragraph
He must be engaged in the business of carrying goods (b) of the Public Service Act, "public service" includes:
for others as a public employment, and must hold
himself out as ready to engage in the transportation of
goods for person generally as a business and not as a
casual occupation; every person that now or hereafter may own, operate.
manage, or control in the Philippines, for hire or
He must undertake to carry goods of the kind to which compensation, with general or limited clientele, whether
his business is confined; permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad,
He must undertake to carry by the method by which his street railway, traction railway, subway motor vehicle,
business is conducted and over his established roads; either for freight or passenger, or both, with or without
and fixed route and whatever may be its classification, freight
or carrier service of any class, express service, steamboat,
The transportation must be for hire. 15
or steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or
Based on the above definitions and requirements, there freight or both, shipyard, marine repair shop, wharf or
is no doubt that petitioner is a common carrier. It is dock, ice plant, ice-refrigeration plant, canal, irrigation
engaged in the business of transporting or carrying system gas, electric light heat and power, water supply
goods, i.e. petroleum products, for hire as a public and power petroleum, sewerage system, wire or wireless
employment. It undertakes to carry for all persons communications systems, wire or wireless broadcasting
indifferently, that is, to all persons who choose to stations and other similar public services. (Emphasis
employ its services, and transports the goods by land Supplied)
and for compensation. The fact that petitioner has a
limited clientele does not exclude it from the definition Also, respondent's argument that the term "common
of a common carrier. In De Guzman vs. Court of carrier" as used in Section 133 (j) of the Local
Appeals 16
we ruled that: Government Code refers only to common carriers
transporting goods and passengers through moving
The above article (Art. 1732, Civil Code) makes no vehicles or vessels either by land, sea or water, is
distinction between one whose principal business erroneous.
activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity As correctly pointed out by petitioner, the definition of
(in local idiom, as a "sideline"). Article 1732 . . . avoids "common carriers" in the Civil Code makes no
making any distinction between a person or enterprise distinction as to the means of transporting, as long as it
offering transportation service on a regular or scheduled is by land, water or air. It does not provide that the
basis and one offering such service on an occasional, transportation of the passengers or goods should be by
episodic or unscheduled basis. Neither does Article 1732
80 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
motor vehicle. In fact, in the United States, oil pipe line herein, the exercise of the taxing powers of provinces,
operators are considered common carriers. 17
cities, municipalities, and barangays shall not extend to
the levy of the following:
Under the Petroleum Act of the Philippines (Republic
Act 387), petitioner is considered a "common carrier." xxx xxx xxx
Thus, Article 86 thereof provides that:
MR. AQUINO (A). Thank you, Mr. Speaker.

Art. 86. Pipe line concessionaire as common carrier. A


pipe line shall have the preferential right to utilize Mr. Speaker, we would like to proceed to page 95, line
installations for the transportation of petroleum owned
by him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of
such other petroleum as may be offered by others for It states: "SEC. 121 [now Sec. 131]. Common Limitations
transport, and to charge without discrimination such on the Taxing Powers of Local Government Units." . . .
rates as may have been approved by the Secretary of
Agriculture and Natural Resources. MR. AQUINO (A.). Thank you Mr. Speaker.

Republic Act 387 also regards petroleum operation as a


public utility. Pertinent portion of Article 7 thereof
provides: Still on page 95, subparagraph 5, on taxes on the
business of transportation. This appears to be one of
those being deemed to be exempted from the taxing
powers of the local government units. May we know the
that everything relating to the exploration for and reason why the transportation business is being
exploitation of petroleum . . . and everything relating to excluded from the taxing powers of the local government
the manufacture, refining, storage, or transportation by units?
special methods of petroleum, is hereby declared to be
a public utility. (Emphasis Supplied)

The Bureau of Internal Revenue likewise considers the MR. JAVIER (E.). Mr. Speaker, there is an exception
petitioner a "common carrier." In BIR Ruling No. 069-83, contained in Section 121 (now Sec. 131), line 16,
it declared: paragraph 5. It states that local government units may
not impose taxes on the business of transportation,
. . . since [petitioner] is a pipeline concessionaire that is except as otherwise provided in this code.
engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387
. . . . Such being the case, it is not subject to withholding
tax prescribed by Revenue Regulations No. 13-78, as Now, Mr. Speaker, if the Gentleman would care to go to
amended. page 98 of Book II, one can see there that provinces have
the power to impose a tax on business enjoying a
From the foregoing disquisition, there is no doubt that franchise at the rate of not more than one-half of 1
petitioner is a "common carrier" and, therefore, exempt percent of the gross annual receipts. So, transportation
from the business tax as provided for in Section 133 (j), contractors who are enjoying a franchise would be
of the Local Government Code, to wit: subject to tax by the province. That is the exception, Mr.
Speaker.

Sec. 133. Common Limitations on the Taxing Powers of


Local Government Units. Unless otherwise provided
81 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
What we want to guard against here, Mr. Speaker, is the Defendant-appellant is the registered owner of a six by six
imposition of taxes by local government units on the truck bearing plate No. TC-1253. On August, 9, 1949, while
carrier business. Local government units may impose the same was being driven by Rodolfo Espino y Garcia, it
taxes on top of what is already being imposed by the collided with a taxicab at the intersection of San Andres
National Internal Revenue Code which is the so-called and Dakota Streets, Manila. As the truck went off the
"common carriers tax." We do not want a duplication of street, it hit Ernesto Erezo and another, and the former
this tax, so we just provided for an exception under suffered injuries, as a result of which he died. The driver
Section 125 [now Sec. 137] that a province may impose was prosecuted for homicide through reckless negligence
this tax at a specific rate. in criminal case No. 10663 of the Court of First Instance of
Manila. The accused pleaded guilty and was sentenced to
MR. AQUINO (A.). Thank you for that clarification, Mr. suffer imprisonment and to pay the heirs of Ernesto Erezo
Speaker. . . . 18 the sum of P3,000. As the amount of the judgment could
not be enforced against him, plaintiff brought this action
It is clear that the legislative intent in excluding from the against the registered owner of the truck, the defendant-
taxing power of the local government unit the appellant. The circumstances material to the case are
imposition of business tax against common carriers is to stated by the court in its decision.
prevent a duplication of the so-called "common carrier's
tax." The defendant does not deny at the time of the fatal
accident the cargo truck driven by Rodolfo Espino y
Petitioner is already paying three (3%) percent common Garcia was registered in his name. He, however, claims
carrier's tax on its gross sales/earnings under the that the vehicle belonged to the Port Brokerage, of which
National Internal Revenue Code. 19 To tax petitioner he was the broker at the time of the accident. He
again on its gross receipts in its transportation of explained, and his explanation was corroborated by
petroleum business would defeat the purpose of the
Policarpio Franco, the manager of the corporation, that the
Local Government Code.
trucks of the corporation were registered in his name as a
convenient arrangement so as to enable the corporation to
WHEREFORE, the petition is hereby GRANTED. The
pay the registration fee with his backpay as a pre-war
decision of the respondent Court of Appeals dated
government employee. Franco, however, admitted that the
November 29, 1995 in CA-G.R. SP No. 36801 is
arrangement was not known to the Motor Vehicle Office.
REVERSED and SET ASIDE.

The trial court held that as the defendant-appellant


SO ORDERED.
represented himself to be the owner of the truck and the
Motor Vehicle Office, relying on his representation,
registered the vehicles in his name, the Government and
all persons affected by the representation had the right to
G.R. No. L-9605 September 30, 1957
rely on his declaration of ownership and registration. It,
therefore, held that the defendant-appellant is liable
GAUDIOSO EREZO, ET AL., plaintiff-appellee,
because he cannot be permitted to repudiate his own
vs.
declaration. (Section 68 [a], Rule 123, and Art. 1431, New
AGUEDO JEPTE, defendant-appellant.
Civil Code.).

Gesolgon, Matti and Custodio for appellees.


Against the judgment, the defendant has prosecuted this
Aguedo Y. Jepte in his own behalf.
appeal claiming that at the time of the accident the
relation of employer and employee between the driver and
LABRADOR, J.:
defendant-appellant was not established, it having been
proved at the trial that the owner of the truck was the Port
Appeal from a judgment of the Court of First Instance of
Brokerage, of which defendant-appellant was merely a
Manila ordering defendant to pay plaintiff Gaudioso Erezo
broker. We find no merit or justice in the above contention.
P3,000 on the death of Ernesto Erezo, son of plaintiff
In previous decisions, We already have held that the
Gaudioso Erezo.
registered owner of a certificate of public convenience is
82 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
liable to the public for the injuries or damages suffered by to pedestrians and other travelers from the careless
passengers or third persons caused by the operation of management of automobiles, and to furnish a means of
said vehicle, even though the same had been transferred to ascertaining the identity of persons violating the laws and
a third person. (Montoya vs. Ignacio, 94 Phil., 182, 50 Off. ordinances, regulating the speed and operation of
Gaz., 108; Roque vs. Malibay Transit Inc.,1 G. R. No. L- machines upon the highways (2 R. C. L. 1176). Not only
8561, November 18,1955; Vda. de Medina vs. Cresencia, 99 are vehicles to be registered and that no motor vehicles are
Phil., 506, 52 Off. Gaz., [10], 4606.)The principle upon to be used or operated without being properly registered
which this doctrine is based is that in dealing with for the current year, but that dealers in motor vehicles
vehicles registered under the Public Service Law, the shall furnish the Motor Vehicles Office a report showing
public has the right to assume or presume that the the name and address of each purchaser of motor vehicle
registered owner is the actual owner thereof, for it would during the previous month and the manufacturer's serial
be difficult for the public to enforce the actions that they number and motor number. (Section 5 [c], Act. No. 3992, as
may have for injuries caused to them by the vehicles being amended.).
negligently operated if the public should be required to
prove who the actual owner is. How would the public or Registration is required not to make said registration the
third persons know against whom to enforce their rights operative act by which ownership in vehicles is
in case of subsequent transfers of the vehicles? We do not transferred, as in land registration cases, because the
imply by this doctrine, however, that the registered owner administrative proceeding of registration does not bear
may not recover whatever amount he had paid by virtue of any essential relation to the contract of sale between the
his liability to third persons from the person to whom he parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888),
had actually sold, assigned or conveyed the vehicle. but to permit the use and operation of the vehicle upon
any public highway (section 5 [a], Act No. 3992, as
Under the same principle the registered owner of any amended).The main aim of motor vehicle registration is to
vehicle, even if not used for a public service, should identify the owner so that if any accident happens, or that
primarily be responsible to the public or to third persons any damage or injury is caused by the vehicles on the
for injuries caused the latter while the vehicle is being public highways, responsibility therefore can be fixed on a
driven on the highways or streets. The members of the definite individual, the registered owner. Instances are
Court are in agreement that the defendant-appellant numerous where vehicles running on public highways
should be held liable to plaintiff-appellee for the injuries caused accidents or injuries to pedestrians or other
occasioned to the latter because of the negligence of the vehicles without positive identification of the owner or
driver even if the defendant-appellant was no longer the drivers, or with very scant means of identification. It is to
owner of the vehicle at the time of the damage because he forestall those circumstances, so inconvenient or
had previously sold it to another. What is the legal basis prejudicial to the public, that the motor vehicle
for his (defendant-appellant's) liability?. registration is primarily ordained, in the interest of the
determination of persons responsible for damages or
There is a presumption that the owner of the guilty vehicle injuries caused on public highways.
is the defendant-appellant as he is the registered owner in
the Motor Vehicle Office. Should he not be allowed to One of the principal purposes of motor vehicles legislation
prove the truth, that he had sold it to another and thus is identification of the vehicle and of the operator, in case
shift the responsibility for the injury to the real and actual of accident; and another is that the knowledge that means
owner? The defendant holds the affirmative of this of detection are always available may act as a deterrent
proposition; the trial court held the negative. from lax observance of the law and of the rules of
conservative and safe operation. Whatever purpose there
The Revised Motor Vehicle Law (Act No. 3992, as may be in these statutes, it is subordinate at the last to the
amended) provides that no vehicle may be used or primary purpose of rendering it certain that the violator of
operated upon any public highway unless the same is the law or of the rules of safety shall not escape because of
properly registered. It has been stated that the system of lack of means to discover him." The purpose of the statute
licensing and the requirement that each machine must is thwarted, and the displayed number becomes a "snare
carry a registration number, conspicuously displayed, is and delusion," if courts will entertain such defenses as that
one of the precautions taken to reduce the danger of injury put forward by appellee in this case. No responsible
83 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
person or corporation could be held liable for the most In synthesis, we hold that the registered owner, the
outrageous acts of negligence, if they should be allowed to defendant-appellant herein, is primarily responsible for
place a "middleman" between them and the public, and the damage caused to the vehicle of the plaintiff-appellee,
escape liability by the manner in which they recompense but he (defendant-appellant) has a right to be indemnified
their servants. (King vs. Brenham Automobile Co., 145 S. by the real or actual owner of the amount that he may be
W. 278,279.) required to pay as damage for the injury caused to the
plaintiff-appellant.1wphl.nt
With the above policy in mind, the question that
defendant-appellant poses is: should not be registered Bengzon, Paras, C.J., Bautista Angelo, Concepcion, Reyes, J. B.
owner be allowed at the trial to prove who the actual and L., and Felix, JJ., concur.
real owner is, and in accordance with such proof escape or Montemayor, J., concurs in the result.
evade responsibility and lay the same on the person
actually owning the vehicle? We hold with the trial court G.R. No. 125817 January 16, 2002
that the laws does not allow him to do so; the law, with its
aim and policy in mind, does not relieve him directly of ABELARDO LIM and ESMADITO
the responsibility that the law fixes and places upon him GUNNABAN, petitioners,
as an incident or consequence of registration. Were a vs.
registered owner allowed to evade responsibility by COURT OF APPEALS and DONATO H.
proving who the supposed transferee or owner is, it would GONZALES, respondents.
be easy for him, by collusion with others or otherwise, to
escape said responsibility and transfer the same to an BELLOSILLO, J.:
indefinite person, or to one who possesses no property
with which to respond financially for the damage or injury When a passenger jeepney covered by a certificate of
done. A victim of recklessness on the public highways is public convenience is sold to another who continues to
usually without means to discover or identify the person operate it under the same certificate of public convenience
actually causing the injury or damage. He has no means under the so-called kabit system, and in the course thereof
other than by a recourse to the registration in the Motor the vehicle meets an accident through the fault of another
Vehicles Office to determine who is the owner. The vehicle, may the new owner sue for damages against the
protection that the law aims to extend to him would erring vehicle? Otherwise stated, does the new owner have
become illusory were the registered owner given the any legal personality to bring the action, or is he the real
opportunity to escape liability by disproving his party in interest in the suit, despite the fact that he is not
ownership. If the policy of the law is to be enforced and the registered owner under the certificate of public
carried out, the registered owner should be allowed to convenience?
prove the contrary to the prejudice of the person injured
that is, to prove that a third person or another has become Sometime in 1982 private respondent Donato Gonzales
the owner, so that he may thereby be relieved of the purchased an Isuzu passenger jeepney from Gomercino
responsibility to the injured person.1wphl.nt Vallarta, holder of a certificate of public convenience for
the operation of public utility vehicles plying the
The above policy and application of the law may appear Monumento-Bulacan route. While private respondent
quite harsh and would seem to conflict with truth and Gonzales continued offering the jeepney for public
justice. We do not think it is so. A registered owner who transport services he did not have the registration of the
has already sold or transferred a vehicle has the recourse vehicle transferred in his name nor did he secure for
to a third-party complaint, in the same action brought himself a certificate of public convenience for its operation.
against him to recover for the damage or injury done, Thus Vallarta remained on record as its registered owner
against the vendee or transferee of the vehicle. The and operator.1wphi1.nt
inconvenience of the suit is no justification for relieving
him of liability; said inconvenience is the price he pays for On 22 July 1990, while the jeepney was running
failure to comply with the registration that the law northbound along the North Diversion Road somewhere
demands and requires. in Meycauayan, Bulacan, it collided with a ten-wheeler-
truck owned by petitioner Abelardo Lim and driven by his
84 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
co-petitioner Esmadito Gunnaban. Gunnaban owned On 1 October 1993 the trial court upheld private
responsibility for the accident, explaining that while he respondent's claim and awarded him P236,000.00 with
was traveling towards Manila the truck suddenly lost its legal interest from 22 July 1990 as compensatory damages
brakes. To avoid colliding with another vehicle, he and P30,000.00 as attorney's fees. In support of its
swerved to the left until he reached the center island. decision, the trial court ratiocinated that as vendee and
However, as the center island eventually came to an end, current owner of the passenger jeepney private
he veered farther to the left until he smashed into a respondent stood for all intents and purposes as the real
Ferroza automobile, and later, into private respondent's party in interest. Even Vallarta himself supported private
passenger jeepney driven by one Virgilio Gonzales. The respondent's assertion of interest over the jeepney for,
impact caused severe damage to both the Ferroza and the when he was called to testify, he dispossessed himself of
passenger jeepney and left one (1) passenger dead and any claim or pretension on the property. Gunnaban was
many others wounded. found by the trial court to have caused the accident since
he panicked in the face of an emergency which was rather
Petitioner Lim shouldered the costs for hospitalization of palpable from his act of directing his vehicle to a perilous
the wounded, compensated the heirs of the deceased streak down the fast lane of the superhighway then across
passenger, and had the Ferroza restored to good condition. the island and ultimately to the opposite lane where it
He also negotiated with private respondent and offered to collided with the jeepney.
have the passenger jeepney repaired at his shop. Private
respondent however did not accept the offer so Lim On the other hand, petitioner Lim's liability for
offered him P20,000.00, the assessment of the damage as Gunnaban's negligence was premised on his want of
estimated by his chief mechanic. Again, petitioner Lim's diligence in supervising his employees. It was admitted
proposition was rejected; instead, private respondent during trial that Gunnaban doubled as mechanic of the ill-
demanded a brand-new jeep or the amount of P236,000.00. fated truck despite the fact that he was neither tutored nor
Lim increased his bid to P40,000.00 but private respondent trained to handle such task.6
was unyielding. Under the circumstances, negotiations
had to be abandoned; hence, the filing of the complaint for Forthwith, petitioners appealed to the Court of Appeals
damages by private respondent against petitioners. which, on 17 July 1996, affirmed the decision of the trial
court. In upholding the decision of the court a quo the
In his answer Lim denied liability by contending that he appeals court concluded that while an operator under
exercised due diligence in the selection and supervision of the kabit system could not sue without joining the
his employees. He further asserted that as the jeepney was registered owner of the vehicle as his principal, equity
registered in Vallartas name, it was Vallarta and not demanded that the present case be made an
private respondent who was the real party in interest.1 For exception.7 Hence this petition.
his part, petitioner Gunnaban averred that the accident
was a fortuitous event which was beyond his control.2 It is petitioners' contention that the Court of Appeals erred
in sustaining the decision of the trial court despite their
Meanwhile, the damaged passenger jeepney was left by opposition to the well-established doctrine that an
the roadside to corrode and decay. Private respondent operator of a vehicle continues to be its operator as long as
explained that although he wanted to take his jeepney he remains the operator of record. According to
home he had no capability, financial or otherwise, to tow petitioners, to recognize an operator under
the damaged vehicle. 3
the kabit system as the real party in interest and to
countenance his claim for damages is utterly subversive of
The main point of contention between the parties related public policy. Petitioners further contend that inasmuch as
to the amount of damages due private respondent. Private the passenger jeepney was purchased by private
respondent Gonzales averred that per estimate made by respondent for only P30,000.00, an award of P236,000.00 is
an automobile repair shop he would have to inconceivably large and would amount to unjust
spend P236,000.00 to restore his jeepney to its original enrichment.8
condition.4 On the other hand, petitioners insisted that
they could have the vehicle repaired for P20,000.00.5 Petitioners' attempt to illustrate that an affirmance of the
appealed decision could be supportive of the
85 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
pernicious kabit system does not persuade. Their labored damages. Second, the case arose from the negligence of
efforts to demonstrate how the questioned rulings of the another vehicle in using the public road to whom no
courts a quo are diametrically opposed to the policy of the representation, or misrepresentation, as regards the
law requiring operators of public utility vehicles to secure ownership and operation of the passenger jeepney was
a certificate of public convenience for their operation is made and to whom no such representation, or
quite unavailing. misrepresentation, was necessary. Thus it cannot be said
that private respondent Gonzales and the registered
The kabit system is an arrangement whereby a person who owner of the jeepney were in estoppel for leading the
has been granted a certificate of public convenience allows public to believe that the jeepney belonged to the
other persons who own motor vehicles to operate them registered owner. Third, the riding public was not bothered
under his license, sometimes for a fee or percentage of the nor inconvenienced at the very least by the illegal
earnings.9 Although the parties to such an agreement are arrangement. On the contrary, it was private respondent
not outrightly penalized by law, the kabit system is himself who had been wronged and was seeking
invariably recognized as being contrary to public policy compensation for the damage done to him. Certainly, it
and therefore void and inexistent under Art. 1409 of the would be the height of inequity to deny him his right.
Civil Code.
In light of the foregoing, it is evident that private
In the early case of Dizon v. Octavio the Court explained
10
respondent has the right to proceed against petitioners for
that one of the primary factors considered in the granting the damage caused on his passenger jeepney as well as on
of a certificate of public convenience for the business of his business. Any effort then to frustrate his claim of
public transportation is the financial capacity of the holder damages by the ingenuity with which petitioners framed
of the license, so that liabilities arising from accidents may the issue should be discouraged, if not repelled.
be duly compensated. The kabit system renders illusory
such purpose and, worse, may still be availed of by the In awarding damages for tortuous injury, it becomes the
grantee to escape civil liability caused by a negligent use sole design of the courts to provide for adequate
of a vehicle owned by another and operated under his compensation by putting the plaintiff in the same financial
license. If a registered owner is allowed to escape liability position he was in prior to the tort. It is a fundamental
by proving who the supposed owner of the vehicle is, it principle in the law on damages that a defendant cannot
would be easy for him to transfer the subject vehicle to be held liable in damages for more than the actual loss
another who possesses no property with which to respond which he has inflicted and that a plaintiff is entitled to no
financially for the damage done. Thus, for the safety of more than the just and adequate compensation for the
passengers and the public who may have been wronged injury suffered. His recovery is, in the absence of
and deceived through the baneful kabit system, the circumstances giving rise to an allowance of punitive
registered owner of the vehicle is not allowed to prove that damages, limited to a fair compensation for the harm
another person has become the owner so that he may be done. The law will not put him in a position better than
thereby relieved of responsibility. Subsequent cases affirm where he should be in had not the wrong happened.12
such basic doctrine.11
In the present case, petitioners insist that as the passenger
It would seem then that the thrust of the law in enjoining jeepney was purchased in 1982 for only P30,000.00 to
the kabit system is not so much as to penalize the parties award damages considerably greater than this amount
but to identify the person upon whom responsibility may would be improper and unjustified. Petitioners are at best
be fixed in case of an accident with the end view of reminded that indemnification for damages comprehends
protecting the riding public. The policy therefore loses its not only the value of the loss suffered but also that of the
force if the public at large is not deceived, much less profits which the obligee failed to obtain. In other words,
involved. indemnification for damages is not limited to damnum
emergens or actual loss but extends to lucrum cessans or the
In the present case it is at once apparent that the evil amount of profit lost.13
sought to be prevented in enjoining the kabit system does
not exist. First, neither of the parties to the Had private respondent's jeepney not met an accident it
pernicious kabit system is being held liable for could reasonably be expected that it would have continued
86 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
earning from the business in which it was engaged. However we sadly note that in the present case petitioners
Private respondent avers that he derives an average failed to offer in evidence the estimated amount of the
income of P300.00 per day from his passenger jeepney and damage caused by private respondent's unconcern
this earning was included in the award of damages made towards the damaged vehicle. It is the burden of
by the trial court and upheld by the appeals court. The petitioners to show satisfactorily not only that the injured
award therefore of P236,000.00 as compensatory damages party could have mitigated his damages but also the
is not beyond reason nor speculative as it is based on a amount thereof; failing in this regard, the amount of
reasonable estimate of the total damage suffered by damages awarded cannot be proportionately reduced.
private respondent, i.e. damage wrought upon his jeepney
and the income lost from his transportation business. WHEREFORE, the questioned Decision awarding private
Petitioners for their part did not offer any substantive respondent Donato Gonzales P236,000.00 with legal
evidence to refute the estimate made by the courts a quo. interest from 22 July 1990 as compensatory damages
and P30,000.00 as attorney's fees is MODIFIED. Interest at
However, we are constrained to depart from the the rate of six percent (6%) per annum shall be computed
conclusion of the lower courts that upon the award of from the time the judgment of the lower court is made
compensatory damages legal interest should be imposed until the finality of this Decision. If the adjudged principal
beginning 22 July 1990, i.e. the date of the accident. Upon and interest remain unpaid thereafter, the interest shall be
the provisions of Art. 2213 of the Civil Code, interest twelve percent (12%) per annum computed from the time
"cannot be recovered upon unliquidated claims or judgment becomes final and executory until it is fully
damages, except when the demand can be established satisfied.1wphi1.nt
with reasonable certainty." It is axiomatic that if the suit
were for damages, unliquidated and not known until Costs against petitioners.
definitely ascertained, assessed and determined by the
courts after proof, interest at the rate of six percent (6%) SO ORDERED
per annum should be from the date the judgment of the
court is made (at which time the quantification of damages G.R. No. L-64693 April 27, 1984
may be deemed to be reasonably ascertained). 14

LITA ENTERPRISES, INC., petitioner,


In this case, the matter was not a liquidated obligation as vs.
the assessment of the damage on the vehicle was heavily SECOND CIVIL CASES DIVISION, INTERMEDIATE
debated upon by the parties with private respondent's APPELLATE COURT, NICASIO M. OCAMPO and
demand for P236,000.00 being refuted by petitioners who FRANCISCA P. GARCIA, respondents.
argue that they could have the vehicle repaired easily
for P20,000.00. In fine, the amount due private respondent Manuel A. Concordia for petitioner.
was not a liquidated account that was already demandable
and payable. Nicasio Ocampo for himself and on behalf of his correspondents.

One last word. We have observed that private respondent


left his passenger jeepney by the roadside at the mercy of
the elements. Article 2203 of the Civil Code exhorts parties ESCOLIN, J.:+.wph!1
suffering from loss or injury to exercise the diligence of a
good father of a family to minimize the damages resulting "Ex pacto illicito non oritur actio" [No action arises out of an
from the act or omission in question. One who is injured illicit bargain] is the tune-honored maxim that must be
then by the wrongful or negligent act of another should applied to the parties in the case at bar. Having entered
exercise reasonable care and diligence to minimize the into an illegal contract, neither can seek relief from the
resulting damage. Anyway, he can recover from the courts, and each must bear the consequences of his acts.
wrongdoer money lost in reasonable efforts to preserve
the property injured and for injuries incurred in The factual background of this case is undisputed.
attempting to prevent damage to it. 15
87 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Sometime in 1966, the spouses Nicasio M. Ocampo and WHEREFORE, the complaint is hereby dismissed as far as
Francisca Garcia, herein private respondents, purchased in defendants Rosita Sebastian Vda. de Galvez, Visayan
installment from the Delta Motor Sales Corporation five Surety & Insurance Company and the Sheriff of Manila are
(5) Toyota Corona Standard cars to be used as taxicabs. concerned.
Since they had no franchise to operate taxicabs, they
contracted with petitioner Lita Enterprises, Inc., through Defendant Lita Enterprises, Inc., is ordered to transfer the
its representative, Manuel Concordia, for the use of the registration certificate of the three Toyota cars not levied
latter's certificate of public convenience in consideration of upon with Engine Nos. 2R-230026, 2R-688740 and 2R-
an initial payment of P1,000.00 and a monthly rental of 585884 [Exhs. A, B, C and D] by executing a deed of
P200.00 per taxicab unit. To effectuate Id agreement, the conveyance in favor of the plaintiff.
aforesaid cars were registered in the name of petitioner
Lita Enterprises, Inc, Possession, however, remained with Plaintiff is, however, ordered to pay Lita Enterprises, Inc.,
tile spouses Ocampo who operated and maintained the the rentals in arrears for the certificate of convenience from
same under the name Acme Taxi, petitioner's trade name. March 1973 up to May 1973 at the rate of P200 a month per
unit for the three cars. (Annex A, Record on Appeal, p.
About a year later, on March 18, 1967, one of said taxicabs 102-103, Rollo)
driven by their employee, Emeterio Martin, collided with a
motorcycle whose driver, one Florante Galvez, died from Petitioner Lita Enterprises, Inc. moved for reconsideration
the head injuries sustained therefrom. A criminal case was of the decision, but the same was denied by the court a
eventually filed against the driver Emeterio Martin, while quo on October 27, 1975. (p. 121, Ibid.)
a civil case for damages was instituted by Rosita Sebastian
Vda. de Galvez, heir of the victim, against Lita Enterprises, On appeal by petitioner, docketed as CA-G.R. No. 59157-R,
Inc., as registered owner of the taxicab in the latter case, the Intermediate Appellate Court modified the decision by
Civil Case No. 72067 of the Court of First Instance of including as part of its dispositive portion another
Manila, petitioner Lita Enterprises, Inc. was adjudged paragraph, to wit: t.hqw
liable for damages in the amount of P25,000.00 and
P7,000.00 for attorney's fees. In the event the condition of the three Toyota rears will no
longer serve the purpose of the deed of conveyance
This decision having become final, a writ of execution was because of their deterioration, or because they are no
issued. One of the vehicles of respondent spouses with longer serviceable, or because they are no longer available,
Engine No. 2R-914472 was levied upon and sold at public then Lita Enterprises, Inc. is ordered to pay the plaintiffs
auction for 12,150.00 to one Sonnie Cortez, the highest their fair market value as of July 22, 1975. (Annex "D", p.
bidder. Another car with Engine No. 2R-915036 was 167, Rollo.)
likewise levied upon and sold at public auction for
P8,000.00 to a certain Mr. Lopez. Its first and second motions for reconsideration having
been denied, petitioner came to Us, praying that: t.
Thereafter, in March 1973, respondent Nicasio Ocampo hqw
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. Hence, he and his wife filed a complaint against ... after legal proceedings, decision be rendered or
Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, resolution be issued, reversing, annulling or amending the
Visayan Surety & Insurance Co. and the Sheriff of Manila decision of public respondent so that:
for reconveyance of motor vehicles with damages,
docketed as Civil Case No. 90988 of the Court of First the additional paragraph added by the public respondent
Instance of Manila. Trial on the merits ensued and on July to the DECISION of the lower court (CFI) be deleted;
22, 1975, the said court rendered a decision, the dispositive
portion of which reads: t.hqw that private respondents be declared liable to petitioner
for whatever amount the latter has paid or was declared
liable (in Civil Case No. 72067) of the Court of First
88 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Instance of Manila to Rosita Sebastian Vda. de Galvez, as doctrine is stated thus: "The proposition is universal that
heir of the victim Florante Galvez, who died as a result ot no action arises, in equity or at law, from an illegal
the gross negligence of private respondents' driver while contract; no suit can be maintained for its specific
driving one private respondents' taxicabs. (p. 39, Rollo.) performance, or to recover the property agreed to be sold
or delivered, or damages for its property agreed to be sold
Unquestionably, the parties herein operated under an or delivered, or damages for its violation. The rule has
arrangement, comonly known as the "kabit system", sometimes been laid down as though it was equally
whereby a person who has been granted a certificate of universal, that where the parties are in pari delicto, no
convenience allows another person who owns motors affirmative relief of any kind will be given to one against
vehicles to operate under such franchise for a fee. A the other." 3 Although certain exceptions to the rule are
certificate of public convenience is a special privilege provided by law, We see no cogent reason why the full
conferred by the government . Abuse of this privilege by force of the rule should not be applied in the instant case.
the grantees thereof cannot be countenanced. The "kabit
system" has been Identified as one of the root causes of the WHEREFORE, all proceedings had in Civil Case No. 90988
prevalence of graft and corruption in the government entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs,
transportation offices. In the words of Chief Justice versus Lita Enterprises, Inc., et al., Defendants" of the Court
Makalintal, 1 "this is a pernicious system that cannot be of First Instance of Manila and CA-G.R. No. 59157-R
too severely condemned. It constitutes an imposition upon entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-
the goo faith of the government. Appellees, versus Lita Enterprises, Inc., Defendant-
Appellant," of the Intermediate Appellate Court, as well as
Although not outrightly penalized as a criminal offense, the decisions rendered therein are hereby annuleled and
the "kabit system" is invariably recognized as being set aside. No costs.
contrary to public policy and, therefore, void and
inexistent under Article 1409 of the Civil Code, It is a SO ORDERED.1wph1.t
fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave them G.R. No. L-65510 March 9, 1987
both where it finds them. Upon this premise, it was
flagrant error on the part of both the trial and appellate TEJA MARKETING AND/OR ANGEL
courts to have accorded the parties relief from their JAUCIAN, petitioner,
predicament. Article 1412 of the Civil Code denies them vs.
such aid. It provides:t.hqw HONORABLE INTERMEDIATE APPELLATE
COURT * AND PEDRO N. NALE, respondents.
ART. 1412. if the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense, the Cirilo A. Diaz, Jr. for petitioner.
following rules shall be observed;
Henry V. Briguera for private respondent.
when the fault, is on the part of both contracting parties,
neither may recover what he has given by virtue of the
contract, or demand the performance of the other's
undertaking. PARAS, J.:

The defect of inexistence of a contract is permanent and "'Ex pacto illicito' non oritur actio" (No action arises out of
incurable, and cannot be cured by ratification or by illicit bargain) is the time-honored maxim that must be
prescription. As this Court said in Eugenio v. Perdido, "the
2 applied to the parties in the case at bar. Having entered
mere lapse of time cannot give efficacy to contracts that are into an illegal contract, neither can seek relief from the
null void." courts, and each must bear the consequences of his acts."
(Lita Enterprises vs. IAC, 129 SCRA 81.)
The principle of in pari delicto is well known not only in
this jurisdiction but also in the United States where
common law prevails. Under American jurisdiction, the
89 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
The factual background of this case is undisputed. The that the defendant was hiding the motorcycle from him.
same is narrated by the respondent court in its now Lastly, the plaintiff explained also that though the
assailed decision, as follows: ownership of the motorcycle was already transferred to
the defendant the vehicle was still mortgaged with the
On May 9, 1975, the defendant bought from the plaintiff a consent of the defendant to the Rural Bank of Camaligan
motorcycle with complete accessories and a sidecar in the for the reason that all motorcycle purchased from the
total consideration of P8,000.00 as shown by Invoice No. plaintiff on credit was rediscounted with the bank.
144 (Exh. "A"). Out of the total purchase price the
defendant gave a downpayment of P1,700.00 with a On his part the defendant did not dispute the sale and the
promise that he would pay plaintiff the balance within outstanding balance of P1,700. 00 still payable to the
sixty days. The defendant, however, failed to comply with plaintiff. The defendant was persuaded to buy from the
his promise and so upon his own request, the period of plaintiff the motorcycle with the side car because of the
paying the balance was extended to one year in monthly condition that the plaintiff would be the one to register
installments until January 1976 when he stopped paying every year the motorcycle with the Land Transportation
anymore. The plaintiff made demands but just the same Commission. In 1976, however, the plaintfff failed to
the defendant failed to comply with the same thus forcing register both the chattel mortgage and the motorcycle with
the plaintiff to consult a lawyer and file this action for his the LTC notwithstanding the fact that the defendant gave
damage in the amount of P546.21 for attorney's fees and him P90.00 for mortgage fee and registration fee and had
P100.00 for expenses of litigation. The plaintiff also claims the motorcycle insured with La Perla Compana de Seguros
that as of February 20, 1978, the total account of the (Exhibit "6") as shown also by the Certificate of cover
defendant was already P2,731.06 as shown in a statement (Exhibit "3"). Because of this failure of the plaintiff to
of account (Exhibit. "B"). This amount includes not only comply with his obligation to register the motorcycle the
the balance of P1,700.00 but an additional 12% interest per defendant suffered damages when he failed to claim any
annum on the said balance from January 26, 1976 to insurance indemnity which would amount to no less than
February 27, 1978; a 2% service charge; and P 546.21 P15,000.00 for the more than two times that the motorcycle
representing attorney's fees. figured in accidents aside from the loss of the daily
income of P15.00 as boundary fee beginning October 1976
In this particular transaction a chattel mortgage (Exhibit 1) when the motorcycle was impounded by the LTC for not
was constituted as a security for the payment of the being registered.
balance of the purchase price. It has been the practice of
financing firms that whenever there is a balance of the The defendant disputed the claim of the plaintiff that he
purchase price the registration papers of the motor vehicle was hiding from the plaintiff the motorcycle resulting in
subject of the sale are not given to the buyer. The records its not being registered. The truth being that the
of the LTC show that the motorcycle sold to the defendant motorcycle was being used for transporting passengers
was first mortgaged to the Teja Marketing by Angel and it kept on travelling from one place to another. The
Jaucian though the Teja Marketing and Angel Jaucian are motor vehicle sold to him was mortgaged by the plaintiff
one and the same, because it was made to appear that way with the Rural Bank of Camaligan without his consent and
only as the defendant had no franchise of his own and he knowledge and the defendant was not even given a copy
attached the unit to the plaintiff's MCH Line. The of the mortgage deed. The defendant claims that it is not
agreement also of the parties here was for the plaintiff to true that the motorcycle was mortgaged because of re-
undertake the yearly registration of the motorcycle with discounting for rediscounting is only true with Rural
the Land Transportation Commission. Pursuant to this Banks and the Central Bank. The defendant puts the
agreement the defendant on February 22, 1976 gave the blame on the plaintiff for not registering the motorcycle
plaintiff P90.00, the P8.00 would be for the mortgage fee with the LTC and for not giving him the registration
and the P82.00 for the registration fee of the motorcycle. papers inspite of demands made. Finally, the evidence of
The plaintiff, however failed to register the motorcycle on the defendant shows that because of the filing of this case
that year on the ground that the defendant failed to he was forced to retain the services of a lawyer for a fee on
comply with some requirements such as the payment of not less than P1,000.00.
the insurance premiums and the bringing of the
motorcycle to the LTC for stenciling, the plaintiff saying xxx xxx xxx
90 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
... it also appears and the Court so finds that defendant However, as the purchase of the motorcycle for operation
purchased the motorcycle in question, particularly for the as a trimobile under the franchise of the private
purpose of engaging and using the same in the respondent Jaucian, pursuant to what is commonly known
transportation business and for this purpose said trimobile as the "kabit system", without the prior approval of the
unit was attached to the plaintiffs transportation line who had Board of Transportation (formerly the Public Service
the franchise, so much so that in the registration certificate, the Commission) was an illegal transaction involving the
plaintiff appears to be the owner of the unit. Furthermore, it fictitious registration of the motor vehicle in the name of
appears to have been agreed, further between the plaintiff the private respondent so that he may traffic with the
and the defendant, that plaintiff would undertake the privileges of his franchise, or certificate of public
yearly registration of the unit in question with the LTC. convenience, to operate a tricycle service, the parties
Thus, for the registration of the unit for the year 1976, per being in pari delicto, neither of them may bring an action
agreement, the defendant gave to the plaintiff the amount against the other to enforce their illegal contract [Art. 1412
of P82.00 for its registration, as well as the insurance (a), Civil Code].
coverage of the unit.
xxx xxx xxx
Eventually, petitioner Teja Marketing and/or Angel
Jaucian filed an action for "Sum of Money with Damages" WHEREFORE, the decision under review is hereby set
against private respondent Pedro N. Nale in the City Court aside. The complaint of respondent Teja Marketing and/or
of Naga City. The City Court rendered judgment in favor Angel Jaucian, as well as the counterclaim of petitioner
of petitioner, the dispositive portion of which reads: Pedro Nale in Civil Case No. 1153 of the Court of First
Instance of Camarines Sur (formerly Civil Case No. 5856 of
WHEREFORE, decision is hereby rendered dismissing the the City Court of Naga City) are dismissed. No
counterclaim and ordering the defendant to pay plaintiff pronouncement as to costs.
the sum of P1,700.00 representing the unpaid balance of
the purchase price with legal rate of interest from the date SO ORDERED.
of the filing of the complaint until the same is fully paid; to
pay plaintiff the sum of P546.21 as attorney's fees; to pay The decision is now before Us on a petition for review,
plaintiff the sum of P200.00 as expenses of litigation; and petitioner Teja Marketing and/or Angel Jaucian
to pay the costs. presenting a lone assignment of error whether or not
respondent court erred in applying the doctrine of "pari
SO ORDERED. delicto."

On appeal to the Court of First Instance of Camarines Sur, We find the petition devoid of merit.
the decision was affirmed in toto. Private respondent filed
a petition for review with the Intermediate Appellate Unquestionably, the parties herein operated under an
Court and on July 18, 1983 the said Court promulgated its arrangement, commonly known as the "kabit system"
decision, the pertinent portion of which reads 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
91 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
principle that the court will not aid either party to enforce [Respondent] Priscilla R. Domingo is the registered owner
an illegal contract, but will leave both where it finds then. of a silver Mitsubishi Lancer Car model 1980 bearing plate
Upon this premise it would be error to accord the parties No. NDW 781 91 with [co-respondent] Leandro Luis R.
relief from their predicament. Article 1412 of the Civil Domingo as authorized driver. [Petitioner] Nostradamus
Code denies them such aid. It provides: Villanueva was then the registered "owner" of a green
Mitsubishi Lancer bearing Plate No. PHK 201 91.
Art. 1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense, the On 22 October 1991 at about 9:45 in the evening, following
following rules shall be observed: a green traffic light, [respondent] Priscilla Domingos
silver Lancer car with Plate No. NDW 781 91 then driven
When the fault is on the part of both contracting parties, by [co-respondent] Leandro Luis R. Domingo was cruising
neither may recover that he has given by virtue of the along the middle lane of South Superhighway at moderate
contract, or demand, the performance of the other's speed from north to south. Suddenly, a green Mitsubishi
undertaking. Lancer with plate No. PHK 201 91 driven by Renato Dela
Cruz Ocfemia darted from Vito Cruz Street towards the
The defect of in existence of a contract is permanent and South Superhighway directly into the path of NDW 781
cannot be cured by ratification or by prescription. The 91 thereby hitting and bumping its left front portion. As a
mere lapse of time cannot give efficacy to contracts that are result of the impact, NDW 781 91 hit two (2) parked
null and void. vehicles at the roadside, the second hitting another parked
car in front of it.
WHEREFORE, the petition is hereby dismissed for lack of
merit. The assailed decision of the Intermediate Appellate Per Traffic Accident Report prepared by Traffic Investigator
Court (now the Court of Appeals) is AFFIRMED. No costs. Pfc. Patrocinio N. Acido, Renato dela Cruz Ocfemia was
driving with expired license and positive for alcoholic
SO ORDERED. breath. Hence, Manila Assistant City Prosecutor Oscar A.
Pascua recommended the filing of information for reckless
G.R. No. 144274 September 20, 2004 imprudence resulting to (sic) damage to property and
physical injuries.
NOSTRADAMUS VILLANUEVA, petitioner,
vs. The original complaint was amended twice: first,
PRISCILLA R. DOMINGO and LEANDRO LUIS R. impleading Auto Palace Car Exchange as commercial
DOMINGO, respondents. agent and/or buyer-seller and second, impleading Albert
Jaucian as principal defendant doing business under the
DECISION name and style of Auto Palace Car Exchange.

CORONA, J.: Except for Ocfemia, all the defendants filed separate
answers to the complaint. [Petitioner] Nostradamus
This is a petition to review the decision1 of the Court of Villanueva claimed that he was no longer the owner of the
Appeals in CA-G.R. CV No. 52203 affirming in turn the car at the time of the mishap because it was swapped with
decision of the trial court finding petitioner liable to a Pajero owned by Albert Jaucian/Auto Palace Car
respondent for damages. The dispositive portion read: Exchange. For her part, Linda Gonzales declared that her
presence at the scene of the accident was upon the request
WHEREFORE, the appealed decision is hereby of the actual owner of the Mitsubishi Lancer (PHK 201 91)
AFFIRMED except the award of attorneys fees including [Albert Jaucian] for whom she had been working as
appearance fees which is DELETED. agent/seller. On the other hand, Auto Palace Car
Exchange represented by Albert Jaucian claimed that he
SO ORDERED.2 was not the registered owner of the car. Moreover, it could
not be held subsidiary liable as employer of Ocfemia
The facts of the case, as summarized by the Court of because the latter was off-duty as utility employee at the
Appeals, are as follows:
92 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
time of the incident. Neither was Ocfemia performing a required to prove who the actual owner is. How would the
duty related to his employment. 3
public or third persons know against whom to enforce
their rights in case of subsequent transfers of the vehicles?
After trial, the trial court found petitioner liable and We do not imply by his doctrine, however, that the
ordered him to pay respondent actual, moral and registered owner may not recover whatever amount he
exemplary damages plus appearance and attorneys fees: had paid by virtue of his liability to third persons from the
person to whom he had actually sold, assigned or
WHEREFORE, judgment is hereby rendered for the conveyed the vehicle.
plaintiffs, ordering Nostradamus Villanueva to pay the
amount of P99,580 as actual damages, P25,000.00 as moral Under the same principle the registered owner of any vehicle,
damages, P25,000.00 as exemplary damages and attorneys even if not used for a public service, should primarily be
fees in the amount of P10,000.00 plus appearance fees responsible to the public or to third persons for injuries caused
of P500.00 per hearing with legal interest counted from the the latter while the vehicle is being driven on the highways or
date of judgment. In conformity with the law on equity streets. The members of the Court are in agreement that the
and in accordance with the ruling in First Malayan defendant-appellant should be held liable to plaintiff-appellee for
Lending and Finance Corporation vs. Court of Appeals the injuries occasioned to the latter because of the negligence of
(supra), Albert Jaucian is hereby ordered to indemnify the driver, even if the defendant-appellant was no longer the
Nostradamus Villanueva for whatever amount the latter is owner of the vehicle at the time of the damage because he had
hereby ordered to pay under the judgment. previously sold it to another. What is the legal basis for his
(defendant-appellants) liability?
SO ORDERED.4
There is a presumption that the owner of the guilty vehicle
The CA upheld the trial courts decision but deleted the is the defendant-appellant as he is the registered owner in
award for appearance and attorneys fees because the the Motor Vehicles Office. Should he not be allowed to
justification for the grant was not stated in the body of the prove the truth, that he had sold it to another and thus
decision. Thus, this petition for review which raises a shift the responsibility for the injury to the real and actual
singular issue: owner? The defendant holds the affirmative of this
proposition; the trial court held the negative.
MAY THE REGISTERED OWNER OF A MOTOR
VEHICLE BE HELD LIABLE FOR DAMAGES ARISING The Revised Motor Vehicle Law (Act No. 3992, as
FROM A VEHICULAR ACCIDENT INVOLVING HIS amended) provides that no vehicle may be used or
MOTOR VEHICLE WHILE BEING OPERATED BY THE operated upon any public highway unless the same is
EMPLOYEE OF ITS BUYER WITHOUT THE LATTERS property registered. It has been stated that the system of
CONSENT AND KNOWLEDGE? 5
licensing and the requirement that each machine must
carry a registration number, conspicuously displayed, is
Yes. one of the precautions taken to reduce the danger of injury
to pedestrians and other travelers from the careless
We have consistently ruled that the registered owner management of automobiles. And to furnish a means of
of any vehicle is directly and primarily responsible to the ascertaining the identity of persons violating the laws and
public and third persons while it is being operated. The
6
ordinances, regulating the speed and operation of
rationale behind such doctrine was explained way back in machines upon the highways (2 R.C.L. 1176). Not only are
1957 in Erezo vs. Jepte7: vehicles to be registered and that no motor vehicles are to
be used or operated without being properly registered for
The principle upon which this doctrine is based is that in the current year, but that dealers in motor vehicles shall
dealing with vehicles registered under the Public Service furnish thee Motor Vehicles Office a report showing the
Law, the public has the right to assume or presume that name and address of each purchaser of motor vehicle
the registered owner is the actual owner thereof, for it during the previous month and the manufacturers serial
would be difficult for the public to enforce the actions that number and motor number. (Section 5(c), Act No. 3992, as
they may have for injuries caused to them by the vehicles amended.)
being negligently operated if the public should be
93 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Registration is required not to make said registration the aim and policy in mind, does not relieve him directly of
operative act by which ownership in vehicles is the responsibility that the law fixes and places upon him
transferred, as in land registration cases, because the as an incident or consequence of registration. Were a
administrative proceeding of registration does not bear registered owner allowed to evade responsibility by
any essential relation to the contract of sale between the proving who the supposed transferee or owner is, it would
parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), be easy for him, by collusion with others or otherwise, to
but to permit the use and operation of the vehicle upon escape said responsibility and transfer the same to an
any public highway (section 5 [a], Act No. 3992, as indefinite person, or to one who possesses no property
amended). The main aim of motor vehicle registration is to with which to respond financially for the damage or injury
identify the owner so that if any accident happens, or that done. A victim of recklessness on the public highways is
any damage or injury is caused by the vehicle on the usually without means to discover or identify the person
public highways, responsibility therefore can be fixed on a actually causing the injury or damage. He has no means
definite individual, the registered owner. Instances are other than by a recourse to the registration in the Motor
numerous where vehicles running on public highways Vehicles Office to determine who is the owner. The
caused accidents or injuries to pedestrians or other protection that the law aims to extend to him would
vehicles without positive identification of the owner or
drivers, or with very scant means of identification. It is to become illusory were the registered owner given the
forestall these circumstances, so inconvenient or opportunity to escape liability by disproving his
prejudicial to the public, that the motor vehicle ownership. If the policy of the law is to be enforced and
registration is primarily ordained, in the interest of the carried out, the registered owner should not be allowed to
determination of persons responsible for damages or prove the contrary to the prejudice of the person injured,
injuries caused on public highways: that is, to prove that a third person or another has become
the owner, so that he may thereby be relieved of the
One of the principal purposes of motor vehicles legislation responsibility to the injured person.
is identification of the vehicle and of the operator, in case
of accident; and another is that the knowledge that means The above policy and application of the law may appear
of detection are always available may act as a deterrent quite harsh and would seem to conflict with truth and
from lax observance of the law and of the rules of justice. We do not think it is so. A registered owner who
conservative and safe operation. Whatever purpose there has already sold or transferred a vehicle has the recourse
may be in these statutes, it is subordinate at the last to the to a third-party complaint, in the same action brought
primary purpose of rendering it certain that the violator of against him to recover for the damage or injury done,
the law or of the rules of safety shall not escape because of against the vendee or transferee of the vehicle. The
lack of means to discover him. The purpose of the statute inconvenience of the suit is no justification for relieving
is thwarted, and the displayed number becomes a "share him of liability; said inconvenience is the price he pays for
and delusion," if courts would entertain such defenses as failure to comply with the registration that the law
that put forward by appellee in this case. No responsible demands and requires.
person or corporation could be held liable for the most
outrageous acts of negligence, if they should be allowed to In synthesis, we hold that the registered owner, the
pace a "middleman" between them and the public, and defendant-appellant herein, is primarily responsible for
escape liability by the manner in which they recompense the damage caused to the vehicle of the plaintiff-appellee,
servants. (King vs. Brenham Automobile Co., Inc. 145 S.W. but he (defendant-appellant) has a right to be indemnified
278, 279.) by the real or actual owner of the amount that he may be
required to pay as damage for the injury caused to the
With the above policy in mind, the question that plaintiff-appellant.8
defendant-appellant poses is: should not the registered
owner be allowed at the trial to prove who the actual and Petitioner insists that he is not liable for damages since the
real owner is, and in accordance with such proof escape or driver of the vehicle at the time of the accident was not an
evade responsibility by and lay the same on the person authorized driver of the new (actual) owner of the vehicle.
actually owning the vehicle? We hold with the trial court He claims that the ruling in First Malayan Leasing and
that the law does not allow him to do so; the law, with its Finance Corporation vs. CA9 implies that to hold the
94 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
registered owner liable for damages, the driver of the case, the father of the driver is the actual owner and that
vehicle must have been authorized, allowed and permitted he is the actual employer, following the well-settled
by its actual owner to operate and drive it. Thus, if the principle that the operator of record continues to be the
vehicle is driven without the knowledge and consent of operator of the vehicle in contemplation of law, as regards
the actual owner, then the registered owner cannot be held the public and third person, and as such is responsible for
liable for damages. the consequences incident to its operation, we must hold
and consider such owner-operator of record as the
He further argues that this was the underlying theory employer, in contemplation of law, of the driver. And, to
behind Duavit vs. CA wherein the court absolved the
10
give effect to this policy of law as enunciated in the above
registered owner from liability after finding that the cited decisions of this Court, we must now extend the
vehicle was virtually stolen from the owners garage by a same and consider the actual operator and employer as the
person who was neither authorized nor employed by the agent of the operator of record.11
owner. Petitioner concludes that the ruling in Duavit and
not the one in First Malayan should be applicable to him. Contrary to petitioners position, the First Malayan ruling
is applicable to him since the case involves the same set of
Petitioners argument lacks merit. Whether the driver is facts the registered owner had previously sold the
authorized or not by the actual owner is irrelevant to vehicle to someone else and was being driven by an
determining the liability of the registered owner who the employee of the new (actual) owner. Duavit is inapplicable
law holds primarily and directly responsible for any since the vehicle there was not transferred to another; the
accident, injury or death caused by the operation of the registered and the actual owner was one and the same
vehicle in the streets and highways. To require the driver person. Besides, in Duavit, the defense of the registered
of the vehicle to be authorized by the actual owner before owner, Gilberto Duavit, was that the vehicle was
the registered owner can be held accountable is to defeat practically stolen from his garage by Oscar Sabiano, as
the very purpose why motor vehicle legislations are affirmed by the latter:
enacted in the first place.
Defendant Sabiano, in his testimony, categorically
Furthermore, there is nothing in First Malayan which even admitted that he took the jeep from the garage of
remotely suggests that the driver must be authorized defendant Duavit without the consent and authority of the
before the registered owner can be held accountable. latter. He testified further that Duavit even filed charges
In First Malayan, the registered owner, First Malayan against him for the theft of the jeep but which Duavit did
Corporation, was held liable for damages arising from the not push through as his (Sabianos) parents apologized to
accident even if the vehicle involved was already owned Duavit on his behalf.12
by another party:
As correctly pointed out by the CA, the Duavit ruling is
This Court has consistently ruled that regardless of who not applicable to petitioners case since the circumstance of
the actual owner is of a motor vehicle might be, the unauthorized use was not present. He in fact voluntarily
registered owner is the operator of the same with respect delivered his car to Albert Jaucian as part of the
to the public and third persons, and as such, directly and downpayment for a vehicle he purchased from Jaucian.
primarily responsible for the consequences of its Thus, he could not claim that the vehicle was stolen from
operation. In contemplation of law, the owner/operator of him since he voluntarily ceded possession thereof to
record is the employer of the driver, the actual operator and Jaucian. It was the latter, as the new (actual) owner, who
employer being considered merely as his agent (MYC- could have raised the defense of theft to prove that he was
Agro-Industrial Corporation vs. Vda. de Caldo, 132 SCRA 10, not liable for the acts of his employee Ocfemia. Thus, there
citing Vargas vs. Langcay, 6 SCRA 174; Tamayo vs. Aquino, is no reason to apply the Duavit ruling to this case.
105 Phil. 949).
The ruling in First Malayan has been reiterated in BA
We believe that it is immaterial whether or not the driver Finance Corporation vs. CA13 and more recently in Aguilar,
was actually employed by the operator of record. It is even Sr. vs. Commercial Savings Bank.14 In BA Finance, we held the
not necessary to prove who the actual owner of the vehicle registered owner liable even if, at the time of the accident,
and the employer of the driver is. Granting that, in this the vehicle was leased by another party and was driven by
95 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
the lessees employee. In Aguilar, the registered owner- This is a petition for review under Rule 45 of the Rules of
bank answered for damages for the accident even if the Court seeking the reversal of the decision1 of the Court of
vehicle was being driven by the Vice-President of the Bank Appeals, dated April 29, 2003, in CA-G.R. CV No. 60357,
which affirmed with modification the amount of damages
in his private capacity and not as an officer of the Bank, as
awarded in the November 24, 1997 decision2 of the
claimed by the Bank. We find no reason to deviate from
Regional Trial Court of Batangas City, Branch IV.
these decisions.
The undisputed facts are as follows:
The main purpose of vehicle registration is the easy
identification of the owner who can be held responsible At about 3:00 p.m. of December 19, 1986, Lorenzo Menard
for any accident, damage or injury caused by the vehicle. "Boyet" Dolor, Jr. was driving an owner-type jeepney with
Easy identification prevents inconvenience and prejudice plate no. DEB 804 owned by her mother, Margarita,
towards Anilao, Batangas. As he was traversing the road at
to a third party injured by one who is unknown or
Barangay Anilao East, Mabini, Batangas, his vehicle
unidentified. To allow a registered owner to escape
collided with a passenger jeepney bearing plate no. DEG
liability by claiming that the driver was not authorized by 648, driven by petitioner Juan Gonzales and owned by his
the new (actual) owner results in the public detriment the co-petitioner Francisco Hernandez, which was travelling
law seeks to avoid. towards Batangas City.

Finally, the issue of whether or not the driver of the vehicle Boyet Dolor and his passenger, Oscar Valmocina, died as a
during the accident was authorized is not at all relevant to result of the collision. Fred Panopio, Rene Castillo and
Joseph Sandoval, who were also on board the owner-type
determining the liability of the registered owner. This
jeep, which was totally wrecked, suffered physical injuries.
must be so if we are to comply with the rationale and
The collision also damaged the passenger jeepney of
principle behind the registration requirement under the Francisco Hernandez and caused physical injuries to its
motor vehicle law. passengers, namely, Virgie Cadavida, Fiscal Artemio Reyes
and Francisca Corona.3
WHEREFORE, the petition is hereby DENIED. The
January 26, 2000 decision of the Court of Appeals Consequently, respondents commenced an action4 for
is AFFIRMED. damages against petitioners before the Regional Trial
Court of Batangas City, alleging that driver Juan Gonzales
was guilty of negligence and lack of care and that the
SO ORDERED.
Hernandez spouses were guilty of negligence in the
selection and supervision of their employees.5
G.R. No. 160286 July 30, 2004
Petitioners countered that the proximate cause of the
SPOUSES FRANCISCO M. HERNANDEZ and death and injuries sustained by the passengers of both
ANICETA ABEL-HERNANDEZ and JUAN vehicles was the recklessness of Boyet Dolor, the driver of
GONZALES,petitioners, the owner-type jeepney, who was driving in a zigzagging
vs. manner under the influence of alcohol. Petitioners also
SPOUSES LORENZO DOLOR and MARGARITA alleged that Gonzales was not the driver-employee of the
DOLOR, FRED PANOPIO, JOSEPH SANDOVAL, RENE Hernandez spouses as the former only leased the
CASTILLO, SPOUSES FRANCISCO VALMOCINA and passenger jeepney on a daily basis. The Hernandez
VIRGINIA VALMOCINA, SPOUSES VICTOR spouses further claimed that even if an employer-
PANOPIO and MARTINA PANOPIO, and HON. employee relationship is found to exist between them, they
COURT OF APPEALS, respondents. cannot be held liable because as employers they exercised
due care in the selection and supervision of their
employee.

During the trial of the case, it was established that the


DECISION drivers of the two vehicles were duly licensed to drive and
that the road where the collision occurred was asphalted
and in fairly good condition.6 The owner-type jeep was
travelling uphill while the passenger jeepney was going
downhill. It was further established that the owner-type
YNARES-SANTIAGO, J.: jeep was moderately moving and had just passed a road
bend when its passengers, private respondents Joseph
96 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Sandoval and Rene Castillo, saw the passenger jeepney at P25,000.00 for hospitalization and medical expenses they
a distance of three meters away. The passenger jeepney incurred for the treatment of their son, Fred Panopio.
was traveling fast when it bumped the owner type
jeep.7 Moreover, the evidence presented by respondents To Fred Panopio:
before the trial court showed that petitioner Juan Gonzales
obtained his professional driver's license only on P25,000.00 for the loss of his right leg;
September 24, 1986, or three months before the accident.
Prior to this, he was holder of a student driver's permit
P10,000.00 as moral damages.
issued on April 10, 1986.8

To Joseph Sandoval:
On November 24, 1997, the trial court rendered a decision
in favor of respondents, the dispositive portion of which
P4,000.00 for medical treatment.
states:

The defendants are further directed to pay the costs of this


Premises duly considered and the plaintiffs having
proceedings.
satisfactorily convincingly and credibly presented
evidence clearly satisfying the requirements of
SO ORDERED.9
preponderance of evidence to sustain the complaint, this
Court hereby declares judgment in favor of the plaintiffs
and against the defendants. Defendants-spouses Francisco Petitioners appealed10 the decision to the Court of
Hernandez and Aniceta Abel Hernandez and Juan Appeals, which affirmed the same with modifications as
Gonzales are therefore directed to pay jointly and to the amount of damages, actual expenses and attorney's
severally, the following: fees awarded to the private respondents. The decretal
portion of the decision of the Court of Appeals reads:
To spouses Lorenzo Dolor and Margarita Dolor:
WHEREFORE, the foregoing premises considered, the
appealed decision is AFFIRMED. However, the award for
P50,000.00 for the death of their son, Lorenzo Menard
damages, actual expenses and attorney's fees shall be
"Boyet" Dolor, Jr.;
MODIFIED as follows:

P142,000.00 as actual and necessary funeral expenses;


To spouses Lorenzo Dolor and Margarita Dolor:

P50,000.00 reasonable value of the totally wrecked


P50,000.00 civil indemnity for their son Lorenzo Menard
owner-type jeep with plate no. DEB 804 Phil '85;
Dolor, Jr.;

P20,000.00 as moral damages;


P58,703.00 as actual and necessary funeral expenses;

P20,000.00 as reasonable litigation expenses and attorney's


P25,000,00 as temperate damages;
fees.

P100,000.00 as moral damages;


To spouses Francisco Valmocina and Virginia Valmocina:

P20,000.00 as reasonable litigation expenses and


P50,000.00 for the death of their son, Oscar Balmocina
attorney's fees.
(sic);

To Spouses Francisco Valmocina and Virginia Valmocina:


P20,000.00 as moral damages;

P50,000.00 civil indemnity for the death of their son,


P18,400.00 for funeral expenses;
Oscar Valmocina;

P10,000.00 for litigation expenses and attorney's fees.


P100,000.00 as moral damages;

To spouses Victor Panopio and Martina Panopio:


P10,000.00 as temperate damages;

P10,450.00 for the cost of the artificial leg and crutches


P10,000.00 as reasonable litigation expenses and
being used by their son Fred Panopio;
attorney's fees.
97 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
To Spouses Victor Panopio and Martina Panopio: If the owner was not in the motor vehicle, the provisions
of article 2180 are applicable.
P10,352.59 as actual hospitalization and medical
expenses; The Hernandez spouses argues that since they were not
inside the jeepney at the time of the collision, the
P5,000.00 as temperate damages. provisions of Article 2180 of the Civil Code, which does
not provide for solidary liability between employers and
To Fred Panopio: employees, should be applied.

P50,000.00 as moral damages. We are not persuaded.

To Joseph Sandoval: Article 2180 provides:

P3,000.00 as temperate damages. ARTICLE 2180. The obligation imposed by article 2176 is
demandable not only for one's own acts or omissions, but
also for those of persons for whom one is responsible.
SO ORDERED.11

The father and, in case of his death or incapacity, the


Hence the present petition raising the following issues:
mother, are responsible for the damages caused by the
minor children who live in their company.
Whether the Court of Appeals was correct when it
pronounced the Hernandez spouses as solidarily liable
Guardians are liable for damages caused by the minors or
with Juan Gonzales, although it is of record that they were
incapacitated persons who are under their authority and
not in the passenger jeepney driven by latter when the
live in their company.
accident occurred;

The owners and managers of an establishment or


Whether the Court of Appeals was correct in awarding
enterprise are likewise responsible for damages caused by
temperate damages to private respondents namely the
their employees in the service of the branches in which the
Spouses Dolor, Spouses Valmocina and Spouses Panopio
latter are employed or on the occasion of their functions.
and to Joseph Sandoval, although the grant of temperate
damages is not provided for in decision of the court a quo;
Employers shall be liable for the damages caused by
their employees and household helpers acting within
Whether the Court of Appeals was correct in increasing
the scope of their assigned tasks, even though the
the award of moral damages to respondents, Spouses
former are not engaged in any business or industry.
Dolor, Spouses Valmocina and Fred Panopio;

The State is responsible in like manner when it acts


Whether the Court of Appeals was correct in affirming the
through a special agent; but not when the damage has
grant of attorney's fees to Spouses Dolor and to Spouses
been caused by the official to whom the task done
Valmocina although the lower court did not specify the
properly pertains, in which case what is provided in article
fact and the law on which it is based.
2176 shall be applicable.

Petitioners contend that the absence of the Hernandez


Lastly, teachers or heads of establishments of arts and
spouses inside the passenger jeepney at the time of the
trades shall be liable for damages caused by their pupils
collision militates against holding them solidarily liable
and students or apprentices, so long as they remain in
with their co-petitioner, Juan Gonzales, invoking Article
their custody.
2184 of the Civil Code, which provides:

The responsibility treated of in this article shall cease


ARTICLE 2184. In motor vehicle mishaps, the owner is
when the persons herein mentioned prove that they
solidarily liable with his driver, if the former, who was in
observed all the diligence of a good father of a family to
the vehicle, could have, by the use of the due diligence,
prevent damage. (Underscoring supplied)
prevented the misfortune. It is disputably presumed that a
driver was negligent, if he had been found guilty of
reckless driving or violating traffic regulations at least On the other hand, Article 2176 provides
twice within the next preceding two months.
Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-
98 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
existing contractual relation between the parties, is called a loss has been suffered but its amount cannot, from the
quasi-delict and is governed by the provisions of this nature of the case, be proved with certainty. 16 Temperate
Chapter. damages are awarded for those cases where, from the
nature of the case, definite proof of pecuniary loss cannot
While the above provisions of law do not expressly be offered, although the court is convinced that there has
provide for solidary liability, the same can be inferred been such loss. A judge should be empowered to calculate
from the wordings of the first paragraph of Article 2180 moderate damages in such cases, rather than the plaintiff
which states that the obligation imposed by article 2176 is should suffer, without redress, from the defendant's
demandable not only for one's own acts or omissions, but also wrongful act.17 The assessment of temperate damages is
for those of persons for whom one is responsible. left to the sound discretion of the court provided that such
an award is reasonable under the circumstances.18
Moreover, Article 2180 should be read with Article 2194 of
the same Code, which categorically states that the We have gone through the records of this case and we find
responsibility of two or more persons who are liable for quasi- that, indeed, respondents suffered losses which cannot be
delict is solidary. In other words, the liability of joint quantified in monetary terms. These losses came in the
tortfeasors is solidary.12 Verily, under Article 2180 of the form of the damage sustained by the owner type jeep of
Civil Code, an employer may be held solidarily liable for the Dolor spouses; the internment and burial of Oscar
the negligent act of his employee.13 Valmocina; the hospitalization of Joseph Sandoval on
account of the injuries he sustained from the collision and
The solidary liability of employers with their employees the artificial leg and crutches that respondent Fred
for quasi-delicts having been established, the next Panopio had to use because of the amputation of his right
question is whether Julian Gonzales is an employee of the leg. Further, we find that the amount of temperate
Hernandez spouses. An affirmative answer will put to rest damages awarded to the respondents were reasonable
any issue on the solidary liability of the Hernandez under the circumstances.
spouses for the acts of Julian Gonzales. The Hernandez
spouses maintained that Julian Gonzales is not their As to the amount of moral damages which was awarded to
employee since their relationship relative to the use of the respondents, a review of the records of this case shows
jeepney is that of a lessor and a lessee. They argue that that there exists no cogent reason to overturn the action of
Julian Gonzales pays them a daily rental of P150.00 for the the appellate court on this aspect.
use of the jeepney.14 In essence, petitioners are practicing
the "boundary system" of jeepney operation albeit Under Article 2206, the "spouse, legitimate and
disguised as a lease agreement between them for the use illegitimate descendants and ascendants of the deceased
of the jeepney. may demand moral damages for mental anguish for the
death of the deceased." The reason for the grant of moral
We hold that an employer-employee relationship exists damages has been explained, thus:
between the Hernandez spouses and Julian Gonzales.
. . . the award of moral damages is aimed at a restoration,
Indeed to exempt from liability the owner of a public within the limits possible, of the spiritual status quo ante;
vehicle who operates it under the "boundary system" on and therefore, it must be proportionate to the suffering
the ground that he is a mere lessor would be not only to inflicted. The intensity of the pain experienced by the
abet flagrant violations of the Public Service Law, but also relatives of the victim is proportionate to the intensity of
to place the riding public at the mercy of reckless and affection for him and bears no relation whatsoever with
irresponsible drivers reckless because the measure of the wealth or means of the offender.19
their earnings depends largely upon the number of trips
they make and, hence, the speed at which they drive; and Moral damages are emphatically not intended to enrich a
irresponsible because most if not all of them are in no plaintiff at the expense of the defendant. They are awarded
position to pay the damages they might cause.15 to allow the former to obtain means, diversion or
amusements that will serve to alleviate the moral suffering
Anent the award of temperate damages to the private he has undergone due to the defendant's culpable action
respondents, we hold that the appellate court committed and must, perforce, be proportional to the suffering
no reversible error in awarding the same to the inflicted.20
respondents.
Truly, the pain of the sudden loss of one's offspring,
Temperate or moderate damages are damages which are especially of a son who was in the prime of his youth, and
more than nominal but less than compensatory which may who holds so much promise waiting to be fulfilled is
be recovered when the court finds that some pecuniary indeed a wellspring of intense pain which no parent
should be made to suffer. While it is true that there can be
99 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
no exact or uniform rule for measuring the value of a FEB LEASING AND FINANCE CORPORATION (now
human life and the measure of damages cannot be arrived BPI LEASING CORPORATION), Petitioner,
at by a precise mathematical calculation,21 we hold that the vs.
Court of Appeals' award of moral damages of P100,000.00
SPOUSES SERGIO P. BAYLON and MARITESS
each to the Spouses Dolor and Spouses Valmocina for the
VILLENA-BAYLON, BG HAULER, INC., and MANUEL
death of their respective sons, Boyet Dolor and Oscar
Valmocina, is in full accord with prevailing Y. ESTILLOSO, Respondents.
jurisprudence.22
DECISION
With respect to the award of attorney's fees to
respondents, no sufficient basis was established for the CARPIO, J.:
grant thereof.
The Case
It is well settled that attorney's fees should not be awarded
in the absence of stipulation except under the instances
This is a petition for review on certiorari1 of the 9 October
enumerated in Article 2208 of the Civil Code. As we have
held in Rizal Surety and Insurance Company v. Court of 2007 Decision2 and the 18 January 2008 Resolution3 of the
Appeals:23 Court of Appeals in CA-G.R. CV No. 81446. The 9 October
2007 Decision affirmed the 30 October 2003 Decision4 of
Article 2208 of the Civil Code allows attorney's fees to be the Regional Trial Court (Branch 35) of Gapan City in Civil
awarded by a court when its claimant is compelled to Case No. 2334 ordering petitioner to pay respondents
litigate with third persons or to incur expenses to protect damages. The 18 January 2008 Resolution denied
his interest by reason of an unjustified act or omission of
petitioners motion for reconsideration.
the party from whom it is sought. While judicial discretion
is here extant, an award thereof demands, nevertheless, a
factual, legal or equitable justification. The matter cannot The Facts
and should not be left to speculation and conjecture
(Mirasol vs. De la Cruz, 84 SCRA 337; Stronghold On 2 September 2000, an Isuzu oil tanker running along
Insurance Company, Inc. vs. Court of Appeals, 173 SCRA Del Monte Avenue in Quezon City and bearing plate
619). number TDY 712 hit Loretta V. Baylon (Loretta), daughter
of respondent spouses Sergio P. Baylon and Maritess
In the case at bench, the records do not show enough basis
Villena-Baylon (spouses Baylon). At the time of the
for sustaining the award for attorney's fees and to adjudge
accident, the oil tanker was registered5 in the name of
its payment by petitioner. x x x.
petitioner FEB Leasing and Finance
Likewise, this Court held in Stronghold Insurance Corporation6 (petitioner). The oil tanker was leased7 to BG
Company, Inc. vs. Court of Appeals that: Hauler, Inc. (BG Hauler) and was being driven by the
latters driver, Manuel Y. Estilloso. The oil tanker was
"In Abrogar v. Intermediate Appellate Court G.R. No. insured8 by FGU Insurance Corp. (FGU Insurance).
67970, January 15, 1988, 157 SCRA 57], the Court had
occasion to state that '[t]he reason for the award of The accident took place at around 2:00 p.m. as the oil
attorney's fees must be stated in the text of the court's
tanker was coming from Balintawak and heading towards
decision, otherwise, if it is stated only in the dispositive
portion of the decision, the same must be disallowed on Manila. Upon reaching the intersection of Bonifacio Street
appeal.' x x x."24 and Del Monte Avenue, the oil tanker turned left. While
the driver of the oil tanker was executing a left turn side
WHEREFORE, the petition is DENIED. The assailed by side with another vehicle towards Del Monte Avenue,
decision of the Court of Appeals is AFFIRMED with the the oil tanker hit Loretta who was then crossing Del
MODIFICATION that the grant of attorney's fees is Monte Avenue coming from Mayon Street. Due to the
DELETED for lack of basis.
strong impact, Loretta was violently thrown away about
three to five meters from the point of impact. She fell to
Costs against petitioners.
the ground unconscious. She was brought for treatment to
the Chinese General Hospital where she remained in a
SO ORDERED.
coma until her death two days after.9
G.R. No. 181398 June 29, 2011
100 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
The spouses Baylon filed with the RTC (Branch 35) of After weighing the evidence submitted by the parties, the
Gapan City a Complaint for damages against petitioner,
10
RTC found that the death of Loretta was due to the
BG Hauler, the driver, and FGU Insurance. Petitioner filed negligent act of the driver. The RTC held that BG Hauler,
its answer with compulsory counterclaim while FGU as the employer, was solidarily liable with the driver. The
Insurance filed its answer with counterclaim. On the other RTC further held that petitioner, as the registered owner of
hand, BG Hauler filed its answer with compulsory the oil tanker, was also solidarily liable.
counterclaim and cross-claim against FGU Insurance.
The RTC found that since FGU Insurance already paid the
Petitioner claimed that the spouses Baylon had no cause of amount of P450,000.00 to the spouses Baylon, BG Hauler,
action against it because under its lease contract with BG and petitioner, the insurers obligation has been
Hauler, petitioner was not liable for any loss, damage, or satisfactorily fulfilled. The RTC thus dismissed the cross-
injury that the leased oil tanker might cause. Petitioner claim of BG Hauler against FGU Insurance. The decretal
claimed that no employer-employee relationship existed part of the RTCs decision reads:
between petitioner and the driver.
Wherefore, premises considered, judgment is hereby
BG Hauler alleged that neither do the spouses Baylon have rendered in favor of the plaintiffs and against defendants
a cause of action against it since the oil tanker was not FEB Leasing (now BPI Leasing), BG Hauler, and Manuel
registered in its name. BG Hauler contended that the Estilloso, to wit:
victim was guilty of contributory negligence in crossing
the street. BG Hauler claimed that even if its driver was at Ordering the defendants, jointly and severally, to pay
fault, BG Hauler exercised the diligence of a good father of plaintiffs the following:
a family in the selection and supervision of its driver. BG
Hauler also contended that FGU Insurance is obliged to the amount of P62,000.00 representing actual expenses
assume all liabilities arising from the use of the insured oil incurred by the plaintiffs;
tanker.
the amount of P50,000.00 as moral damages;
For its part, FGU Insurance averred that the victim was
guilty of contributory negligence. FGU Insurance the amount of P2,400,000.00 for loss of earning capacity of
concluded that the spouses Baylon could not expect to be the deceased victim, Loretta V. Baylon;
paid the full amount of their claims. FGU Insurance
pointed out that the insurance policy covering the oil the sum of P50,000.00 for death indemnity;
tanker limited any claim to a maximum of P400,000.00.
the sum of P50,000.00 for and as attorneys fees; and
During trial, FGU Insurance moved that (1) it be allowed
to deposit in court the amount of P450,000.00 in the joint with costs against the defendants.
names of the spouses Baylon, petitioner, and BG Hauler
and (2) it be released from further participating in the Ordering the dismissal of defendants counter-claim for
proceedings. After the RTC granted the motion, FGU lack of merit and the cross claim of defendant BG Hauler
Insurance deposited in the Branch Clerk of Court a check against defendant FGU Insurance.
in the names of the spouses Baylon, petitioner, and BG
Hauler. The RTC then released FGU Insurance from its SO ORDERED.11
contractual obligations under the insurance policy.
Petitioner, BG Hauler, and the driver appealed the RTC
The Ruling of the RTC Decision to the Court of Appeals. Petitioner claimed that
as financial lessor, it is exempt from liability resulting from
any loss, damage, or injury the oil tanker may cause while
being operated by BG Hauler as financial lessee.

On the other hand, BG Hauler and the driver alleged that


no sufficient evidence existed proving the driver to be at
101 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
fault. They claimed that the RTC erred in finding BG Petitioner contends that the lease contract between BG
Hauler negligent despite the fact that it had exercised the Hauler and petitioner specifically provides that BG Hauler
diligence of a good father of a family in the selection and shall be liable for any loss, damage, or injury the leased oil
supervision of its driver and in the maintenance of its tanker may cause even if petitioner is the registered owner
vehicles. They contended that petitioner, as the registered of the said oil tanker. Petitioner claims that the Court of
owner of the oil tanker, should be solely liable for Lorettas Appeals erred in holding petitioner solidarily liable with
death. BG Hauler despite having found the latter liable under the
lease contract.
The Ruling of the Court of Appeals
For their part, the spouses Baylon counter that the lease
The Court of Appeals held that petitioner, BG Hauler, and contract between petitioner and BG Hauler cannot bind
the driver are solidarily liable for damages arising from third parties like them. The spouses Baylon maintain that
Lorettas death. Petitioners liability arose from the fact the existence of the lease contract does not relieve
that it was the registered owner of the oil tanker while BG petitioner of direct responsibility as the registered owner
Haulers liability emanated from a provision in the lease of the oil tanker that caused the death of their daughter.
contract providing that the lessee shall be liable in case of
any loss, damage, or injury the leased oil tanker may On the other hand, BG Hauler and the driver argue that at
cause. the time petitioner and BG Hauler entered into the lease
contract, Republic Act No. 598014 was still in effect. They
Thus, the Court of Appeals affirmed the RTC Decision but point out that the amendatory law, Republic Act No.
with the modification that the award of attorneys fees be 8556,15 which exempts from liability in case of any loss,
deleted for being speculative. The dispositive part of the damage, or injury to third persons the registered owners
appellate courts Decision reads: of vehicles financially leased to another, was not yet
enacted at that time.
WHEREFORE, in the light of the foregoing, the instant
appeal is DENIED. Consequently, the assailed Decision of In point is the 2008 case of PCI Leasing and Finance, Inc. v.
the lower court is AFFIRMED with the MODIFICATION UCPB General Insurance Co., Inc.16 There, we held liable PCI
that the award of attorneys fees is DELETED. Leasing and Finance, Inc., the registered owner of an 18-
wheeler Fuso Tanker Truck leased to Superior Gas &
IT IS SO ORDERED.12 Equitable Co., Inc. (SUGECO) and being driven by the
latters driver, for damages arising from a collision. This
Dissatisfied, petitioner and BG Hauler, joined by the despite an express provision in the lease contract to the
driver, filed two separate motions for reconsideration. In effect that the lessee, SUGECO, shall indemnify and hold
its 18 January 2008 Resolution, the Court of Appeals the registered owner free from any liabilities, damages,
denied both motions for lack of merit. suits, claims, or judgments arising from SUGECOs use of
the leased motor vehicle.
Unconvinced, petitioner alone filed with this Court the
present petition for review on certiorari impleading the In the instant case, Section 5.1 of the lease contract
spouses Baylon, BG Hauler, and the driver as between petitioner and BG Hauler provides:
respondents.13
Sec. 5.1. It is the principle of this Lease that while the title
The Issue or ownership of the EQUIPMENT, with all the rights
consequent thereof, are retained by the LESSOR, the risk
The sole issue submitted for resolution is whether the of loss or damage of the EQUIPMENT from whatever
registered owner of a financially leased vehicle remains source arising, as well as any liability resulting from the
liable for loss, damage, or injury caused by the vehicle ownership, operation and/or possession thereof, over
notwithstanding an exemption provision in the financial and above those actually compensated by insurance, are
lease contract. hereby transferred to and assumed by the
LESSEE hereunder which shall continue in full force and
The Courts Ruling effect.17 (Emphasis supplied)
102 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
If it so wishes, petitioner may proceed against BG Hauler registered owners or operators of vehicles are freed from
to seek enforcement of the latters contractual obligation such responsibility. Petitioner pays the price for its failure
under Section 5.1 of the lease contract. In the present case, to obey the law on compulsory registration of motor
petitioner did not file a cross-claim against BG Hauler. vehicles for registration is a pre-requisite for any person to
Hence, this Court cannot require BG Hauler to reimburse even enjoy the privilege of putting a vehicle on public
petitioner for the latters liability to the spouses Baylon. roads.22
However, as the registered owner of the oil tanker,
petitioner may not escape its liability to third persons. In the landmark case of Erezo v. Jepte,23 the Court succinctly
laid down the public policy behind the rule, thus:
Under Section 5 of Republic Act No. 4136,18 as amended,
all motor vehicles used or operated on or upon any The main aim of motor vehicle registration is to identify
highway of the Philippines must be registered with the the owner so that if any accident happens, or that any
Bureau of Land Transportation (now Land Transportation damage or injury is caused by the vehicle on the public
Office) for the current year.19 Furthermore, any highways, responsibility therefor can be fixed on a definite
encumbrances of motor vehicles must be recorded with individual, the registered owner. Instances are numerous
the Land Transportation Office in order to be valid against where vehicles running on public highways caused
third parties. 20
accidents or injuries to pedestrians or other vehicles
without positive identification of the owner or drivers, or
In accordance with the law on compulsory motor vehicle with very scant means of identification. It is to forestall
registration, this Court has consistently ruled that, with these circumstances, so inconvenient or prejudicial to the
respect to the public and third persons, the registered public, that the motor vehicle registration is primarily
owner of a motor vehicle is directly and primarily ordained, in the interest of the determination of persons
responsible for the consequences of its operation responsible for damages or injuries caused on public
regardless of who the actual vehicle owner might highways.
be. Well-settled is the rule that the registered owner of
21

the vehicle is liable for quasi-delicts resulting from its use. xxx
Thus, even if the vehicle has already been sold, leased, or
transferred to another person at the time the vehicle Were a registered owner allowed to evade responsibility
figured in an accident, the registered vehicle owner would by proving who the supposed transferee or owner is, it
still be liable for damages caused by the accident. The sale, would be easy for him, by collusion with others or, or
transfer or lease of the vehicle, which is not registered with otherwise, to escape said responsibility and transfer the
the Land Transportation Office, will not bind third persons same to an indefinite person, or to one who possesses no
aggrieved in an accident involving the vehicle. The property with which to respond financially for the damage
compulsory motor vehicle registration underscores the or injury done. A victim of recklessness on the public
importance of registering the vehicle in the name of the highways is usually without means to discover or identify
actual owner.1avvphi1 the person actually causing the injury or damage. He has
no means other than by a recourse to the registration in
The policy behind the rule is to enable the victim to find the Motor Vehicles Office to determine who is the owner.
redress by the expedient recourse of identifying the The protection that the law aims to extend to him would
registered vehicle owner in the records of the Land become illusory were the registered owner given the
Transportation Office. The registered owner can be opportunity to escape liability by disproving his
reimbursed by the actual owner, lessee or transferee who ownership. If the policy of the law is to be enforced and
is known to him. Unlike the registered owner, the innocent carried out, the registered owner should not be allowed to
victim is not privy to the lease, sale, transfer or prove the contrary to the prejudice of the person injured,
encumbrance of the vehicle. Hence, the victim should not that is to prove that a third person or another has become
be prejudiced by the failure to register such transaction or the owner, so that he may be thereby be relieved of the
encumbrance. As the Court held in PCI Leasing: responsibility to the injured person.24

The burden of registration of the lease contract is In this case, petitioner admits that it is the registered
minuscule compared to the chaos that may result if owner of the oil tanker that figured in an accident causing
103 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
the death of Loretta. As the registered owner, it cannot SPOUSES TEODORO1 and NANETTE
escape liability for the loss arising out of negligence in the PERENA, Petitioners,
operation of the oil tanker. Its liability remains even if at vs.
the time of the accident, the oil tanker was leased to BG SPOUSES TERESITA PHILIPPINE NICOLAS and L.
Hauler and was being driven by the latters driver, and ZARATE, NATIONAL RAILWAYS, and the COURT OF
despite a provision in the lease contract exonerating the APPEALS Respondents.
registered owner from liability.
DECISION
As a final point, we agree with the Court of Appeals that
the award of attorneys fees by the RTC must be deleted BERSAMIN, J.:
for lack of basis. The RTC failed to justify the award
of P50,000 attorneys fees to respondent spouses Baylon. The operator of a. school bus service is a common carrier
The award of attorneys fees must have some factual, legal in the eyes of the law. He is bound to observe
and equitable bases and cannot be left to speculations and extraordinary diligence in the conduct of his business. He
conjectures. Consistent with prevailing
25
is presumed to be negligent when death occurs to a
jurisprudence, attorneys fees as part of damages are
26
passenger. His liability may include indemnity for loss of
awarded only in the instances enumerated in Article 2208 earning capacity even if the deceased passenger may only
of the Civil Code. Thus, the award of attorneys fees is
27
be an unemployed high school student at the time of the
the exception rather than the rule. Attorneys fees are not accident.
awarded every time a party prevails in a suit because of
the policy that no premium should be placed on the right The Case
to litigate. 28

By petition for review on certiorari, Spouses Teodoro and


WHEREFORE, we DENY the petition. We AFFIRM the 9 Nanette Perefia (Perefias) appeal the adverse decision
October 2007 Decision and the 18 January 2008 Resolution promulgated on November 13, 2002, by which the Court of
of the Court of Appeals in CA-G.R. CV No. 81446 Appeals (CA) affirmed with modification the decision
affirming with modification the 30 October 2003 Decision rendered on December 3, 1999 by the Regional Trial Court
of the Regional Trial Court (Branch 35) of Gapan City in (RTC), Branch 260, in Paraaque City that had decreed
Civil Case No. 2334 ordering petitioner FEB Leasing and them jointly and severally liable with Philippine National
Finance Corporation, BG Hauler, Inc., and driver Manuel Railways (PNR), their co-defendant, to Spouses Nicolas
Y. Estilloso to solidarily pay respondent spouses Sergio P. and Teresita Zarate (Zarates) for the death of their 15-year
Baylon and Maritess Villena-Baylon the following old son, Aaron John L. Zarate (Aaron), then a high school
amounts: student of Don Bosco Technical Institute (Don Bosco).

P62,000.00 representing actual expenses incurred by the Antecedents


plaintiffs;
The Pereas were engaged in the business of transporting
P50,000.00 as moral damages; students from their respective residences in Paraaque
City to Don Bosco in Pasong Tamo, Makati City, and back.
P2,400,000.00 for loss of earning capacity of the deceased In their business, the Pereas used a KIA Ceres Van (van)
victim, Loretta V. Baylon; and with Plate No. PYA 896, which had the capacity to
transport 14 students at a time, two of whom would be
P50,000.00 for death indemnity. seated in the front beside the driver, and the others in the
rear, with six students on either side. They employed
Costs against petitioner. Clemente Alfaro (Alfaro) as driver of the van.

SO ORDERED. In June 1996, the Zarates contracted the Pereas to


transport Aaron to and from Don Bosco. On August 22,
G.R. No. 157917 August 29, 2012 1996, as on previous school days, the van picked Aaron up
around 6:00 a.m. from the Zarates residence. Aaron took
104 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
his place on the left side of the van near the rear door. The FACTS:
van, with its air-conditioning unit turned on and the
stereo playing loudly, ultimately carried all the 14 student (1) That spouses Zarate were the legitimate parents of
riders on their way to Don Bosco. Considering that the Aaron John L. Zarate;
students were due at Don Bosco by 7:15 a.m., and that they
were already running late because of the heavy vehicular (2) Spouses Zarate engaged the services of spouses Perea
traffic on the South Superhighway, Alfaro took the van to for the adequate and safe transportation carriage of the
an alternate route at about 6:45 a.m. by traversing the former spouses' son from their residence in Paraaque to
narrow path underneath the Magallanes Interchange that his school at the Don Bosco Technical Institute in Makati
was then commonly used by Makati-bound vehicles as a City;
short cut into Makati. At the time, the narrow path was
marked by piles of construction materials and parked (3) During the effectivity of the contract of carriage and in
passenger jeepneys, and the railroad crossing in the the implementation thereof, Aaron, the minor son of
narrow path had no railroad warning signs, or watchmen, spouses Zarate died in connection with a vehicular/train
or other responsible persons manning the crossing. In fact, collision which occurred while Aaron was riding the
the bamboo barandilla was up, leaving the railroad contracted carrier Kia Ceres van of spouses Perea, then
crossing open to traversing motorists. driven and operated by the latter's employee/authorized
driver Clemente Alfaro, which van collided with the train
At about the time the van was to traverse the railroad of PNR, at around 6:45 A.M. of August 22, 1996, within the
crossing, PNR Commuter No. 302 (train), operated by vicinity of the Magallanes Interchange in Makati City,
Jhonny Alano (Alano), was in the vicinity of the Metro Manila, Philippines;
Magallanes Interchange travelling northbound. As the
train neared the railroad crossing, Alfaro drove the van (4) At the time of the vehicular/train collision, the subject
eastward across the railroad tracks, closely tailing a large site of the vehicular/train collision was a railroad crossing
passenger bus. His view of the oncoming train was used by motorists for crossing the railroad tracks;
blocked because he overtook the passenger bus on its left
side. The train blew its horn to warn motorists of its (5) During the said time of the vehicular/train collision,
approach. When the train was about 50 meters away from there were no appropriate and safety warning signs and
the passenger bus and the van, Alano applied the ordinary railings at the site commonly used for railroad crossing;
brakes of the train. He applied the emergency brakes only
when he saw that a collision was imminent. The passenger (6) At the material time, countless number of Makati
bus successfully crossed the railroad tracks, but the van bound public utility and private vehicles used on a daily
driven by Alfaro did not. The train hit the rear end of the basis the site of the collision as an alternative route and
van, and the impact threw nine of the 12 students in the short-cut to Makati;
rear, including Aaron, out of the van. Aaron landed in the
path of the train, which dragged his body and severed his (7) The train driver or operator left the scene of the
head, instantaneously killing him. Alano fled the scene on incident on board the commuter train involved without
board the train, and did not wait for the police investigator waiting for the police investigator;
to arrive.
(8) The site commonly used for railroad crossing by
Devastated by the early and unexpected death of Aaron, motorists was not in fact intended by the railroad operator
the Zarates commenced this action for damages against for railroad crossing at the time of the vehicular collision;
Alfaro, the Pereas, PNR and Alano. The Pereas and
PNR filed their respective answers, with cross-claims (9) PNR received the demand letter of the spouses Zarate;
against each other, but Alfaro could not be served with
summons. (10) PNR refused to acknowledge any liability for the
vehicular/train collision;
At the pre-trial, the parties stipulated on the facts and
issues, viz:
105 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
(11) The eventual closure of the railroad crossing alleged amount the latter may be held answerable or which they
by PNR was an internal arrangement between the former may be ordered to pay in favor of plaintiffs by reason of
and its project contractor; and the action;

(12) The site of the vehicular/train collision was within Whether or not defendant PNR should pay plaintiffs
the vicinity or less than 100 meters from the Magallanes directly and fully on the amounts claimed by the latter in
station of PNR. their Complaint by reason of its gross negligence;

B. ISSUES Whether or not defendant PNR is liable to defendants


spouses for actual, moral and exemplary damages and
Whether or not defendant-driver of the van is, in the attorney's fees.2
performance of his functions, liable for negligence
constituting the proximate cause of the vehicular collision, The Zarates claim against the Pereas was upon breach of
which resulted in the death of plaintiff spouses' son; the contract of carriage for the safe transport of Aaron; but
that against PNR was based on quasi-delict under Article
Whether or not the defendant spouses Perea being the 2176, Civil Code.
employer of defendant Alfaro are liable for any negligence
which may be attributed to defendant Alfaro; In their defense, the Pereas adduced evidence to show
that they had exercised the diligence of a good father of
Whether or not defendant Philippine National Railways the family in the selection and supervision of Alfaro, by
being the operator of the railroad system is liable for making sure that Alfaro had been issued a drivers license
negligence in failing to provide adequate safety warning and had not been involved in any vehicular accident prior
signs and railings in the area commonly used by motorists to the collision; that their own son had taken the van daily;
for railroad crossings, constituting the proximate cause of and that Teodoro Perea had sometimes accompanied
the vehicular collision which resulted in the death of the Alfaro in the vans trips transporting the students to
plaintiff spouses' son; school.

Whether or not defendant spouses Perea are liable for For its part, PNR tended to show that the proximate cause
breach of the contract of carriage with plaintiff-spouses in of the collision had been the reckless crossing of the van
failing to provide adequate and safe transportation for the whose driver had not first stopped, looked and listened;
latter's son; and that the narrow path traversed by the van had not
been intended to be a railroad crossing for motorists.
Whether or not defendants spouses are liable for actual,
moral damages, exemplary damages, and attorney's fees; Ruling of the RTC

Whether or not defendants spouses Teodorico and Nanette On December 3, 1999, the RTC rendered its
Perea observed the diligence of employers and school bus decision,3 disposing:
operators;
WHEREFORE, premises considered, judgment is hereby
Whether or not defendant-spouses are civilly liable for the rendered in favor of the plaintiff and against the
accidental death of Aaron John Zarate; defendants ordering them to jointly and severally pay the
plaintiffs as follows:
Whether or not defendant PNR was grossly negligent in
operating the commuter train involved in the accident, in (for) the death of Aaron- Php50,000.00;
allowing or tolerating the motoring public to cross, and its
failure to install safety devices or equipment at the site of Actual damages in the amount of Php100,000.00;
the accident for the protection of the public;
For the loss of earning capacity- Php2,109,071.00;
Whether or not defendant PNR should be made to
reimburse defendant spouses for any and whatever Moral damages in the amount of Php4,000,000.00;
106 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Exemplary damages in the amount of Php1,000,000.00; The trial court erred in awarding damages in the form of
deceaseds loss of earning capacity in the absence of
Attorneys fees in the amount of Php200,000.00; and sufficient basis for such an award.

Cost of suit. On November 13, 2002, the CA promulgated its decision,


affirming the findings of the RTC, but limited the moral
SO ORDERED. damages to P 2,500,000.00; and deleted the attorneys fees
because the RTC did not state the factual and legal bases,
On June 29, 2000, the RTC denied the Pereas motion for to wit:6
reconsideration,4 reiterating that the cooperative gross
negligence of the Pereas and PNR had caused the WHEREFORE, premises considered, the assailed Decision
collision that led to the death of Aaron; and that the of the Regional Trial Court, Branch 260 of Paraaque City
damages awarded to the Zarates were not excessive, but is AFFIRMED with the modification that the award of
based on the established circumstances. Actual Damages is reduced to P 59,502.76; Moral Damages
is reduced to P 2,500,000.00; and the award for Attorneys
The CAs Ruling Fees is Deleted.

Both the Pereas and PNR appealed (C.A.-G.R. CV No. SO ORDERED.


68916).
The CA upheld the award for the loss of Aarons earning
PNR assigned the following errors, to wit:5 capacity, taking cognizance of the ruling in Cariaga v.
Laguna Tayabas Bus Company and Manila Railroad
The Court a quo erred in: Company,7 wherein the Court gave the heirs of Cariaga a
sum representing the loss of the deceaseds earning
In finding the defendant-appellant Philippine National capacity despite Cariaga being only a medical student at
Railways jointly and severally liable together with the time of the fatal incident. Applying the formula
defendant-appellants spouses Teodorico and Nanette adopted in the American Expectancy Table of Mortality:
Perea and defendant-appellant Clemente Alfaro to pay
plaintiffs-appellees for the death of Aaron Zarate and 2/3 x (80 - age at the time of death) = life expectancy
damages.
the CA determined the life expectancy of Aaron to be 39.3
In giving full faith and merit to the oral testimonies of years upon reckoning his life expectancy from age of 21
plaintiffs-appellees witnesses despite overwhelming (the age when he would have graduated from college and
documentary evidence on record, supporting the case of started working for his own livelihood) instead of 15 years
defendants-appellants Philippine National Railways. (his age when he died). Considering that the nature of his
work and his salary at the time of Aarons death were
The Pereas ascribed the following errors to the RTC, unknown, it used the prevailing minimum wage
namely: of P 280.00/day to compute Aarons gross annual salary to
be P 110,716.65, inclusive of the thirteenth month pay.
The trial court erred in finding defendants-appellants Multiplying this annual salary by Aarons life expectancy
jointly and severally liable for actual, moral and exemplary of 39.3 years, his gross income would aggregate
damages and attorneys fees with the other defendants. to P 4,351,164.30, from which his estimated expenses in the
sum of P 2,189,664.30 was deducted to finally arrive at P
The trial court erred in dismissing the cross-claim of the 2,161,500.00 as net income. Due to Aarons computed net
appellants Pereas against the Philippine National income turning out to be higher than the amount claimed
Railways and in not holding the latter and its train driver by the Zarates, only P 2,109,071.00, the amount expressly
primarily responsible for the incident. prayed for by them, was granted.

The trial court erred in awarding excessive damages and On April 4, 2003, the CA denied the Pereas motion for
attorneys fees. reconsideration.8
107 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Issues We find no adequate cause to differ from the conclusions
of the lower courts that the Pereas operated as a common
In this appeal, the Pereas list the following as the errors carrier; and that their standard of care was extraordinary
committed by the CA, to wit: diligence, not the ordinary diligence of a good father of a
family.
The lower court erred when it upheld the trial courts
decision holding the petitioners jointly and severally liable Although in this jurisdiction the operator of a school bus
to pay damages with Philippine National Railways and service has been usually regarded as a private
dismissing their cross-claim against the latter. carrier,9primarily because he only caters to some specific
or privileged individuals, and his operation is neither
The lower court erred in affirming the trial courts decision open to the indefinite public nor for public use, the exact
awarding damages for loss of earning capacity of a minor nature of the operation of a school bus service has not
who was only a high school student at the time of his been finally settled. This is the occasion to lay the matter to
death in the absence of sufficient basis for such an award. rest.

The lower court erred in not reducing further the amount A carrier is a person or corporation who undertakes to
of damages awarded, assuming petitioners are liable at all. transport or convey goods or persons from one place to
another, gratuitously or for hire. The carrier is classified
Ruling either as a private/special carrier or as a common/public
carrier.10 A private carrier is one who, without making the
The petition has no merit. activity a vocation, or without holding himself or itself out
to the public as ready to act for all who may desire his or
1. its services, undertakes, by special agreement in a
Were the Pereas and PNR jointly particular instance only, to transport goods or persons
and severally liable for damages? from one place to another either gratuitously or for
hire.11 The provisions on ordinary contracts of the Civil
The Zarates brought this action for recovery of damages Code govern the contract of private carriage.The diligence
against both the Pereas and the PNR, basing their claim required of a private carrier is only ordinary, that is, the
against the Pereas on breach of contract of carriage and diligence of a good father of the family. In contrast, a
against the PNR on quasi-delict. common carrier is a person, corporation, firm or
association engaged in the business of carrying or
The RTC found the Pereas and the PNR negligent. The transporting passengers or goods or both, by land, water,
CA affirmed the findings. or air, for compensation, offering such services to the
public.12 Contracts of common carriage are governed by
We concur with the CA. the provisions on common carriers of the Civil Code, the
Public Service Act,13 and other special laws relating to
To start with, the Pereas defense was that they exercised transportation. A common carrier is required to observe
the diligence of a good father of the family in the selection extraordinary diligence, and is presumed to be at fault or
and supervision of Alfaro, the van driver, by seeing to it to have acted negligently in case of the loss of the effects of
that Alfaro had a drivers license and that he had not been passengers, or the death or injuries to passengers.14
involved in any vehicular accident prior to the fatal
collision with the train; that they even had their own son In relation to common carriers, the Court defined public
travel to and from school on a daily basis; and that use in the following terms in United States v. Tan
Teodoro Perea himself sometimes accompanied Alfaro in Piaco,15viz:
transporting the passengers to and from school. The RTC
gave scant consideration to such defense by regarding "Public use" is the same as "use by the public". The
such defense as inappropriate in an action for breach of essential feature of the public use is not confined to
contract of carriage. privileged individuals, but is open to the indefinite public.
It is this indefinite or unrestricted quality that gives it its
public character. In determining whether a use is public,
108 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
we must look not only to the character of the business to warehousemen,19 and barge operators20 even if they had
be done, but also to the proposed mode of doing it. If the limited clientle.
use is merely optional with the owners, or the public
benefit is merely incidental, it is not a public use, As all the foregoing indicate, the true test for a common
authorizing the exercise of the jurisdiction of the public carrier is not the quantity or extent of the business actually
utility commission. There must be, in general, a right transacted, or the number and character of the
which the law compels the owner to give to the general conveyances used in the activity, but whether the
public. It is not enough that the general prosperity of the undertaking is a part of the activity engaged in by the
public is promoted. Public use is not synonymous with carrier that he has held out to the general public as his
public interest. The true criterion by which to judge the business or occupation. If the undertaking is a single
character of the use is whether the public may enjoy it by transaction, not a part of the general business or
right or only by permission. occupation engaged in, as advertised and held out to the
general public, the individual or the entity rendering such
In De Guzman v. Court of Appeals,16 the Court noted that service is a private, not a common, carrier. The question
Article 1732 of the Civil Code avoided any distinction must be determined by the character of the business
between a person or an enterprise offering transportation actually carried on by the carrier, not by any secret
on a regular or an isolated basis; and has not distinguished intention or mental reservation it may entertain or assert
a carrier offering his services to the general public, that is, when charged with the duties and obligations that the law
the general community or population, from one offering imposes.21
his services only to a narrow segment of the general
population. Applying these considerations to the case before us, there
is no question that the Pereas as the operators of a school
Nonetheless, the concept of a common carrier embodied in bus service were: (a) engaged in transporting passengers
Article 1732 of the Civil Code coincides neatly with the generally as a business, not just as a casual occupation; (b)
notion of public service under the Public Service Act, undertaking to carry passengers over established roads by
which supplements the law on common carriers found in the method by which the business was conducted; and (c)
the Civil Code. Public service, according to Section 13, transporting students for a fee. Despite catering to a
paragraph (b) of the Public Service Act, includes: limited clientle, the Pereas operated as a common
carrier because they held themselves out as a ready
x x x every person that now or hereafter may own, transportation indiscriminately to the students of a
operate, manage, or control in the Philippines, for hire or particular school living within or near where they
compensation, with general or limited clientle, whether operated the service and for a fee.
permanent or occasional, and done for the general
business purposes, any common carrier, railroad, street The common carriers standard of care and vigilance as to
railway, traction railway, subway motor vehicle, either for the safety of the passengers is defined by law. Given the
freight or passenger, or both, with or without fixed route nature of the business and for reasons of public policy, the
and whatever may be its classification, freight or carrier common carrier is bound "to observe extraordinary
service of any class, express service, steamboat, or diligence in the vigilance over the goods and for the safety
steamship line, pontines, ferries and water craft, engaged of the passengers transported by them, according to all the
in the transportation of passengers or freight or both, circumstances of each case."22 Article 1755 of the Civil
shipyard, marine repair shop, ice-refrigeration plant, Code specifies that the common carrier should "carry the
canal, irrigation system, gas, electric light, heat and power, passengers safely as far as human care and foresight can
water supply and power petroleum, sewerage system, provide, using the utmost diligence of very cautious
wire or wireless communications systems, wire or wireless persons, with a due regard for all the circumstances." To
broadcasting stations and other similar public services. x x successfully fend off liability in an action upon the death
x. 17
or injury to a passenger, the common carrier must prove
his or its observance of that extraordinary diligence;
Given the breadth of the aforequoted characterization of a otherwise, the legal presumption that he or it was at fault
common carrier, the Court has considered as common or acted negligently would stand.23 No device, whether by
carriers pipeline operators,18 custom brokers and stipulation, posting of notices, statements on tickets, or
109 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
otherwise, may dispense with or lessen the responsibility disregarded the risks. Compounding his lack of care was
of the common carrier as defined under Article 1755 of the that loud music was playing inside the air-conditioned
Civil Code. 24 van at the time of the accident. The loudness most
probably reduced his ability to hear the warning horns of
And, secondly, the Pereas have not presented any the oncoming train to allow him to correctly appreciate the
compelling defense or reason by which the Court might lurking dangers on the railroad tracks. Also, he sought to
now reverse the CAs findings on their liability. On the overtake a passenger bus on the left side as both vehicles
contrary, an examination of the records shows that the traversed the railroad tracks. In so doing, he lost his view
evidence fully supported the findings of the CA. of the train that was then coming from the opposite side of
the passenger bus, leading him to miscalculate his chances
As earlier stated, the Pereas, acting as a common carrier, of beating the bus in their race, and of getting clear of the
were already presumed to be negligent at the time of the train. As a result, the bus avoided a collision with the train
accident because death had occurred to their but the van got slammed at its rear, causing the fatality.
passenger.25 The presumption of negligence, being a Lastly, he did not slow down or go to a full stop before
presumption of law, laid the burden of evidence on their traversing the railroad tracks despite knowing that his
shoulders to establish that they had not been negligent.26It slackening of speed and going to a full stop were in
was the law no less that required them to prove their observance of the right of way at railroad tracks as defined
observance of extraordinary diligence in seeing to the safe by the traffic laws and regulations.28 He thereby violated a
and secure carriage of the passengers to their destination. specific traffic regulation on right of way, by virtue of
Until they did so in a credible manner, they stood to be which he was immediately presumed to be negligent.29
held legally responsible for the death of Aaron and thus to
be held liable for all the natural consequences of such The omissions of care on the part of the van driver
death. constituted negligence,30 which, according to Layugan v.
Intermediate Appellate Court,31 is "the omission to do
There is no question that the Pereas did not overturn the something which a reasonable man, guided by those
presumption of their negligence by credible evidence. considerations which ordinarily regulate the conduct of
Their defense of having observed the diligence of a good human affairs, would do, or the doing of something which
father of a family in the selection and supervision of their a prudent and reasonable man would not do,32 or as Judge
driver was not legally sufficient. According to Article 1759 Cooley defines it, (t)he failure to observe for the
of the Civil Code, their liability as a common carrier did protection of the interests of another person, that degree of
not cease upon proof that they exercised all the diligence care, precaution, and vigilance which the circumstances
of a good father of a family in the selection and justly demand, whereby such other person suffers
supervision of their employee. This was the reason why injury."33
the RTC treated this defense of the Pereas as
inappropriate in this action for breach of contract of The test by which to determine the existence of negligence
carriage. in a particular case has been aptly stated in the leading
case of Picart v. Smith,34 thuswise:
The Pereas were liable for the death of Aaron despite the
fact that their driver might have acted beyond the scope of The test by which to determine the existence of negligence
his authority or even in violation of the orders of the in a particular case may be stated as follows: Did the
common carrier. In this connection, the records showed
27
defendant in doing the alleged negligent act use that
their drivers actual negligence. There was a showing, to reasonable care and caution which an ordinarily prudent
begin with, that their driver traversed the railroad tracks person would have used in the same situation? If not, then
at a point at which the PNR did not permit motorists he is guilty of negligence. The law here in effect adopts the
going into the Makati area to cross the railroad tracks. standard supposed to be supplied by the imaginary
Although that point had been used by motorists as a conduct of the discreet paterfamilias of the Roman law.
shortcut into the Makati area, that fact alone did not The existence of negligence in a given case is not
excuse their driver into taking that route. On the other determined by reference to the personal judgment of the
hand, with his familiarity with that shortcut, their driver actor in the situation before him. The law considers what
was fully aware of the risks to his passengers but he still would be reckless, blameworthy, or negligent in the man
110 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
of ordinary intelligence and prudence and determines negligence on the part of both the Pereas and the PNR.
liability by that. Another distinction is that the passenger bus in Philippine
National Railways v. Intermediate Appellate Court was
The question as to what would constitute the conduct of a traversing the dedicated railroad crossing when it was hit
prudent man in a given situation must of course be always by the train, but the Pereas school van traversed the
determined in the light of human experience and in view railroad tracks at a point not intended for that purpose.
of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much At any rate, the lower courts correctly held both the
can be profitably said: Reasonable men govern their Pereas and the PNR "jointly and severally" liable for
conduct by the circumstances which are before them or damages arising from the death of Aaron. They had been
known to them. They are not, and are not supposed to be, impleaded in the same complaint as defendants against
omniscient of the future. Hence they can be expected to whom the Zarates had the right to relief, whether jointly,
take care only when there is something before them to severally, or in the alternative, in respect to or arising out
suggest or warn of danger. Could a prudent man, in the of the accident, and questions of fact and of law were
case under consideration, foresee harm as a result of the common as to the Zarates.36 Although the basis of the right
course actually pursued? If so, it was the duty of the actor to relief of the Zarates (i.e., breach of contract of carriage)
to take precautions to guard against that harm. Reasonable against the Pereas was distinct from the basis of the
foresight of harm, followed by the ignoring of the Zarates right to relief against the PNR (i.e., quasi-delict
suggestion born of this prevision, is always necessary under Article 2176, Civil Code), they nonetheless could be
before negligence can be held to exist. Stated in these held jointly and severally liable by virtue of their
terms, the proper criterion for determining the existence of respective negligence combining to cause the death of
negligence in a given case is this: Conduct is said to be Aaron. As to the PNR, the RTC rightly found the PNR also
negligent when a prudent man in the position of the guilty of negligence despite the school van of the Pereas
tortfeasor would have foreseen that an effect harmful to traversing the railroad tracks at a point not dedicated by
another was sufficiently probable to warrant his foregoing the PNR as a railroad crossing for pedestrians and
the conduct or guarding against its consequences. motorists, because the PNR did not ensure the safety of
(Emphasis supplied) others through the placing of crossbars, signal lights,
warning signs, and other permanent safety barriers to
Pursuant to the Picart v. Smith test of negligence, the prevent vehicles or pedestrians from crossing there. The
Pereas driver was entirely negligent when he traversed RTC observed that the fact that a crossing guard had been
the railroad tracks at a point not allowed for a motorists assigned to man that point from 7 a.m. to 5 p.m. was a
crossing despite being fully aware of the grave harm to be good indicium that the PNR was aware of the risks to
thereby caused to his passengers; and when he others as well as the need to control the vehicular and
disregarded the foresight of harm to his passengers by other traffic there. Verily, the Pereas and the PNR were
overtaking the bus on the left side as to leave himself blind joint tortfeasors.
to the approach of the oncoming train that he knew was
on the opposite side of the bus. 2.
Was the indemnity for loss of
Unrelenting, the Pereas cite Phil. National Railways v. Aarons earning capacity proper?
Intermediate Appellate Court,35 where the Court held the
PNR solely liable for the damages caused to a passenger The RTC awarded indemnity for loss of Aarons earning
bus and its passengers when its train hit the rear end of capacity. Although agreeing with the RTC on the liability,
the bus that was then traversing the railroad crossing. But the CA modified the amount. Both lower courts took into
the circumstances of that case and this one share no consideration that Aaron, while only a high school
similarities. In Philippine National Railways v. student, had been enrolled in one of the reputable schools
Intermediate Appellate Court, no evidence of contributory in the Philippines and that he had been a normal and able-
negligence was adduced against the owner of the bus. bodied child prior to his death. The basis for the
Instead, it was the owner of the bus who proved the computation of Aarons earning capacity was not what he
exercise of extraordinary diligence by preponderant would have become or what he would have wanted to be if
evidence. Also, the records are replete with the showing of not for his untimely death, but the minimum wage in
111 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
effect at the time of his death. Moreover, the RTCs unemployed, because compensation of this nature is
computation of Aarons life expectancy rate was not awarded not for loss of time or earnings but for loss of the
reckoned from his age of 15 years at the time of his death, deceaseds power or ability to earn money.39
but on 21 years, his age when he would have graduated
from college. This favorable treatment of the Zarates claim is not
unprecedented. In Cariaga v. Laguna Tayabas Bus
We find the considerations taken into account by the lower Company and Manila Railroad Company,40 fourth-year
courts to be reasonable and fully warranted. medical student Edgardo Carriagas earning capacity,
although he survived the accident but his injuries
Yet, the Pereas submit that the indemnity for loss of rendered him permanently incapacitated, was computed
earning capacity was speculative and to be that of the physician that he dreamed to become. The
unfounded.1wphi1 They cited People v. Teehankee, Court considered his scholastic record sufficient to justify
Jr., where the Court deleted the indemnity for victim
37
the assumption that he could have finished the medical
Jussi Leinos loss of earning capacity as a pilot for being course and would have passed the medical board
speculative due to his having graduated from high school examinations in due time, and that he could have possibly
at the International School in Manila only two years before earned a modest income as a medical practitioner. Also, in
the shooting, and was at the time of the shooting only People v. Sanchez,41 the Court opined that murder and
enrolled in the first semester at the Manila Aero Club to rape victim Eileen Sarmienta and murder victim Allan
pursue his ambition to become a professional pilot. That Gomez could have easily landed good-paying jobs had
meant, according to the Court, that he was for all intents they graduated in due time, and that their jobs would
and purposes only a high school graduate. probably pay them high monthly salaries from P 10,000.00
to P 15,000.00 upon their graduation. Their earning
We reject the Pereas submission. capacities were computed at rates higher than the
minimum wage at the time of their deaths due to their
First of all, a careful perusal of the Teehankee, Jr. case being already senior agriculture students of the University
shows that the situation there of Jussi Leino was not akin of the Philippines in Los Baos, the countrys leading
to that of Aaron here. The CA and the RTC were not educational institution in agriculture.
speculating that Aaron would be some highly-paid
professional, like a pilot (or, for that matter, an engineer, a 3.
physician, or a lawyer). Instead, the computation of Were the amounts of damages excessive?
Aarons earning capacity was premised on him being a
lowly minimum wage earner despite his being then The Pereas plead for the reduction of the moral and
enrolled at a prestigious high school like Don Bosco in exemplary damages awarded to the Zarates in the
Makati, a fact that would have likely ensured his success respective amounts of P 2,500,000.00 and P 1,000,000.00 on
in his later years in life and at work. the ground that such amounts were excessive.

And, secondly, the fact that Aaron was then without a The plea is unwarranted.
history of earnings should not be taken against his parents
and in favor of the defendants whose negligence not only The moral damages of P 2,500,000.00 were really just and
cost Aaron his life and his right to work and earn money, reasonable under the established circumstances of this
but also deprived his parents of their right to his presence case because they were intended by the law to assuage the
and his services as well. Our law itself states that the loss Zarates deep mental anguish over their sons unexpected
of the earning capacity of the deceased shall be the and violent death, and their moral shock over the
liability of the guilty party in favor of the heirs of the senseless accident. That amount would not be too much,
deceased, and shall in every case be assessed and awarded considering that it would help the Zarates obtain the
by the court "unless the deceased on account of permanent means, diversions or amusements that would alleviate
physical disability not caused by the defendant, had no their suffering for the loss of their child. At any rate,
earning capacity at the time of his death." Accordingly,
38
reducing the amount as excessive might prove to be an
we emphatically hold in favor of the indemnification for injustice, given the passage of a long time from when their
Aarons loss of earning capacity despite him having been mental anguish was inflicted on them on August 22, 1996.
112 | P a g e | | Tr a n s p o r t a t i o n Law Assigned Readings
Anent the P 1,000,000.00 allowed as exemplary damages, need for greater and constant vigilance in the conduct of a
we should not reduce the amount if only to render business imbued with public interest.
effective the desired example for the public good. As a
common carrier, the Pereas needed to be vigorously WHEREFORE, we DENY the petition for review
reminded to observe their duty to exercise extraordinary on certiorari; AFFIRM the decision promulgated on
diligence to prevent a similarly senseless accident from November 13, 2002; and ORDER the petitioners to pay the
happening again. Only by an award of exemplary costs of suit.
damages in that amount would suffice to instill in them
and others similarly situated like them the ever-present SO ORDERED