1
Nat’l Development Co. v. CA and Development Insurance & Surety Corp.
G.R. No. L-49407 August 19, 1988
Maritime Co. of the Philippines v. CA and Development Insurance & Surety Corp.
G.R. No. L-49469 August 19, 1988
Paras, J.
FACTS:
In accordance with a memorandum agreement entered into between defendants NDC
andMCP, NDC appointed MCP as its agent to manage and operate Dona Nati vessel for and
inits behalf and account
E. Philipp Corporation loaded on board the vessel 1200 bales of American raw
cottonconsigned to the order of Manila Banking Corporation, Manila and the People’s Bank
and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc.,
whorepresents Riverside Mills Corporatio; also loaded on the same vessel were the cargo
of K y o k u t o B o e k u i , K a i s a , L t d . , c o n s i g n e d t o t h e o r d e r o f M a n i l a B a n
k i n g C o r p o r a t i o n consisting of 200 cartons of sodium lauryl sulfate and 10 cases of
aluminum foil
En route to Manila the vessel figured in a collision with a Japanese vessel as a
result of which 550 bales of aforesaid cargo of American raw cotton as well as the cargo
of KyokutoBoekui, Kaisa, Ltd were lost and/or destroyed
Development Insurance & Surety Corp. paid the insurance and filed an action for recoveryof
money against NDC and MCP
ISSUES:
1. which laws govern loss or destruction of goods due to collision of vessels
outsideP h i l i p p i n e w a t e r s ; 2 . w h a t i s t h e e x t e n t o f l i a b i l i t y a s w e l l a s
t h e r u l e s o f p r e s c r i p t i o n provided thereunder
HELD:
1. “[T]he law of the country to which the goo ds are to be transported governs
theliability of the common carrier in case of their loss, destruction or deterioration” (Art.
1753).Since the goods in question are transported from San Francisco, California and Tokyo,
Japanto the Philippines and that they were lost or due to a collision which was found to have
beencaused by the negligence or fault of both captains of the colliding vessels
the laws of thePhilippines will apply.
Art 1735: in all other than those mentioned is Article 1734 thereof, the
common carriershall be presumed to have been at fault or to have acted negligently,
unless it proves thatit has observed the extraordinary diligence required by law
collision – not one of those enumerated under Art. 1734; hence, carrier is presumed to beat
fault or to have acted negligently
2. Art. 826 of the Code of Commerce: where collision is imputable to the
personnel of avessel, the owner of the vessel at fault, shall indemnify the losses and
damages incurredafter an expert appraisal. But more in point
Art. 827, ditto: if the collision is imputable to both vessels, each one shall
suffer its owndamages and both shall be
solidarily
responsible for the losses and damages suffered bytheir cargoes
Art 826 to 839, ditto: the shipowner or carrier is not exempt from liability for
damagesarising from collision due to the fault or negligence of the
captain; primary
liability isi m p o s e d o n t h e s h i p o w n e r o r c a r r i e r i n b e c a u s e o f t h e
a c c e p t e d d o c t r i n e t h a t t h e shipmaster or captain is merely the
representative of the owner who has the actual or constructive control over the
conduct of the voyage
both the owner (NDC) and agent (MPC) of the offending vessel are liable for the damagedone
where both are impleaded; that in case of collision, both the owner and the agent arecivilly—
jointly and severally— responsible for the acts of the captain since the obligation
which is the subject of the action had its origin in a tortious act and did not
arise fromcontract.
Facts:
National Development Company (NDC) appointed Maritime Company of the Philippines
(MCP) as its agent to manage and operate its vessel, ‘Dona Nati’, for and in behalf of its
account. In 1964, while en route to Japan from San Francisco, Dona Nati collided with a
Japanese vessel, ‘SS Yasushima Maru’, causing its cargo to be damaged and lost. The private
respondent, as insurer to the consigners, paid almost Php400,000.00 for said lost and
damaged cargo. Hence, the private respondent instituted an action to recover from NDC.
Issue:
Which laws govern the loss and destruction of goods due to collision of vessels outside
Philippine waters?

Ruling:
In a previously decided case, it was held that the law of the country to which the goods are to
be transported governs the liability of the common carrier in case of their loss, destruction or
deterioration pursuant to Article 1753 of the Civil Code. It is immaterial that the collision
actually occurred in foreign waters, such as Ise Bay, Japan.
It appears, however, that collision falls among matters not specifically regulated by the Civil
Code, hence, we apply Articles 826 to 839, Book Three of the Code of Commerce, which deal
exclusively with collision of vessels.
247 Phil. 560
PARAS, J.:
These are appeals by certiorari from the decision* of the Court of Appeals in CA G.R. No. L-
46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs.
Maritime Company of the Philippines and National Development Company defendant-
appellants", affirming in toto the decision** in Civil Case No. 60641 of the then Court of First
Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered ordering the defendants National Development
Company and Maritime Company of the Philippines, to pay jointly and severally, to the
plaintiff Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR
THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (P364,915.86)
with the legal interest thereon from the filing of plaintiff's complaint on April 22, 1965 until
fully paid, plus TEN THOUSAND PESOS (P10,000.00) by way of damages as and for attorney's
fee.
"On defendant Maritime Company of the Philippines' cross-claim against the defendant
National Development Company, judgment is hereby rendered, ordering the National
Development Company to pay the cross-claimant Maritime Company of the Philippines the
total amount that the Maritime Company of the Philippines may voluntarily or by compliance
to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case.
"With costs against the defendant Maritime Company of the Philippines."
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
2
"The evidence before us shows that in accordance with a memorandum agreement entered
into between defendants NDC and MCP on September 13, 1962, defendant NDC as the first
preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati'
appointed defendant MCP as its agent to manage and operate said 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 consigned to the order of Manila Banking Corporation, Manila and the
People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial
Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K-7-A & L-2 to L-7-A).
Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa,
Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of
sodium lauryl sulfate and 10 cases of aluminium foil (Exhs. M & M-1). En route to Manila the
vessel Dona Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a
Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of
American raw cotton were lost and/or destroyed, of which 535 bales as damaged were
landed and sold on the authority of the General Average Surveyor for Yen 6,045,500 and 15
bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth
P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as
holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A,
K-5-A, A-2, N-3 and R-3). Also considered totally lost were the aforesaid shipment of Kyokuto,
Boekui, Kaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for
Guilcon, Manila. The total loss was P19, 938.00 which the plaintiff as insurer paid to Guilcon
as holder of the duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had
paid as insurer the total amount of P364,915.86 to the consignees or their successors-in-
interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover
said amount from the defendants-NDC and MCP as owner and ship agent respectively, of the
said 'Dona Nati' vessel." (Rollo, L-49469, p. 38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then
Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus
attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal, pp. 1-6).
Interposing the defense that the complaint states no cause of action and even if it does, the
action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp.
7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965
(Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of
the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8,
1965, MCP filed its answer with counterclaim and cross-claim against NDC.
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp.
22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp.
39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off
from the record for its failure to answer DISC's written interrogatories and to comply with
the trial court's order dated August 14, 1965 allowing the inspection or photographing of the
memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise
declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to
set aside the order of October 16, 1965, but the trial court denied it in its order dated

September 21, 1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial
court rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarily
to DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the filing
of the complaint of April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise,
in said decision, the trial court granted MCP's cross-claim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17,
1970 after its motion to set aside the decision was denied by the trial court in its order dated
February 13, 1970.
On November 17, 1978, the Court of Appeals promulgated its decision affirming in toto the
decision of the trial court.
Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No.
49469. On July 25, 1979, this Court ordered the consolidation of the above cases (Rollo, p.
103). On August 27, 1979, these consolidated cases were given due course (Rollo, p. 108) and
submitted for decision on February 29, 1980 (Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND
NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE
CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES
RESULTING FROM THE COLLISION OF ITS VESSEL "DONA NATI" WITH THE "YASUSHIMA
MARU" OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE
PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT FOR REIMBURSEMENT
FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER,
HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National
Development Company; p. 96, Rollo)
On its part, MCP assigned the following alleged errors:
I VI
3
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS
AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING
THE COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION
OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS
AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE
STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE
RESPONDENT'S EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION
OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH
VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT,
NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU
WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF
COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP
AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL
DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE
WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN COLLISION
OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.
V
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES
TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE
AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED
IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 10 OF THE BILLS OF
LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO
SPEAK OF.

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL
DEVELOPMENT COMPANY AND MARITIME COMPANY OF THE PHILIPPINES TO PAY JOINTLY
AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY
CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE
COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEY'S FEES INSTEAD OF
SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM
IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS.
(pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss
or destruction of goods due to collision of vessels outside Philippine waters, and the extent
of liability as well as the rules of prescription provided thereunder.
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 bar and not the Civil Code or the Code of Commerce. Under
Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from
the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the
navigation or in the management of the ship." Thus, NDC insists that based on the findings of
the trial court which were adopted by the Court of Appeals, both pilots of the colliding
vessels were at fault and negligent, NDC would have been relieved of liability under the
Carriage of Goods by Sea Act. Instead, Article 827 of the Code of Commerce was applied and
both NDC and MCP were ordered to reimburse the insurance company for the amount the
latter paid to the consignee as earlier stated.
This issue has already been laid to rest by this Court in Eastern Shipping Lines Inc. v. IAC (150
SCRA 469-470 [1987]) where it was held under similar circumstances that "the law of the
country to which the goods are to be transported governs the liability of the common carrier
in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule
was specifically laid down that for cargoes transported from Japan to the Philippines, the
liability of the carrier is governed primarily by the Civil Code and in all matters not regulated
by said Code, the rights and obligations of common carrier shall be governed by the Code of
Commerce and by special laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea
Act, a special law, is merely suppletory to the provisions of the Civil Code.
In the case at bar, it has been established that the goods in question are transported from
San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or
damaged due to a collision which was found to have been caused by the negligence or fault
of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of
the Philippines will apply, and it is immaterial that the collision actually occurred in foreign
waters, such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and
for reasons of public policy are bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of the passengers transported by them according to all
4
circumstances of each case. Accordingly, under Article 1735 of the same Code, in all cases
other than those mentioned in Article 1734 thereof, the common carrier shall be presumed
to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil
Code, so that no reversible error can be found in respondent court's application to the case
at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively
with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is
imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the
losses and damages incurred after an expert appraisal. But more in point to the instant case
is Article 827 of the same Code, which provides that if the collision is imputable to both
vessels, each one shall suffer its own damages and both shall be solidarily responsible for the
losses and damages suffered by their cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839,
the shipowner or carrier, is not exempt from liability for damages arising from collision due
to the fault or negligence of the captain. Primary liability is imposed on the shipowner or
carrier in recognition of the universally accepted doctrine that the shipmaster or captain is
merely the representative of the owner who has the actual or constructive control over the
conduct of the voyage (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751
[1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should
apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage
of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of
collision, said Act in no uncertain terms, restricts its application "to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade." Under Section 1
thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any
existing provision of the Code of Commerce which is now in force, or as limiting its
application." By such incorporation, it is obvious that said law not only recognizes the exis-
tence of the Code of Commerce, but more importantly does not repeal nor limit its
application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance
and Surety Corporation, has no cause of action against it because the latter did not prove
that its alleged subrogers have either the ownership or special property right or beneficial
interest in the cargo in question; neither was it proved that the bills of lading were
transferred or assigned to the alleged subrogers; thus, they could not possibly have trans-
ferred any right of action to said plaintiff-appellee in this case. (Brief for the Maritime
Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of
the duly endorsed bills of lading covering the shipments in question and an examination of
 5

the invoices in particular, shows that the actual consignees of the said goods are the
aforementioned companies. Moreover, no less than MCP itself issued a certification attesting
to this fact. Accordingly, as it is undisputed that the insurer, plaintiff-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 to recover (what it has paid) from
defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarily with NDC because it is merely the
manager and operator of the vessel Dona Nati, not a ship agent. As the general managing
agent, according to MCP, it can only be liable if it acted in excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of
September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term
broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even
conferred all the powers of the owner of the vessel, including the power to contract in the
name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the
circumstances, MCP cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the
damage done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil.
281 [1906]); that in case of collision, both the owner and the agent are civilly responsible for
the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing
Article 586 of the Code of Commerce; Standard Oil Co. of New YOrk v. Lopez Castelo, 42 Phil.
256, 262 [1921]); that while it is true that the liability of the naviero in the sense of charterer
or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly
deducible from the general doctrine of jurisprudence under the Civil Code but more specially
as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the
Court held that both the owner and agent (Naviero) should be declared jointly and severally
liable, since the obligation which is the subject of the action had its origin in a tortious act
and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423
[1923]). Consequently, the agent, even though he may not be the owner of the vessel, is
liable to the shippers and owners of the cargo transported by it, for losses and damages
occasioned to such cargo, without prejudice, however, to his rights against the owner of the
ship, to the extent of the value of the vessel, its equipment, and the freight (Behn, Meyer Y
Co. v. McMicking et al. 11 Phil. 276 [1908]).
and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law
on averages (Articles 806 to 818, Code of Commerce).
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS
Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati, need
not be discussed lengthily as said claim is not only at variance with NDC's posture, but also
contrary to the factual findings of the trial court affirmed no less by the Court of Appeals,
that both pilots were at fault for not changing their excessive speed despite the thick fog
obstructing their visibility.
Finally on the issue of prescription, the trial court correctly found that the bills of lading
issued allow trans-shipment of the cargo, which simply means that the date of arrival of the
ship Dona Nati on April 18, 1964 was merely tentative to give allowances for such contin-
gencies that said vessel might not arrive on schedule at Manila and therefore, would
necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact,
because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964
arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in
question been saved, they could have arrived in Manila on the above-mentioned dates.
Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before
the lapse of one (1) year from the date the lost or damaged cargo "should have been
delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed
decision of the respondent Appellate Court is AFFIRMED.
SO ORDERED.

As to the extent of their liability, MCP insists that their liability should be limited to P200.00
per package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the
MCP argues that the law on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills
of lading and corroborated no less by invoices offered as evidence during the trial. Besides,
common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barretto et al.,(51
Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss
was caused by its own negligence." Negligence of the captains of the colliding vessel being
the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes

EN BANC
G.R. No. 114222 April 6, 1995
FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,
vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation and Communications, and EDSA LRT CORPORATION, LTD., respondents.
QUIASON, J.:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from
further implementing and enforcing the "Revised and Restated Agreement to Build, Lease
and Transfer a Light Rail Transit System for EDSA" dated April 22, 1992, and the
"Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build,
Lease and Transfer a Light Rail Transit System for EDSA" dated May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the
Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent
Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and
Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private
corporation organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major
thoroughfare in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon,
Mandaluyong and Makati. The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III),
was intended to provide a mass transit system along EDSA and alleviate the congestion and
growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by
Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a
Build-Operate-Transfer (BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the
project with DOTC.
6
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing,
Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector,
and For Other Purposes," was signed by President Corazon C. Aquino. Referred to as the
Build-Operate-Transfer (BOT) Law, it took effect on October 9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and
operation of government projects through private initiative and investment: Build-Operate-
Transfer (BOT) or Build-Transfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project
underway, DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos.
91-494 and 91-496, respectively creating the Prequalification Bids and Awards Committee
(PBAC) and the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for
the financing and implementation of the project The notice, advertising the prequalification
of bidders, was published in three newspapers of general circulation once a week for three
consecutive weeks starting February 21, 1991.
The deadline set for submission of prequalification documents was March 21, 1991, later
extended to April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of
Italy, Hopewell Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui
& Co., Ltd. of Japan, and EDSA LRT Consortium, composed of ten foreign and domestic
corporations: namely, Kaiser Engineers International, Inc., ACER Consultants (Far East) Ltd.
and Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI
Engineering All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E. L.
Enterprises, Inc., A.M. Oreta & Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz &
co., Inc.
On the last day for submission of prequalification documents, the prequalification criteria
proposed by the Technical Committee were adopted by the PBAC. The criteria totalling 100
percent, are as follows: (a) Legal aspects — 10 percent; (b) Management/Organizational
capability — 30 percent; and (c) Financial capability — 30 percent; and (d) Technical
capability — 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the
Implementation Rules and Regulations thereof, approved the same.
After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991
declaring that of the five applicants, only the EDSA LRT Consortium "met the requirements of
garnering at least 21 points per criteria [sic], except for Legal Aspects, and obtaining an over-
all passing mark of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided
that the BOT/BT contractor-applicant meet the requirements specified in the Constitution
and other pertinent laws (Rollo, p. 114).

Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the
Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent to
President Aquino two letters dated May 31, 1991 and June 14, 1991, respectively
recommending the award of the EDSA LRT III project to the sole complying bidder, the EDSA
LRT Consortium, and requesting for authority to negotiate with the said firm for the contract
pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT Law
(Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a
directive to the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT
Consortium submitted its bid proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent
EDSA LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an
"Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" under the
terms of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract.
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive
Secretary Orbos, informed Secretary Prado that the President could not grant the requested
approval for the following reasons: (1) that DOTC failed to conduct actual public bidding in
compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the
only mode to award BOT projects, and the prequalification proceedings was not the public
bidding contemplated under the law; (3) that Item 14 of the Implementing Rules and
Regulations of the BOT Law which authorized negotiated award of contract in addition to
public bidding was of doubtful legality; and (4) that congressional approval of the list of
priority projects under the BOT or BT Scheme provided in the law had not yet been granted
at the time the contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-
negotiated the agreement. On April 22, 1992, the parties entered into a "Revised and
Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo,
pp. 47-78) inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to
sign the Agreement without need of approval by the President pursuant to the provisions of
Executive Order No. 380 and that certain events [had] supervened since November 7, 1991
which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC,
represented by Secretary Jesus Garcia vice Secretary Prado, and private respondent entered
into a "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to
Build, Lease and Transfer a Light Rail Transit System for EDSA" so as to "clarify their
respective rights and responsibilities" and to submit [the] Supplemental Agreement to the
President, of the Philippines for his approval" (Rollo, pp. 79-80).
7
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his
consideration and approval. In a Memorandum to Secretary Garcia on May 6, 1993,
approved the said Agreements, (Rollo, p. 194).
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and
Slovak Federal Republics and will have a maximum carrying capacity of 450,000 passengers a
day, or 150 million a year to be achieved-through 54 such vehicles operating simultaneously.
The EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of
17.8 kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will
have its own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will
also have thirteen (13) passenger stations and one depot in 16-hectare government property
at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
Private respondents shall undertake and finance the entire project required for a complete
operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58).
Target completion date is 1,080 days or approximately three years from the implementation
date of the contract inclusive of mobilization, site works, initial and final testing of the system
(Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability
thereof, private respondent shall deliver the use and possession of the completed portion to
DOTC which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated
Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a
monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by an
independent and internationally accredited inspection firm to be appointed by the parties
(Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's
capital shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come
from the earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p.
54). After 25 years and DOTC shall have completed payment of the rentals, ownership of the
project shall be transferred to the latter for a consideration of only U.S. $1.00 (Revised and
Restated Agreement, Sec. 11.1; Rollo, p. 67).
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957,
Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by
the President. The law was published in two newspapers of general circulation on May 12,
1994, and took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes
BLT scheme and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE
SUPPLEMENTAL AGREEMENT OF MAY 6, 1993, INSOFAR AS IT GRANTS
EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE

OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS
IS NOT DEFINED NOR RECOGNIZED IN R.A. NO. 6957 OR ITS
IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R;
A. NO. 6957 AND, HENCE, IS UNLAWFUL;
(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT
CORPORATION, LTD. VIOLATES THE REQUIREMENTS PROVIDED IN THE
IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND,
HENCE, IS ILLEGAL;
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR
FAILURE TO BEAR PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL
AND INEFFECTIVE; AND
(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE
GOVERNMENT (Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the
present petition;
(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment
of facts;
(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the
BOT Law;
(4) The nationality requirement for public utilities mandated by the Constitution does not
apply to private respondent;
(5) The Agreements executed by and between respondents have been approved by President
Ramos and are not disadvantageous to the government;
(6) The award of the contract to private respondent through negotiation and not public
bidding is allowed by the BOT Law; and
8
(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No.
7718 passed by the Legislature On May 12, 1994, which provides for direct negotiation as a
mode of award of infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action.
Petitioners, however, countered that the action was filed by them in their capacity as
Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts
entered into by the national government or government-owned or controlled corporations
allegedly in contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and
to disallow the same when only municipal contracts are involved (Bugnay Construction and
Development Corporation v. Laron, 176 SCRA. 240 [1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but
to follow it and uphold the legal standing of petitioners as taxpayers to institute the present
action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992
and the Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the
following reasons:
(1) the EDSA LRT III is a public utility, and the ownership and operation
thereof is limited by the Constitution to Filipino citizens and domestic
corporations, not foreign corporations like private respondent;
(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is
not the BOT or BT Scheme under the law;
(3) the contract to construct the EDSA LRT III was awarded to private
respondent not through public bidding which is the only mode of
awarding infrastructure projects under the BOT law; and
(4) the agreements are grossly disadvantageous to the government.
1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the
EDSA LRT III was awarded by public respondent, is admittedly a foreign corporation "duly
incorporated and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no

dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it
over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use.
The question posed by petitioners is:
Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own
EDSA LRT III; a public utility? (Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are
the rail tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not
a public utility. While a franchise is needed to operate these facilities to serve the public,
they do not by themselves constitute a public utility. What constitutes a public utility is not
their ownership but their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public
Service Board, 44 Phil. 551, 557 558 [1923]).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public
utility. However, it does not require a franchise before one can own the facilities needed to
operate a public utility so long as it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
No franchise, certificate or any other form of authorization for
the operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws of
the Philippines at least sixty per centum of whose capital is owned by
such citizens, nor shall such franchise, certificate or authorization be
exclusive character or for a longer period than fifty years . . . (Emphasis
supplied).
In law, there is a clear distinction between the "operation" of a public utility and the
ownership of the facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person
is completely subjected to his will in everything not prohibited by law or the concurrence
with the rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of
the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property
cannot be operated and used to serve the public as a public utility unless the operator has a
franchise. The operation of a rail system as a public utility includes the transportation of
passengers from one point to another point, their loading and unloading at designated places
and the movement of the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A..
Matthews, 20 Ariz 282, 180 P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v.
Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]).
9
The right to operate a public utility may exist independently and separately from the
ownership of the facilities thereof. One can own said facilities without operating them as a
public utility, or conversely, one may operate a public utility without owning the facilities
used to serve the public. The devotion of property to serve the public may be done by the
owner or by the person in control thereof who may not necessarily be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities
used to serve the public can be very well appreciated when we consider the transportation
industry. Enfranchised airline and shipping companies may lease their aircraft and vessels
instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III,
it admits that it is not enfranchised to operate a public utility (Revised and Restated
Agreement, Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC
agreed that on completion date, private respondent will immediately deliver possession of
the LRT system by way of lease for 25 years, during which period DOTC shall operate the
same as a common carrier and private respondent shall provide technical maintenance and
repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp.
57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance
facilities for the depot and rail lines, services for routine clearing and security; and (2)
producing and distributing maintenance manuals and drawings for the entire system
(Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation,
use, maintenance and repair of the rolling stock, power plant, substations, electrical,
signaling, communications and all other equipment as supplied in the agreement (Revised
and Restated Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live
training of DOTC operational personnel which includes actual driving of light rail vehicles
under simulated operating conditions, control of operations, dealing with emergencies,
collection, counting and securing cash from the fare collection system (Revised and Restated
Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction and control
of private respondent only during training (Revised and Restated Agreement, Annex E, Sec.
3.1). The training objectives, however, shall be such that upon completion of the EDSA LRT III
and upon opening of normal revenue operation, DOTC shall have in their employ personnel
capable of undertaking training of all new and replacement personnel (Revised and Restated
Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year construction
period and upon commencement of normal revenue operation, DOTC shall be able to
operate the EDSA LRT III on its own and train all new personnel by itself.
Fees for private respondent' s services shall be included in the rent, which likewise includes
the project cost, cost of replacement of plant equipment and spare parts, investment and
financing cost, plus a reasonable rate of return thereon (Revised and Restated Agreement,
Sec. 1; Rollo, p. 54).

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of
a common carrier. For this purpose, DOTC shall indemnify and hold harmless private
respondent from any losses, damages, injuries or death which may be claimed in the
operation or implementation of the system, except losses, damages, injury or death due to
defects in the EDSA LRT III on account of the defective condition of equipment or facilities or
the defective maintenance of such equipment facilities (Revised and Restated Agreement,
Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding
public. It will have no dealings with the public and the public will have no right to demand
any services from it.
It is well to point out that the role of private respondent as lessor during the lease period
must be distinguished from the role of the Philippine Gaming Management Corporation
(PGMC) in the case of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the
Contract of Lease between PGMC and the Philippine Charity Sweepstakes Office (PCSO) was
actually a collaboration or joint venture agreement prescribed under the charter of the PCSO.
In the Contract of Lease; PGMC, the lessor obligated itself to build, at its own expense, all the
facilities necessary to operate and maintain a nationwide on-line lottery system from whom
PCSO was to lease the facilities and operate the same. Upon due examination of the contract,
the Court found that PGMC's participation was not confined to the construction and setting
up of the on-line lottery system. It spilled over to the actual operation thereof, becoming
indispensable to the pursuit, conduct, administration and control of the highly technical and
sophisticated lottery system. In effect, the PCSO leased out its franchise to PGMC which
actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
(Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v.
Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither
are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract
to railroad companies considered as public utilities (Crystal Car Line v. State Tax Commission,
174 p. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite
Filipino nationality is when the entity applies for a franchise, certificate or any other form of
authorization for that purpose (People v. Quasha, 93 Phil. 333 [1953]).
2. Petitioners further assert that the BLT scheme under the Agreements in question is not
recognized in the BOT Law and its Implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
10
(a) Build-operate-and-transfer scheme — A contractual arrangement
whereby the contractor undertakes the construction including financing,
of a given infrastructure facility, and the operation and maintenance
thereof. The contractor operates the facility over a fixed term during
which it is allowed to charge facility users appropriate tolls, fees, rentals
and charges sufficient to enable the contractor to recover its operating
and maintenance expenses and its investment in the project plus a
reasonable rate of return thereon. The contractor transfers the facility to
the government agency or local government unit concerned at the end of
the fixed term which shall not exceed fifty (50) years. For the
construction stage, the contractor may obtain financing from foreign
and/or domestic sources and/or engage the services of a foreign and/or
Filipino constructor [sic]: Provided, That the ownership structure of the
contractor of an infrastructure facility whose operation requires a public
utility franchise must be in accordance with the Constitution: Provided,
however, That in the case of corporate investors in the build-operate-
and-transfer corporation, the citizenship of each stockholder in the
corporate investors shall be the basis for the computation of Filipino
equity in the said corporation: Provided, further, That, in the case of
foreign constructors [sic], Filipino labor shall be employed or hired in the
different phases of the construction where Filipino skills are available:
Provided, furthermore, that the financing of a foreign or foreign-
controlled contractor from Philippine government financing institutions
shall not exceed twenty percent (20%) of the total cost of the
infrastructure facility or project: Provided, finally, That financing from
foreign sources shall not require a guarantee by the Government or by
government-owned or controlled corporations. The build-operate-and-
transfer scheme shall include a supply-and-operate situation which is a
contractual agreement whereby the supplier of equipment and
machinery for a given infrastructure facility, if the interest of the
Government so requires, operates the facility providing in the process
technology transfer and training to Filipino nationals.
(b) Build-and-transfer scheme — "A contractual arrangement whereby
the contractor undertakes the construction including financing, of a given
infrastructure facility, and its turnover after completion to the
government agency or local government unit concerned which shall pay
the contractor its total investment expended on the project, plus a
reasonable rate of return thereon. This arrangement may be employed in
the construction of any infrastructure project including critical facilities
which for security or strategic reasons, must be operated directly by the
government (Emphasis supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the
construction and financing in infrastructure facility, and operates and maintains the same.
The contractor operates the facility for a fixed period during which it may recover its

expenses and investment in the project plus a reasonable rate of return thereon. After the
expiration of the agreed term, the contractor transfers the ownership and operation of the
project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility,
but after completion, the ownership and operation thereof are turned over to the
government. The government, in turn, shall pay the contractor its total investment on the
project in addition to a reasonable rate of return. If payment is to be effected through
amortization payments by the government infrastructure agency or local government unit
concerned, this shall be made in accordance with a scheme proposed in the bid and
incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility
must comply with the citizenship requirement of the Constitution on the operation of a
public utility. No such a requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement
for the payment by the government of the project cost. The law must not be read in such a
way as to rule out or unduly restrict any variation within the context of the two schemes.
Indeed, no statute can be enacted to anticipate and provide all the fine points and details for
the multifarious and complex situations that may be encountered in enforcing the law
(Director of Forestry v. Munoz, 23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125
[1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the
law.
As a matter of fact, the burden on the government in raising funds to pay for the project is
made lighter by allowing it to amortize payments out of the income from the operation of
the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a
monthly basis according to a schedule of rates through and under the terms of a confirmed
Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the
end of 25 years and when full payment shall have been made to and received by private
respondent, it shall transfer to DOTC, free from any lien or encumbrances, all its title to,
rights and interest in, the project for only U.S. $1.00 (Revised and Restated Agreement, Sec.
11.1; Supplemental Agreement, Sec; 7; Rollo, pp. 67, .87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment
or use of a thing for a certain price and for a period which may be definite or indefinite but
not longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of
ownership at the end of the lease period. But if the parties stipulate that title to the leased
11
premises shall be transferred to the lessee at the end of the lease period upon the payment
of an agreed sum, the lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not
Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and
the National Economic and Development Authority as falling under the Investment Priorities
Plan of Government (Rollo, pp. 310-311). It is, therefore, outside the application of the
Uniform Currency Act (R.A. No. 529), which reads as follows:
Sec. 1. — Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provisions purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against public policy, and
null, void, and of no effect, and no such provision shall be contained in, or
made with respect to, any obligation hereafter incurred. The above
prohibition shall not apply to (a) . . .; (b) transactions affecting high-
priority economic projects for agricultural, industrial and power
development as may be determined by
the National Economic Council which are financed by or through foreign
funds; . . . .
3. The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of
National Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp.
309-312) does not suffice to invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with
commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects
falls, amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT
Law.
Petitioners insist that the prequalifications process which led to the negotiated award of the
contract appears to have been rigged from the very beginning to do away with the usual
open international public bidding where qualified internationally known applicants could
fairly participate.
The records show that only one applicant passed the prequalification process. Since only one
was left, to conduct a public bidding in accordance with Section 5 of the BOT Law for that
lone participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217
SCRA 49, 61 [1993]).
 12

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
relation to Presidential Decree No. 1594 allows the negotiated award of government
infrastructure projects. (e) Build-lease-and-transfer — A contractual arrangement whereby a
project proponent is authorized to finance and construct an
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for infrastructure or development facility and upon its completion turns it
Government Infrastructure Contracts," allows the negotiated award of government projects over to the government agency or local government unit concerned on a
in exceptional cases. Sections 4 of the said law reads as follows: lease arrangement for a fixed period after which ownership of the facility
is automatically transferred to the government unit concerned.
Bidding. — Construction projects shall generally be undertaken by
contract after competitive public bidding. Projects may be undertaken by Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
administration or force account or by negotiated contract only in
exceptional cases where time is of the essence, or where there is lack of Direct Negotiation of Contracts. — Direct negotiation shall be resorted to
qualified bidders or contractors, or where there is conclusive evidence when there is only one complying bidder left as defined hereunder.
that greater economy and efficiency would be achieved through this
arrangement, and in accordance with provision of laws and acts on the
(a) If, after advertisement, only one contractor applies for
matter, subject to the approval of the Minister of Public Works and
prequalification and it meets the prequalification requirements, after
Transportation and Communications, the Minister of Public Highways, or
which it is required to submit a bid proposal which is subsequently found
the Minister of Energy, as the case may be, if the project cost is less than
by the agency/local government unit (LGU) to be complying.
P1 Million, and the President of the Philippines, upon recommendation of
the Minister, if the project cost is P1 Million or more (Emphasis supplied).
(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements,
xxx xxx xxx
after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying.
Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the
(c) If, after prequalification of more than one contractor only one submits
general law on government infrastructure contracts while the BOT Law governs particular
a bid which is found by the agency/LGU to be complying.
arrangements or schemes aimed at encouraging private sector participation in government
infrastructure projects. The two laws are not inconsistent with each other but are in pari
materia and should be read together accordingly. (d) If, after prequalification, more than one contractor submit bids but
only one is found by the agency/LGU to be complying. Provided, That,
any of the disqualified prospective bidder [sic] may appeal the decision of
In the instant case, if the prequalification process was actually tainted by foul play, one
the implementing agency, agency/LGUs prequalification bids and awards
wonders why none of the competing firms ever brought the matter before the PBAC, or
committee within fifteen (15) working days to the head of the agency, in
intervened in this case before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals,
case of national projects or to the Department of the Interior and Local
213 SCRA 640 [1992]; Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).
Government, in case of local projects from the date the disqualification
was made known to the disqualified bidder: Provided, furthermore, That
The challenged agreements have been approved by President Ramos himself. Although then the implementing agency/LGUs concerned should act on the appeal
Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and within forty-five (45) working days from receipt thereof.
Transfer a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits
parties to a contract from renegotiating and modifying in good faith the terms and conditions
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not
thereof so as to meet legal, statutory and constitutional requirements. Under the
contemplated by the BOT Law has now been rendered moot and academic by R.A. No. 7718.
circumstances, to require the parties to go back to step one of the prequalification process
Section 3 of this law authorizes all government infrastructure agencies, government-owned
would just be an idle ceremony. Useless bureaucratic "red tape" should be eschewed
and controlled corporations and local government units to enter into contract with any duly
because it discourages private sector participation, the "main engine" for national growth
prequalified proponent for the financing, construction, operation and maintenance of any
and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
financially viable infrastructure or development facility through a BOT, BT, BLT, BOO (Build-

own-and-operate), CAO (Contract-add-operate), DOT (Develop-operate-and-transfer), ROT
(Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-own-operate) (R.A. No. 7718, Sec.
2 [b-j]).
From the law itself, once and applicant has prequalified, it can enter into any of the schemes
enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined
therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and
"a climate of minimum government regulations and procedures and specific government
undertakings in support of the private sector" (Sec. 1). A curative statute makes valid that
which before enactment of the statute was invalid. Thus, whatever doubts and alleged
procedural lapses private respondent and DOTC may have engendered and committed in
entering into the questioned contracts, these have now been cured by R.A. No. 7718
(cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V.
Duata, 14 SCRA 1041 [1965]; Adong V. Cheong Seng Gee, 43 Phil. 43 [1922].
4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the
government because the rental rates are excessive and private respondent's development
rights over the 13 stations and the depot will rob DOTC of the best terms during the most
productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has been
granted, for a period of 25 years, exclusive rights over the depot and the air space above the
stations for development into commercial premises for lease, sublease, transfer, or
advertising (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of
these development rights, private respondent shall pay DOTC in Philippine currency
guaranteed revenues generated therefrom in the amounts set forth in the Supplemental
Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the
guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent
due private respondent for the construction of the EDSA LRT III (Supplemental Agreement,
Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and income over all contracts on the
commercial spaces shall revert to DOTC upon expiration of the 25-year period.
(Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The
determination by the proper administrative agencies and officials who have acquired
expertise, specialized skills and knowledge in the performance of their functions should be
accorded respect absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v.
Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176
SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong
evidence is necessary to rebut this presumption. Petitioners have not presented evidence on
the reasonable rentals to be paid by the parties to each other. The matter of valuation is an
13
esoteric field which is better left to the experts and which this Court is not eager to
undertake.
That the grantee of a government contract will profit therefrom and to that extent the
government is deprived of the profits if it engages in the business itself, is not worthy of
being raised as an issue. In all cases where a party enters into a contract with the
government, he does so, not out of charity and not to lose money, but to gain pecuniarily.
5. Definitely, the agreements in question have been entered into by DOTC in the exercise of
its governmental function. DOTC is the primary policy, planning, programming, regulating
and administrative entity of the Executive branch of government in the promotion,
development and regulation of dependable and coordinated networks of transportation and
communications systems as well as in the fast, safe, efficient and reliable postal,
transportation and communications services (Administrative Code of 1987, Book IV, Title XV,
Sec. 2). It is the Executive department, DOTC in particular that has the power, authority and
technical expertise determine whether or not a specific transportation or communication
project is necessary, viable and beneficial to the people. The discretion to award a contract is
vested in the government agencies entrusted with that function (Bureau Veritas v. Office of
the President, 205 SCRA 705 [1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED
GR NO. 114222 April 6, 1995
Francisco Tatad, John Osmena and Rodolfo Biazon, petitioners,
vs.
Hon. Jesus Garcia, in his capacity as the Secretary of the Department of Transportation &
Communications, and EDSA LRT CORPORATION, LTD., respondents.
Facts:
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from
further implementing the “Revised and Restated Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA and the Supplemental Agreement to the same project.

Petitioners Francisco Tatad, John Osmena and Rodolfo Biazon are members of the Philippine
Senate and are suing in their capacities as Senators and as taxpayers. Respondent Jesus
Garcia was then Secretary of the DOTC, while private respondent EDSA LRT CORPORATION,
Ltd. is a private corporation organized under the laws of Hongkong.
In 1989, DOTC planned to construct a light railway transit line along EDSA, which shall
traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The objective is to provide a
mass transit system along EDSA and to alleviate the congestion in the metropolis.
On March 15, 1990, then DOTC Secretary Oscar Orbos, acting upon a proposal to construct
the EDSA LRT III on a Build-Operate-Transfer (BOT) basis, had invited Elijahu Levin from the
Eli Levin Enterprises, Inc to send a technical team to discuss the project with the DOTC.
On July 9, 1990, RA No. 6957 referred to as the Build-Operate-Transfer (BOT) was signed by
then President Corazon Aquino. The said Act provides for two schemes for the financing,
construction and operation of government projects through private initiative and
investment: BOT or Build-Transfer (BT).
In accordance with the provisions of RA 6957 and to set the EDSA LRT III project underway,
the Prequalification Bids and Awards Committee and the Technical Committee were formed.
The prequalification criteria totalling 100% are as follows: a.) Legal aspects – 10%; b.)
Management/Organizational capability – 30%; c.) Financial capability- 30%; and d.) Technical
capability – 30%.
Of the 5 applicants, only the EDSA LRT Consortium “met the requirements of garnering at
least 21 points per criteria, except for Legal aspects, and obtaining an over-all passing mark
of at least 82 points.” The Legal aspects referred to provided that the BOT/BT contractor-
applicant meet the requirements specified in the Constitution and other pertinent laws.
14
Subsequently, Sec. Orbos was appointed Executive Secretary to the President of the
Philippines and was replaced by Nicomedes Prado. The latter recommended the award of the
EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and requested
for authority to negotiate with the said firm for the contract pursuant to the BOT Law.
Authority was granted to proceed with the negotiations. The EDSA LRT Consortium
submitted its proposal to DOTC.
Finding the proposal to be in compliance with the bid requirements, DOTC and EDSA LRT
Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an “An
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA” under the terms
of the BOT Law.
Secretary Prado, thereafter, requested presidential approval of the contract.
Exec. Sec. Franklin Drilon, who replaced Sec. Orbos, informed Sec. Prado that the President
could not grant the requested approval for failure to comply with the requirements of the
BOT Law.
In view whereof, Sec. Drilon, the DOTC and private respondent re-negotiated the agreement.
On April 22, 1992, the parties entered into a “Revised and Restated Agreement to Build,
Lease and Transfer and Light Rail Transit System for EDSA. On May 6, 1992, DOTC,
represented by Sec. Jesus Garcia, Sec. Prado and private respondent entered into a
Supplemental Agreement to the April Revised Agreement so as to clarify their respective
rights and responsibilities.
The two agreements were approved by President Fidel Ramos.
According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and
Slovak Federal Republics and will have a maximum carrying capacity of 450,000 passengers a
 15

day. The system will have its own power facility. It will also have 13 passenger stations and What private respondent owns are the rail tracks, rolling stocks like the coaches, rail stations,
one depot in 16-hectare government property at North Avenue. terminals and the power plant, not a public utility. While a franchise is needed to operate
these facilities to serve the public, they do not by themselves constitute a public utility. What
constitutes a public utility is not their ownership but their use to serve the public.

Private respondents shall undertake and finance the entire project required for a complete
operational light rail transit system. Target completion date is approximately 3 years from
the implementation date of the contract. Upon full and partial completion and viability Section 11 of Article XII of the Constitution provides:
thereof, private respondent shall deliver the use and possession of the completed portion to
DOTC which shall operate the same. DOTC shall pay private respondent rentals on aj monthly
basis through an Irrevocable Letter of Credit. The rentals shall be determined by an
No franchise, certificate or any other form of authorization for the operation of a public
independent and internationally accredited inspection firm to be appointed by the parties.
utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of whose capital is
owned by such citizens, nor shall such franchise, certificate or authorization be exclusive
As agreed upon, private respondent’s capital shall be recovered from the rentals to be paid character or for a longer period than 50 years.
by the DOTC which, in turn, shall come from the earnings of the EDSA LRT III. After 25 years
and DOTC shall have completed payment of the rentals, ownership of the project shall be
transferred to the latter for a consideration of only US $1.00.
The right to operate a public utility may exist independently and separately from the
ownership of the facilities thereof. One can own said facilities without operating them as a
public utility, or conversely, one may operate a public utility without owning the facilities
In their petition, petitioners argued that the agreement of April 22, 1992, as amended by the used to serve the public. The devotion of property to serve the public may be done by the
Supplemental Agreement of May 6, 1993, in so far as it grants EDSA LRT COPORTATION, LTD., owner or by the person in control thereof who may not necessarily be the owner thereof.
a foreign corporation, the ownership of EDSA LRT III, a public utility, violates the constitution,
and hence, is unconstitutional. They contend that the EDSA LRT III is a public utility, and the
ownership and operation thereof is limited by the Constitution to Filipino citizens and
While private respondent is the owner of the facilities necessary to operate the EDSA LRT III,
domestic corporations, not foreign corporations like private respondent.
it admits that it is not enfranchised to operate a public utility. In view of this incapacity,
private respondent and DOTC agreed that on completion date, private respondent will
immediately deliver possession of the LRT system by of lease for 25 years, during which
Issue: period DOTC shall operate the same as a common carrier and private respondent shall
provide technical maintenance and repair services to DOTC.

Whether or not the EDSA LRT III assumes all the obligations and liabilities of a common
carrier. Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of
a common carrier. For this purpose, DOTC shall indemnify and hold harmless private
respondent from any losses, damages, injuries or death which may be claimed in the
operation or implementation of the system, except losses, damages, injury or death due to
Held:
defects in the EDSA LRT III on account of the defective condition of equipment or facilities or
the defective maintenance of such equipment facilities.
 16

Wherefore, the petition is DISMISSED


SECOND DIVISION
G.R. No. L-68729 May 29, 1987
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner,
vs.
NATIONAL TELECOMMUNICATIONS COMMISSION and KAYUMANGGI RADIO NETWORK
INCORPORATED, respondents.
GUTIERREZ, JR, J.:
This petition seeks the reversal of the decision of the National Telecommunications
Commission (NTC) which ordered petitioner Radio Communications of the Philippines,
Incorporated (RCPI) to desist from operating its radio telephone services in Catarman,
Northern Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon.
Petitioner has been operating a radio communications system since 1957 under its legislative
franchise granted by Republic Act No. 2036 which was enacted on June 23, 1957.
In 1968, the petitioner established a radio telegraph service in Sorsogon, Sorsogon. In 1971,
another radio telegraph service was put up in San Jose, Mindoro followed by another in
Catarman, Samar in 1976. The installation of radio telephone services started in 1971 in San
Jose, Mindoro; then in Sorsogon, Sorsogon and Catarman, Samar in 1983.
In a decision dated June 24, 1980 in NTC Case No. 80-08, private respondent Kayumanggi
Radio Network Incorporated was authorized by the public respondent to operate radio
communications systems in Catarman, Samar and in San Jose, Mindoro.
On December 14, 1983, the private respondent filed a complaint with the NTC alleging that
the petitioner was operating in Catarman, Samar and in San Jose, Mindoro without a
certificate of public covenience and necessity. The petitioner, on the other hand, counter-
alleged that its telephone services in the places subject of the complaint are covered by the
legislative franchise recognized by both the public respondent and its predecessor, the Public
Service Commission. In its supplemental reply, the petitioner further stated that it has been
in operation in the questioned places long before private respondent Kayumanggi filed its
application to operate in the same places.
After conducting a hearing, NTC, in its decision dated August 22, 1984 ordered petitioner
RCPI to immediately cease or desist from the operation of its radio telephone services in
Catarman Northern Samar; San Jose, Occidental Mindoro; and Sorsogon, Sorsogon stating
that under Executive Order No. 546, a certificate of public convenience and necessity is
17
mandatory for the operation of communication utilities and services including radio
communications.
On September 4, 1984, the petitioner filed a motion for reconsideration which was denied in
an order dated September 12, 1984.
On October 1, 1984, the present petition was filed raising the issue of whether or not
petitioner RCPI, a grantee of a legislative franchise to operate a radio company, is required to
secure a certificate of public convenience and necessity before it can validly operate its radio
stations including radio telephone services in Catarman, Northern Samar; San Jose,
Occidental Mindoro; and Sorsogon, Sorsogon.
The petitioner's main argument states that the abolition of the Public Service Commission
under Presidential Decree No. 1 and the creation of the National Telecommunications
Commission under Executive Order No. 546 to replace the defunct Public Service Commission
did not affect sections 14 and 15 of the Public Service Law (Commonwealth Act. No. 146, as
amended).
The provisions of the Public Service Law pertinent to the petitioner's allegation are as
follows:
Section 13. (a) the Commission shall have jurisdiction, supervision, and
control over all public services and their franchises, equipment and other
properties, and in the exercise of its authority, it shall have the necessary
powers and the aid of public force: ...
Section 14. The following are exempted from the provisions of the
preceding section:
xxx xxx xxx
(d) Radio companies except with respect to the fixing of rates;
xxx xxx xxx
Section 15. With the exception of those enumerated in the preceding
section, no public service shall operate in the Philippines without
possessing a valid and subsisting certificate from the Public Service
Commission, known as "certificate of public convenience," or "certificate
of convenience and public necessity," as the case may be, to the effect
that the operation of said service and the authorization to do business
will promote the public interests in a proper and suitable manner. ...

We find no merit in the petitioner's contention.
Pursuant to Presidential Decree No. 1 dated September 23,1972, reorganizing the executive
branch of the National Government, the Public Service Commission was abolished and its
functions were transferred to three specialized regulatory boards, as follows: the Board of
Transportation, the Board of Communications and the Board of Power and Waterworks. The
functions so transferred were still subject to the limitations provided in sections 14 and 15 of
the Public Service Law, as amended. With the enactment of Executive Order No. 546 on July
23, 1979 implementing P.D. No.1, the Board of Communications and the
Telecommunications Control Bureau were abolished and their functions were transferred to
the National Telecommunications Commission (Sec. 19(d), Executive Order No. 546). Section
15 of said Executive Order spells out the functions of the National Telecommunications
Commission as follows:
Sec. 15. Functions of the Commission.-The Commission shall exercise the
following functions:
a. Issue Certificate of Public Convenience for the operation of
communications utilities and services, radio communications petitions
systems, wire or wireless telephone or telegraph system, radio and
television broadcasting system and other similar public utilities;
b. Establish, prescribe and regulate areas of operation of particular
operators of public service communications; and determine and
prescribe charges or rates pertinent to the operation of such public utility
facilities and services except in cases where charges or rates are
established by international bodies or associations of which the
Philippines is a participating member or by bodies recognized by the
Philippine Government as the proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone
and telegraph systems and radio communication systems including
amateur radio stations and radio and television broadcasting systems;
d. Sub-allocate series of frequencies of bands allocated by the
International Telecommunications Union to the specific services;
e. Establish and prescribe rules, regulations, standards, specifications in
all cases related to the issued Certificate of Public Convenience and
administer and enforce the same;
f. Coordinate and cooperate with government agencies and other entities
concerned with any aspect involving communications with a view to
continuously improve the communications service in the country;
18
g. Promulgate such rules and regulations, as public safety and interest
may require, to encourage a larger and more effective use of
communications, radio and television broadcasting facilities, and to
maintain effective competition among private entities in these activities
whenever the Commission finds it reasonably feasible;
h. Supervise and inspect the operation of radio stations and
telecommunications facilities;
i. Undertake the examination and licensing of radio operators;
j. Undertake, whenever necessary, the registration of radio transmitters
and transceivers; and
k. Perform such other functions as may be prescribed by law.
It is clear from the aforequoted provision that the exemption enjoyed by radio companies
from the jurisdiction of the Public Service Commission and the Board of Communications no
longer exists because of the changes effected by the Reorganization Law and implementing
executive orders. The petitioner's claim that its franchise cannot be affected by Executive
Order No. 546 on the ground that it has long been in operation since 1957 cannot be
sustained.
A franchise started out as a "royal privilege or (a) branch of the King's prerogative, subsisting
in the hands of a subject." This definition was given by Finch, adopted by Blackstone, and
accepted by every authority since (State v. Twin Village Water Co., 98 Me 214, 56 A 763
(1903)). Today, a franchise, being merely a privilege emanating from the sovereign power of
the state and owing its existence to a grant, is subject to regulation by the state itself by
virtue of its police power through its administrative agencies. We ruled in Pangasinan
transportation Co., Inc. v. Public Service Commission (70 Phil. 221) that:
... statutes enacted for the regulation of public utilities, being a proper
exercise by the State of its police power, are applicable not only to those
public utilities coming into existence after its passage, but likewise to
those already established and in operation ...
Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it amends
the Public Service Law (CA No. 146, as amended) is applicable to the petitioner who must be
bound by its provisions. The petitioner cannot install and operate radio telephone services on
the basis of its legislative franchise alone.
The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can
operate a radio communications system anywhere within the Philippines is erroneous.
Section 1 of said statute reads:

Section 1. Subject to the provisions of the Constitution, and to the
provisions, not inconsistent herewith, of Act Numbered Three thousand
eight hundred and forty-six, entitled.' An Act providing for the regulation
of radio stations and radio communications in the Philippine Islands, and
for other purposes;' Commonwealth Act Numbered One hundred forty-
six, known as the Public Service Act, and their amendments, and other
applicable laws, there is hereby granted to the Radio Communications of
the Philippines, its successors or assigns, the right and privilege of
constructing, installing, establishing and operating in the Philippines, at
such places as the said corporation may select and the Secretary of Public
Works and Communications may approve, radio stations for the
reception and transmission of wireless messages on radiotelegraphy
and/or radiotelephone, including both coastal and marine
telecommunications, each station to consist of two radio apparatus
comprising of a receiving and sending radio apparatus. (Emphasis
supplied).
Section 4(a) of the same Act further provides that:
Sec. 4(a). This franchise shall not take effect nor shall any powers
thereunder be exercised by the grantee until the Secretary of Public
works and Communications shall have allotted to the grantee the
frequencies and wave lengths to be used, and issued to the grantee a
license for such case. (Emphasis supplied)
Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public Works and
Communications was a precondition before the petitioner could put up radio stations in
areas where it desires to operate. It has been repeated time and again that where the
statutory norm speaks unequivocally, there is nothing for the courts to do except to apply it.
The law, leaving no doubt as to the scope of its operation, must be obeyed. (Gonzaga v.
Court of Appeals, 51 SCRA 381).
The records of the case do not show any grant of authority from the then Secretary of Public
Works and Communications before the petitioner installed the questioned radio telephone
services in San Jose, Mindoro in 1971. The same is true as regards the radio telephone
services opened in Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of public
convenience and necessity appears to have been secured by the petitioner from the public
respondent when such certificate,was required by the applicable public utility regulations
(See executive Order No. 546, sec. 15, supra.; Philippine Long Distance Telephone Co. v. City
of Davao, 15 SCRA 75; Olongapo Electric Light and Power Corp. v. National Power
Corporation, et al., G.R. No. L-24912, promulgated April 9, 1987.)
It was well within the powers of the public respondent to authorize the installation by the
private respondent network of radio communications systems in Catarman, Samar and San
Jose, Mindoro. Under the circumstances of this case, the mere fact that the petitioner
19
possesses a franchise to put up and operate a radio communications system in certain areas
is not an insuperable obstacle to the public respondent's issuing the proper certificate to an
applicant desiring to extend the same services to those areas. The Constitution mandates
that a franchise cannot be exclusive in nature nor can a franchise be granted except that it
must be subject to amendment, alteration, or even repeal by the legislature when the
common good so requires. (Art. XII, sec. 11 of the 1986 Constitution). There is an express
provision in the petitioner's franchise which provides compliance with the above mandate
R.A. 2036, sec. 15).
In view of the foregoing, we find no reason to disturb the public respondent's findings of fact,
and conclusions of law insofar as the private respondent was authorized to operate in
Catarman, Samar and San Jose, Mindoro. As a rule, the Commission's findings of fact, if
supported by substantial evidence, are conclusive upon this Court. We may modify or ignore
them only when it clearly appears that there is no evidence to support reasonably such a
conclusion. (Halili v. Daplas, 14 SCRA 14). The petitioner has not shown why the private
respondent should be denied the authority to operate its services in Samar and Mindoro. It
has not overcome the presumption that when the public respondent disturbed the
petitioner's monopoly in certain areas, it was doing so pursuant to public interest and the
common good.
WHEREFORE, the challenged order of the public respondent dated August 22, 1984 is hereby
AFFIRMED. The petition is dismissed for lack of merit.
SO ORDERED.
Facts:
RCPI operated a radio communications system since 1957 under legislative franchise granted
by Republic Act No. 2036 (1957). The petitioner established a radio telegraph service in
Sorsogon, Sorsogon (1968). in San Jose, Mindoro (1971), and Catarman, Samar (1983).
Kayumanggi Radio, on the other hand, was given the rights by the NTC to operate radio
networks in the same areas.
RCPI filed a complaint in the NTC and sought to prohibit Kayumanggi Radio to operate in the
same areas. The NTC ruled against the RTC’s favor and commanded RCPI to desist in the
operation of radio telegraphs in the three areas.
RTC filed a MFR in 1984. This was denied.
In the SC, Petitioner alleged that the Public Service Law had sections that was still in effect
even if the Public Service Commission was abolished and the NTC was established.
These were S13- the Commission shall have jurisdiction, supervision, and control over all
public services and their franchises
S 14- Radio companies are exempt from the commission’s authority except with respect to
the fixing of rates
And S 15-no public service shall operate in the Philippines without possessing a valid and
subsisting certificate from the Public Service Commission, known as "certificate of public
convenience,"
 20

Issue: Whether or not petitioner RCPI, a grantee of a legislative franchise to operate a radio Thus, in the words of R.A. No. 2036 itself, approval of the then Secretary of Public Works and
company, is required to secure a certificate of public convenience and necessity before it can Communications was a precondition before the petitioner could put up radio stations in
validly operate its radio stations including radio telephone services in the aforementioned areas where it desires to operate.
areas The records of the case do not show any grant of authority from the then Secretary of Public
Works and Communications before the petitioner installed the questioned radio telephone
Held: Yes. Petition dismissed. services in San Jose, Mindoro in 1971. The same is true as regards the radio telephone
services opened in Sorsogon, Sorsogon and Catarman, Samar in 1983. No certificate of public
Ratio: convenience and necessity appears to have been secured by the petitioner from the public
Presidential Decree No. 1- the Public Service Commission was abolished and its functions respondent when such certificate,was required by the applicable public utility regulations.
were transferred to three specialized regulatory boards, as follows: the Board of The Constitution mandates that a franchise cannot be exclusive in nature nor can a franchise
Transportation, the Board of Communications and the Board of Power and Waterworks. The be granted except that it must be subject to amendment, alteration, or even repeal by the
functions so transferred were still subject to the limitations provided in sections 14 and 15 of legislature when the common good so requires.
the Public Service Law, as amended.
The succeeding Executive Order No. 546- the Board of Communications and the
Telecommunications Control Bureau were abolished and their functions were transferred to
the National Telecommunications Commission
Section 15- b. Establish, prescribe and regulate areas of operation of particular operators of
public service communications; and determine and prescribe charges or rates pertinent to
the operation of such public utility facilities and services except in cases where charges or
rates are established by international bodies or associations of which the Philippines is a
participating member or by bodies recognized by the Philippine Government as the
proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph
systems and radio communication systems including amateur radio stations and radio and
television broadcasting systems;
The exemption enjoyed by radio companies from the jurisdiction of the Public Service
Commission and the Board of Communications no longer exists because of the changes
effected by the Reorganization Law and implementing executive orders.
The petitioner's claim that its franchise cannot be affected by Executive Order No. 546 on the
ground that it has long been in operation since 1957 cannot be sustained.
Today, a franchise, being merely a privilege emanating from the sovereign power of the state
and owing its existence to a grant, is subject to regulation by the state itself by virtue of its
police power through its administrative agencies. Pangasinan transportation Co.- statutes
enacted for the regulation of public utilities, being a proper exercise by the State of its police
power, are applicable not only to those public utilities coming into existence after its
passage, but likewise to those already established and in operation .
Executive Order No. 546, being an implementing measure of P.D. No. I insofar as it amends
the Public Service Law (CA No. 146, as amended) is applicable to the petitioner who must be
bound by its provisions.
The position of the petitioner that by the mere grant of its franchise under RA No. 2036 it can
operate a radio communications system anywhere within the Philippines is erroneous.
Sec. 4(a). This franchise shall not take effect nor shall any powers thereunder be exercised by
the grantee until the Secretary of Public works and Communications shall have allotted to
the grantee the frequencies and wave lengths to be used, and issued to the grantee a license
for such case.

SECOND DIVISION
G.R. No. 92288 February 9, 1993
BRITISH AIRWAYS, INC., petitioner,
vs.
THE HON. COURT OF APPEALS, Twelfth Division, and FIRST INTERNATIONAL TRADING AND
GENERAL SERVICES, respondents.
Quasha, Asperilla, Ancheta, Peña & Nolasco for petitioner.
Monina P. Lee for private respondent.
NOCON, J.:
This is a petition for review on certiorari to annul and set aside the decision dated November
15, 1989 of the Court of Appeals1 affirming the decision of the trial court2 in ordering
petitioner British Airways, Inc. to pay private respondent First International Trading and
General Services actual damages, moral damages, corrective or exemplary damages,
attorney's fees and the costs as well as the Resolution dated February 15, 19903 denying
petitioner's Motion for Reconsideration in the appealed decision.
It appears on record that on February 15, 1981, private respondent First International
Trading and General Services Co., a duly licensed domestic recruitment and placement
agency, received a telex message from its principal ROLACO Engineering and Contracting
Services in Jeddah, Saudi Arabia to recruit Filipino contract workers in behalf of said
principal.4
During the early part of March 1981, said principal paid to the Jeddah branch of petitioner
British Airways, Inc. airfare tickets for 93 contract workers with specific instruction to
transport said workers to Jeddah on or before March 30, 1981.
As soon as petitioner received a prepaid ticket advice from its Jeddah branch to transport the
93 workers, private respondent was immediately informed by petitioner that its principal had
forwarded 93 prepaid tickets. Thereafter, private respondent instructed its travel agent, ADB
Travel and Tours. Inc., to book the 93 workers with petitioner but the latter failed to fly said
workers, thereby compelling private respondent to borrow money in the amount of
P304,416.00 in order to purchase airline tickets from the other airlines as evidenced by the
cash vouchers (Exhibits "B", "C" and "C-1 to C-7") for the 93 workers it had recruited who
21
must leave immediately since the visas of said workers are valid only for 45 days and the
Bureau of Employment Services mandates that contract workers must be sent to the job site
within a period of 30 days.
Sometime in the first week of June, 1981, private respondent was again informed by the
petitioner that it had received a prepaid ticket advice from its Jeddah branch for the
transportation of 27 contract workers. Immediatety, private respondent instructed its travel
agent to book the 27 contract workers with the petitioner but the latter was only able to
book and confirm 16 seats on its June 9, 1981 flight. However, on the date of the scheduled
flight only 9 workers were able to board said flight while the remaining 7 workers were
rebooked to June 30, 1981 which bookings were again cancelled by the petitioner without
any prior notice to either private respondent or the workers. Thereafter, the 7 workers were
rebooked to the July 4,1981 flight of petitioner with 6 more workers booked for said flight.
Unfortunately, the confirmed bookings of the 13 workers were again cancelled and rebooked
to July 7, 1981.
On July 6, 1981, private respondent paid the travel tax of the said workers as required by the
petitioner but when the receipt of the tax payments was submitted, the latter informed
private respondent that it can only confirm the seats of the 12 workers on its July 7, 1981
flight. However, the confirmed seats of said workers were again cancelled without any prior
notice either to the private respondent or said workers. The 12 workers were finally able to
leave for Jeddah after private respondent had bought tickets from the other airlines.
As a result of these incidents, private respondent sent a letter to petitioner demanding
compensation for the damages it had incurred by the latter's repeated failure to transport its
contract workers despite confirmed bookings and payment of the corresponding travel taxes.
On July 23, 1981, the counsel of private respondent sent another letter to the petitioner
demanding the latter to pay the amount of P350,000.00 representing damages and
unrealized profit or income which was denied by the petitioner.
On August 8, 1981, private respondent received a telex message from its principal cancelling
the hiring of the remaining recruited workers due to the delay in transporting the workers to
Jeddah.5
On January 27, 1982, private respondent filed a complaint for damages against petitioner
with the Regional Trial Court of Manila, Branch 1 in Civil Case No. 82-4653.
On the other hand, petitioner, alleged in its Answer with counterclaims that it received a
telex message from Jeddah on March 20, 1981 advising that the principal of private
respondent had prepaid the airfares of 100 persons to transport private respondent's
contract workers from Manila to Jeddah on or before March 30, 1981. However, due to the
unavailability of space and limited time, petitioner had to return to its sponsor in Jeddah the

prepaid ticket advice consequently not even one of the alleged 93 contract workers were
booked in any of its flights.
On June 5, 1981, petitioner received another prepaid ticket advice to transport 16 contract
workers of private respondent to Jeddah but the travel agent of the private respondent
booked only 10 contract workers for petitioner's June 9, 1981 flight. However, only 9
contract workers boarded the scheduled flight with 1 passenger not showing up as evidenced
by the Philippine Airlines' passenger manifest for Flight BA-020 (Exhibit "7", "7-A", "7-B" and
"7-C").6
Thereafter, private respondent's travel agent booked seats for 5 contract workers on
petitioner's July 4, 1981 flight but said travel agent cancelled the booking of 2 passengers
while the other 3 passengers did not show up on said flight.
Sometime in July 1981, the travel agent of the private respondent booked 7 more contract
workers in addition to the previous 5 contract workers who were not able to board the July
4, 1981 flight with the petitioner's July 7, 1981 flight which was accepted by petitioner
subject to reconfirmation.
However on July 6, 1981, petitioner's computer system broke down which resulted to
petitioner's failure to get a reconfirmation from Saudi Arabia Airlines causing the automatic
cancellation of the bookings of private respondent's 12 contract workers. In the morning of
July 7, 1981, the computer system of the petitioner was reinstalled and immediately
petitioner tried to reinstate the bookings of the 12 workers with either Gulf Air or Saudi
Arabia Airlines but both airlines replied that no seat was available on that date and had to
place the 12 workers on the wait list. Said information was duly relayed to the private
respondent and the 12 workers before the scheduled flight.
After due trial on or on August 27, 1985, the trial court rendered its decision, the dispositive
portion of which reads as follows:
WHEREFORE, in view of all the foregoing, this Court renders judgment:
1. Ordering the defendant to pay the plaintiff actual damages in the sum
of P308,016.00;
2. Ordering defendant to pay moral damages to the plaintiff in the
amount of P20,000.00;
3. Ordering the defendant to pay the plaintiff P10,000.00 by way of
corrective or exemplary damages;
22
4. Ordering the defendant to pay the plaintiff 30% of its total claim for
and as attorney's fees; and
5. To pay the costs.7
On March 13, 1986, petitioner appealed said decision to respondent appellate court after the
trial court denied its Motion for Reconsideration on February 28, 1986.
On November 15, 1989, respondent appellate court affirmed the decision of the trial court,
the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with costs
against the appellant.8
On December 9, 1989, petitioner filed a Motion for Reconsideration which was also denied.
Hence, this petition.
It is the contention of petitioner that private respondent has no cause of action against it
there being no perfected contract of carriage existing between them as no ticket was ever
issued to private respondent's contract workers and, therefore, the obligation of the
petitioner to transport said contract workers did not arise. Furthermore, private
respondent's failure to attach any ticket in the complaint further proved that it was never a
party to the alleged transaction.
Petitioner's contention is untenable.
Private respondent had a valid cause of action for damages against petitioner. A cause of
action is an act or omission of one party in violation of the legal right or rights of the
other.9 Petitioner's repeated failures to transport private respondent's workers in its flight
despite confirmed booking of said workers clearly constitutes breach of contract and bad
faith on its part. In resolving petitioner's theory that private respondent has no cause of
action in the instant case, the appellate court correctly held that:
In dealing with the contract of common carriage of passengers for
purpose of accuracy, there are two (2) aspects of the same, namely: (a)
the contract "to carry (at some future time)," which contract is
consensual and is necessarily perfected by mere consent (See Article
1356, Civil Code of the Philippines), and (b) the contract "of carriage" or
"of common carriage" itself which should be considered as a real contract
for not until the carrier is actually used can the carrier be said to have
already assumed the obligation of a carrier. (Paras, Civil Code Annotated,
Vol. V, p. 429, Eleventh Ed.)

In the instant case, the contract "to carry" is the one involved which is
consensual and is perfected by the mere consent of the parties.
There is no dispute as to the appellee's consent to the said contract "to
carry" its contract workers from Manila to Jeddah. The appellant's
consent thereto, on the other hand, was manifested by its acceptance of
the PTA or prepaid ticket advice that ROLACO Engineering has prepaid
the airfares of the appellee's contract workers advising the appellant that
it must transport the contract workers on or before the end of March,
1981 and the other batch in June, 1981.
Even if a PTA is merely an advice from the sponsors that an airline is
authorized to issue a ticket and thus no ticket was yet issued, the fact
remains that the passage had already been paid for by the principal of
the appellee, and the appellant had accepted such payment. The
existence of this payment was never objected to nor questioned by the
appellant in the lower court. Thus, the cause or consideration which is
the fare paid for the passengers exists in this case.
The third essential requisite of a contract is an object certain. In this
contract "to carry", such an object is the transport of the passengers from
the place of departure to the place of destination as stated in the telex.
Accordingly, there could be no more pretensions as to the existence of an
oral contract of carriage imposing reciprocal obligations on both parties.
In the case of appellee, it has fully complied with the obligation, namely,
the payment of the fare and its willingness for its contract workers to
leave for their place of destination.
On the other hand, the facts clearly show that appellant was remiss in its
obligation to transport the contract workers on their flight despite
confirmation and bookings made by appellee's travelling agent.
xxx xxx xxx
Besides, appellant knew very well that time was of the essence as the
prepaid ticket advice had specified the period of compliance therewith,
and with emphasis that it could only be used if the passengers fly on BA.
Under the circumstances, the appellant should have refused acceptance
of the PTA from appellee's principal or to at least inform appellee that it
could not accommodate the contract workers.
xxx xxx xxx
23
While there is no dispute that ROLACO Engineering advanced the
payment for the airfares of the appellee's contract workers who were
recruited for ROLACO Engineering and the said contract workers were the
intended passengers in the aircraft of the appellant, the said contract "to
carry" also involved the appellee for as recruiter he had to see to it that
the contract workers should be transported to ROLACO Engineering in
Jeddah thru the appellant's transportation. For that matter, the
involvement of the appellee in the said contract "to carry" was well
demonstrated when
the appellant upon receiving the PTA immediately advised the appellee
thereof. 10
Petitioner also contends that the appellate court erred in awarding actual damages in the
amount of P308,016.00 to private respondent since all expenses had already been
subsequently reimbursed by the latter's principal.
In awarding actual damages to private respondent, the appellate court held that the amount
of P308,016.00 representing actual damages refers to private respondent's second cause of
action involving the expenses incurred by the latter which were not reimbursed by ROLACO
Engineering. However, in the Complaint 11 filed by private respondent, it was alleged that
private respondent suffered actual damages in the amount of P308,016.00 representing the
money it borrowed from friends and financiers which is P304,416.00 for the 93 airline tickets
and P3,600.00 for the travel tax of the 12 workers. It is clear therefore that the actual
damages private respondent seeks to recover are the airline tickets and travel taxes it spent
for its workers which were already reimbursed by its principal and not for any other expenses
it had incurred in the process of recruiting said contract workers. Inasmuch as all expenses
including the processing fees incurred by private respondent had already been paid for by
the latter's principal on a staggered basis as admitted in open court by its managing director,
Mrs. Bienvenida Brusellas. 12 We do not find anymore justification in the appellate court's
decision in granting actual damages to private respondent.
Thus, while it may be true that private respondent was compelled to borrow money for the
airfare tickets of its contract workers when petitioner failed to transport said workers, the
reimbursements made by its principal to private respondent failed to support the latter's
claim that it suffered actual damages as a result of petitioner's failure to transport said
workers. It is undisputed that private respondent had consistently admitted that its principal
had reimbursed all its expenses.
Article 2199 of the Civil Code provides that:
Except as provided by law or by stipulations, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as
he has duly proved. Such compensation is referred to as actual or
compensatory damages.

Furthermore, actual or compensatory damages cannot be presumed, but must be duly
proved, and proved with reasonable degree of certainty. A court cannot rely on speculation,
conjecture or guesswork as to the fact and amount of damages, but must depend upon
competent proof that they have suffered and on evidence of the actual amount thereof. 13
However, private respondent is entitled to an award of moral and exemplary damages for
the injury suffered as a result of petitioner's failure to transport the former's workers
because of the latter's patent bad faith in the performance of its obligation. As correctly
pointed out by the appellate court:
As evidence had proved, there was complete failure on the part of the
appellant to transport the 93 contract workers of the appellee on or
before March 30, 1981 despite receipt of the payment for their airfares,
and acceptance of the same by the appellant, with specific instructions
from the appellee's principal to transport the contract workers on or
before March 30, 1981. No previous notice was ever registered by the
appellant that it could not comply with the same. And then followed the
detestable act of appellant in unilaterally cancelling, booking and
rebooking unreasonably the flight of appellee's contract workers in June
to July, 1981 without prior notice. And all of these actuations of the
appellant indeed constitute malice and evident bad faith which had
caused damage and besmirched the reputation and business image of
the appellee. 14
As to the alleged damages suffered by the petitioner as stated in its counterclaims, the
record shows that no claim for said damages was ever made by the petitioner immediately
after their alleged occurrence therefore said counterclaims were mere afterthoughts when
private respondent filed the present case.
WHEREFORE, the assailed decision is hereby AFFIRMED with the MODIFICATION that the
award of actual damages be deleted from said decision.
SO ORDERED.
Lessons Applicable: Actionable Document (Transportation)
FACTS:
February 15, 1981: First International Trading and General Services Co. (First Int'l), a duly
licensed domestic recruitment and placement agency, received a telex message from its
principal ROLACO Engineering and Contracting Services (ROLACO) in Jeddah, Saudi Arabia to
recruit Filipino contract workers in its behalf
24
Early March 1981: ROLACO paid British Airways, Inc. (BA) Jeddah branch the airfare tickets
for 93 contract workers with specific instruction to transport the workers to Jeddah on or
before March 30, 1981
As soon as BA received a prepaid ticket advice from its Jeddah branch informed First Int'l.
Thereafter, First Int'l instructed ADB Travel and Tours. Inc. (its travel agent) to book the 93
workers with BA but it failed
So First Int'l had to borrow P304,416.00 for the purchase of airline tickets from the other
airlines for the 93 workers who must leave immediately since the visas are valid only for 45
days and the Bureau of Employment Services mandates that contract workers must be sent
to the job site within a period of 30 days
First week of June, 1981: First Int'l was again informed by BA that it had received a prepaid
ticket advice from its Jeddah branch for the transportation of 27 contract workers.
Immediately, First Int'l instructed its ADB to book the 27 contract workers with the BA but
only 16 seats were confirmed and booked on its June 9, 1981 flight.
June 9, 1981: only 9 workers were able to board said flight while the remaining 7 workers
were rebooked to:
June 30, 1981 - again cancelled by British without any prior notice to either First Int'l or the
workers
July 4,1981 - (6 + 7 workers) 13 workers were again cancelled and rebooked to July 7, 1981.
July 6, 1981: First Int'l paid the travel tax of the workers as required by BA but when the
receipt of the tax payments was submitted, only 12 seats were confirmed for July 7, 1981
flight
July 7, 1981: Flight was again cancelled without any prior notice
12 workers were finally able to leave for Jeddah after First Int'l had bought tickets from the
other airlines
As a result of these incidents, First Int'l sent a letter to BA demanding compensation for the
damages it had incurred by the repeated failure to transport its contract workers despite
confirmed bookings and payment of the corresponding travel taxes.
July 23, 1981: the counsel of First Int'l sent another letter to BA demanding P350,000.00
damages and unrealized profit or income - denied

August 8, 1981: First Int'l received a telex message from ROLACO cancelling the hiring of the
remaining recruited workers due to the delay in transporting the workers to Jeddah.
January 27, 1982: First Int'l filed a complaint for damages against First Int'l
CA Affirmed RTC: BA to pay First Int'l damages, attorneys fees and costs
ISSUE: W/N BA is not liable because there was no contract of carriage as no ticket was ever
issued
HELD: Affirmed. MODIFICATION that the award of actual damages be deleted (reimbursed by
ROLACO)
In dealing with the contract of common carriage of passengers for purpose of accuracy, there
are two (2) aspects of the same, namely:
(a) the contract "to carry (at some future time)," which contract is consensual and is
necessarily perfected by mere consent - applicable in this case
(b) the contract "of carriage" or "of common carriage" itself which should be considered as a
real contract for not until the carrier is actually used can the carrier be said to have already
assumed the obligation of a carrier
Even if a prepaid ticket advice (PTA) is merely an advice from the sponsors that an airline is
authorized to issue a ticket and thus no ticket was yet issued, the fact remains that the
passage had already been paid for by the principal of the appellee, and the appellant had
accepted such payment
Besides, appellant knew very well that time was of the essence as the prepaid ticket advice
had specified the period of compliance therewith, and with emphasis that it could only be
used if the passengers fly on BA
involvement of the BA in the contract "to carry" was well demonstrated when the it
immediately advised First Int'l
Acts of BA indeed constitute malice and evident bad faith which had caused damage and
besmirched the reputation and business image fo First Int'l
FACTS:
25
First International Trading and General Services Co. – duly licensed domestic recruitmentand
placement agency; it received a telex message from its principal ROLACO Engineeringa n d
C on t rac t i ng Ser vi ce s i n J e dd a h, Sa u d i Ara b ia to re cr u it Fil i p i no co n t rac t
wo rk e r s i n behalf of said principal
ROLACO paid to the Jeddah branch of petitioner British Airways, Inc. airfare tickets for
93contract workers with specific instruction to transport said workers to Jeddah on or
beforeMarch 30, 1981
March 1981: First International was informed by British Airway
s t h a t R O L A C O h a d forwarded 93 prepaid tickets; First International instructed its
travel agent, ADB Travel and Tours. Inc., to book the 93 workers with petitioner but the latter
failed to fly said workers,thereby compelling private respondent to borrow money in the
amount of P304,416.00 inorder to purchase airline tickets from the other airlines for the 93
workers it had recruitedwho must leave immediately since the visas of said workers are valid
only for 45 days andthe Bureau of Employment Services mandates that contract workers
must be sent to the job site within a period of 30 days
June 1981: First International was again informed by British Airways that it had received
aprepaid ticket advice from its Jeddah branch for the transportation of 27 contract
workers;Fi r s t I nt e r na t io na l in s t r uc t ed it s t ra ve l a g e nt to bo ok t h e 27
co n tr ac t wo r ke r s w i t h t h epe t i ti on e r b u t t h e la tt e r was o n ly a b l e to boo k
a n d co nf i rm 1 6 s ea t s o n i t s J u n e 9 , 19 81 fl i g ht ; o n t h e d a t e o f t he
s c h e d ul e d f li g h t o n ly 9 wor k e r s w e re a b l e to bo ar d sa i d f li g h t while the
remaining 7 workers were rebooked to June 30, 1981 which bookings were againc a n c el l e d
b y t h e pe t it io n er w it ho u t a n y p r ior not ic e to e i t he r p r i va t e re s po n d e nt o r
t h ew or k er s ; t he r ea ft e r, t he 7 wo r ke r s we r e r e book ed to t h e J ul y 4,1 9 81
f l i g ht of p e t it io n er with 6 more workers booked for said flight; but the confirmed
bookings of the 13 workerswere again cancelled and rebooked to July 7, 1981
First International paid the travel tax of the said workers as required by British Airways
butw h e n t h e r e c e i p t o f t h e t a x p a y m e n t s w a s s u b m i t t e d
, t h e l a t t e r i n f o r m e d F i r s t International that it can only confirm the seats
of the 12 workers on its July 7, 1981 flight;b u t t h e co nf i rm e d se a t s o f sa i d wor k er s
w e re a g ai n ca nc e l le d w it ho u t a n y p r ior not ic e either to First International or said
workers; the 12 workers were finally able to leave for Jeddah after First International had
bought tickets from the other airlines
July 1981: First International sent a letter to petitioner demanding compensation for
thedamages in the amount of P350,000.00 it had incurred by the latter’s repeated failure
tot r a n s p o r t i t s c o n t r a c t w o r k e r s d e s p i t e c o n f i r m e d b o o
k i n g s a n d p a y m e n t o f t h e corresponding travel taxes
BritishAirways’narration:

it received a telex message from Jeddah advising that ROLACO had prepaid the airfares
of 100 persons to transport First International’s contract workers from Manila to Jeddah on
orbefore March 30, 1981; however, due to the unavailability of space and limited time, it
hadto return to its sponsor in Jeddah the prepaid ticket advice consequently not even one
of the alleged 93 contract workers were booked in any of its flights
June 1981: British Airways received another prepaid ticket advice to transport 16
contractworkers of First International to Jeddah but the travel agent of First International
bookedonly 10 contract workers for British Airways’ June 9, 1981 flight; however, only 9
contractworkers boarded the scheduled flight with 1 passenger not showing up as evidenced
bythePhilippineAirlines’passengermanifest
A.F. SANCHEZ BROKERAGE INC., v. THE HON. COURT OF APPEALS and FGU INSURANCE
CORPORATION
447 SCRA 427 (2004)
A common carrier is liable to the resulting damage to the goods if the improper packaging is
known to the carrier or his employees or is apparent upon ordinary observation, but he
nevertheless accepts the same without protest or exception.
Respondent FGU Insurance Corporation (FGU) brought an action for reimbursement against
petitioner A.F. Sanchez Brokerage Inc. (Sanchez Brokerage) to collect the amount paid by the
former to Wyeth-Suaco Laboratories Inc. (Wyeth-Suaco) as insurance payment for the goods
delivered in bad condition.
A.F. Brokerage refused to admit liability for the damaged goods which it delivered from
Philippines Skylanders, Inc. (PSI) to Wyeth-Suaco as it maintained that the damage was due
to improper and insufficient export packaging, discovered when the sealed containers were
opened outside the PSI warehouse.
The Regional Trial Court of Makati dismissed the said complaint; however, the decision was
subsequently reversed and set aside by the Court of Appeals, finding that Sanchez Brokerage
is liable for the carriage of cargo as a ―common carrier‖ by definition of the New Civil Code.
ISSUE:
Whether or not the FGU Insurance is liable for the delivery of the damaged goods
HELD:
As defined under Article 1732 of the Civil Code, common carriers are persons, corporations,
firms or associations engaged in the business of carrying or transporting passengers or goods
26
or both by land, water or air for compensation, offering their services to the public. It does
not distinguish between one whose principal business activity is the carrying of goods and
one who does such carrying only as an ancillary activity. The contention therefore of Sanchez
Brokerage that it is not a common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as required by law
is bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.
In this light, Sanchez Brokerage as a common carrier is mandated to observe, under Article
1733 of the Civil Code, extraordinary diligence in the vigilance over the goods it transports
according to all the circumstances of each case. In the event that the goods are lost,
destroyed or deteriorated, it is presumed to have been at fault or to have acted negligently,
unless it proves that it observed extraordinary diligence.
The concept of ―extra-ordinary diligence‖ was explained in Compania Maritima v. Court of
Appeals. The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for avoiding
damage to or destruction of the goods entrusted to it for sale, carriage and delivery. It
requires common carriers to render service with the greatest skill and foresight and ―to use
all reasonable means to ascertain the nature and characteristics of goods tendered for
shipment and to exercise due care in the handling and storage including such methods as
their nature requires.
It was established that Sanchez Brokerage received the cargoes from the PSI warehouse in
good order and condition and that upon delivery by petitioner some of the cargoes were
found to be in bad order as noted in the Delivery Receipt and as indicated in the Survey and
Destruction Report.
While paragraph no. 4 of Article 1734 of the Civil Code exempts a common carrier from
liability if the loss or damage is due to the character of the goods or defects in the packaging
or in the containers, the rule is that if the improper packaging is known to the carrier or his
employees or is apparent upon ordinary observation, but he nevertheless accepts the same
without protest or exception notwithstanding such condition, he is not relieved of liability for
the resulting damage. If the claim of Sanchez Brokerage that some of the cartons were
already damaged upon delivery to it were true, then it should naturally have received
the cargo under protest or with reservation duly noted on the receipt issued by PSI but it
made no such protest or reservation.
 27

Crisostomo v CAG.R. No. 138334 Aug 25, 2003 Ynares-Santiaga, RCA j. The petitioner then take another package (British Pageant) offered by the respondent;
Breach of Obligations>Negligence>Standard of Care
Summary: She went to RTC to demand reimbursement on the differential cost of the two tourpackages.
In this case, the petitioner contracted with Caravan T&T (travel agency) for her trip toEurope. Petitioner holds that there was BREACH OF CONTRACT OF CARRIAGE
However, the petitioner missed her flight because the flight she was supposed to & DAMAGES. Lower courts’ decision below:
take had already departed from the previous day. Petitioner main contention’s is that,
Caravan T&T, as a common carrier should observed EXTRA ORDINARY DILIGENCE.SC ruled
that the standard of care required of common carrier is not applicable to CaravanT&T since
from the nature of the latter is not to transport people but to make bookingarrangements
with their clients. The default standard of care is only diligence of a good fatherof a family.
Doctrines:
The negligence of the obligor in the performance of the obligation renders him liable
fordamages for the resulting loss suffered by the obligee. Fault or negligence of the
obligorconsists in his failure to exercise due care and prudence in the performance of the
obligationas the nature of the obligation so demands.There is no fixed standard of diligence
applicable to each and every contractual obligationand each case must be determined upon
its particular facts. The degree of diligence requireddepends on the circumstances of the
specific obligation and whether one has been negligentis a question of fact that is to be
determined after taking into account the particulars of eachcase.
Facts:

Petitioner
: Estela Crisostomo (Lawyer, well-travelled woman)

Respondents:
Caravan Travel & Tours Int’l Inc (Travel agency), Company’s
Manager, Meriam Menor (niecec also of Estela)

The petitioner contracted the respondent to arrange & facilitate her booking & ticketing
& accommodation in “Jewels

of Europe” tour.

Menor, manager of the travel agency, went to the petitioner’s residence & deliver all
necessary travel documents & advise the petitioner to be at NAIA on
Saturday (Jun15, 1991),
two (2) hours before the flight.

Without checking the travel documents, the petitioner went to NAIA on Saturday.However,
she discovered that the flight she was supposed to take had alreadydeparted the previous
day.
28
 29

o
RTC: Respondent is negligent. Petitioner was merely guilty of contributorynegligence.
o
CA: Petitioner is more negligent. Hence, not entitled for damages.
ISSUE/HOLDING:WON Caravan Travel & Tours is obliged to observe extra-ordinary
diligence? (NO)
Respondent is not a common carrier but a travel agency. It is thus not bound under the law
toobserve extraordinary diligence in the performance of its obligation, as petitioner claims.By
definition, a contract of carriage or transportation is one whereby a certain person
orassociation of persons obligate themselves to transport persons, things, or news from
oneplace to another for a fixed price. It is obvious from the above definition that respondent
is notan entity engaged in the business of transporting either passengers or
goods. Respondentdid not undertake to transport petitioner from one place to another since
its covenant with itscustomers is simply to make travel
arrangements in their behalf. Respondent’s services as a
travel agency include procuring tickets and facilitating travel permits or visas as well
asbooking customers for tours
DISPOSITIVE:
Petition is DENIED for lack of merit.Decision of the Court of Appeals is AFFIRMED
FACTS:

1. Petitioner Estela L. Crisostomo (Crisostomo) contracted the services of respondent
Caravan Travel and Tours International, Inc. (Caravan) to arrange and facilitate her booking,
ticketing and accommodation in a tour dubbed “Jewels of Europe”.
2. Pursuant to said contract, MeriamMenor (MENOR) who is also the niece of Crisostomo,
went to the latter’s residence to deliver the travel documents and plane tickets. Crisostomo,
in turn, gave Menor the full payment for the package tour.
3. Without checking her travel documents, Crisostomo went to NAIA. However, she
discovered that the flight she was supposed to take had already departed the previous day.
She thus called up Menor to complain.
4. Subsequently, Menor prevailed upon Crisostomo to take another tour – the “British
Pageant” to which Crisostomo was asked to pay once again.
5. Upon Crisostomo’s return from Europe, she demanded from Caravan the reimbursement
of P61,421.70, representing the difference between the sum she paid for “Jewels of Europe”
and the amount she owed Caravan for the “British Pageant” tour. Despite several demands,
Caravan refused to reimburse the amount, contending that the same was non-refundable.
Crisostomothus filed a case.
6. Crisostomo alleged that her failure to join “Jewels of Europe” was due to Caravan’s fault
since it did not clearly indicate the departure date on the plane ticket. Caravan was also
negligent in informing her of the wrong flight schedule through its employee Menor.
7. Caravan insisted that Crisostomo was informed of the correct departure date, which was
clearly and legibly printed on the plane ticket. The travel documents were given two days
ahead of the scheduled trip. Crisostomo had only herself to blame for missing the flight, as
she did not bother to read or confirm her flight schedule as printed on the ticket.
8. RTC: Caravan was negligent in erroneously advising Crisostomo of the wrong
date.Crisostomo incurred contributory negligence for not checking her travel documents.
Caravan should reimburse Crisostomobut with deductions due to her contributory
negligence.
9. CA: Both parties were at fault. However, Crisostomo is more negligent because as a lawyer
and well-traveled person, she should have known better than to simply rely on what was told
to her. This being so, she is not entitled to any form of damages.
10. Crisostomo appealed to SC. She contended that Caravan did not observe the standard of
care required of a common carrier when it informed her wrongly of the flight schedule. She
could not be deemed more negligent than Caravan since the latter is required by law to
30
exercise extraordinary diligence in the fulfillment of its obligation. If she were negligent at all,
the same is merely contributory and not the proximate cause of the damage she suffered.
ISSUE:Whether or not a travel agency is a common carrier and is therefore required to
exercise extraordinary diligence.
HELD:No, a travel agency is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier.
RATIO: By definition, a contract of carriage or transportation is one whereby a certain person
or association of persons obligate themselves to transport persons, things, or news from one
place to another for a fixed price. Such person or association of persons are regarded as
carriers and are classified as private or special carriers and common or public carriers. A
common carrier is defined under Article 1732 of the Civil Code as persons, corporations,
firms or associations engaged in the business of carrying or transporting passengers or goods
or both, by land, water or air, for compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the
business of transporting either passengers or goods. Respondent did not undertake to
transport petitioner from one place to another since its covenant with its customers is simply
to make travel arrangements in their behalf. Respondent’s services as a travel agency include
procuring tickets and facilitating travel permits or visas as well as booking customers for
tours.
The object of petitioner’s contractual relation with respondent is the latter’s service of
arranging and facilitating petitioner’s booking, ticketing and accommodation in the package
tour. In contrast, the object of a contract of carriage is the transportationof passengers or
goods. It is in this sense that the contract between the parties in this case was an ordinary
one for services and not one of carriage.
CASE LAW/ DOCTRINE: a travel agency is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common
carrier. It goes without saying that a travel agency is not required by law to exercise extra
ordinary diligence.
De Guzman v. CA
Facts:

Respondent Ernesto Cendana was a junk dealer. He buys scrap materials and brings those
that he gathered to Manila for resale using 2 six-wheeler trucks. On the return trip to
Pangasinan, respondent would load his vehicle with cargo which various merchants wanted
delivered, charging fee lower than the commercial rates. Sometime in November 1970,
petitioner Pedro de Guzman contracted with respondent for the delivery of 750 cartons of
Liberty Milk. On December 1, 1970, respondent loaded the cargo. Only 150 boxes were
delivered to petitioner because the truck carrying the boxes was hijacked along the way.
Petitioner commenced an action claiming the value of the lost merchandise. Petitioner
argues that respondent, being a common carrier, is bound to exercise extraordinary
diligence, which it failed to do. Private respondent denied that he was a common carrier, and
so he could not be held liable for force majeure. The trial court ruled against the respondent,
but such was reversed by the Court of Appeals.
Issues:
(1) Whether or not private respondent is a common carrier
(2) Whether private respondent is liable for the loss of the goods
Held:
(1) Article 1732 makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity. Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a
narrow segment of the general population. It appears to the Court that private respondent is
properly characterized as a common carrier even though he merely "back-hauled" goods for
other merchants from Manila to Pangasinan, although such backhauling was done on a
periodic or occasional rather than regular or scheduled manner, and even though private
31
respondent's principal occupation was not the carriage of goods for others. There is no
dispute that private respondent charged his customers a fee for hauling their goods; that fee
frequently fell below commercial freight rates is not relevant here. A certificate of public
convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers.
(2) Article 1734 establishes the general rule that common carriers are responsible for the
loss, destruction or deterioration of the goods which they carry, "unless the same is due to
any of the following causes only:
a. Flood, storm, earthquake, lightning, or other natural disaster or calamity;
b. Act of the public enemy in war, whether international or civil;
c. Act or omission of the shipper or owner of the goods;
d. The character of the goods or defects in the packing or in the containers; and
e. Order or act of competent public authority."
The hijacking of the carrier's truck - does not fall within any of the five (5) categories of
exempting causes listed in Article 1734. Private respondent as common carrier is presumed
to have been at fault or to have acted negligently. This presumption, however, may be
overthrown by proof of extraordinary diligence on the part of private respondent. We
believe and so hold that the limits of the duty of extraordinary diligence in the vigilance over
the goods carried are reached where the goods are lost as a result of a robbery which is
attended by "grave or irresistible threat, violence or force." we hold that the occurrence of
the loss must reasonably be regarded as quite beyond the control of the common carrier and
properly regarded as a fortuitous event. It is necessary to recall that even common carriers
 32

are not made absolute insurers against all risks of travel and of transport of goods, and are
not held liable for acts or events which cannot be foreseen or are inevitable, provided that
they shall have complied with the rigorous standard of extraordinary diligence.

First Philippine Industrial Corp. v. CA, Paterno Tac-an, Bantangas City, andAdoracion
Arellano (treasurer of Batangas)
G.R. No. 125948 December 29, 1998
Martinez, J.
FACTS:
FPIC – grantee of a pipeline concession under Republic Act No. 387,
a s a m e n d e d , t o contract, install and operate oil pipelines
It applied for a mayor’s permit with the Office of the Mayor of Batangas City.
Before thepermit could be issued, it was required by the City Treasurer to pay a local tax
based on itsgross receipts for the fiscal year 1993 pursuant to the Local Government Code. It
paid thetax under protest.
It filed a complaint for tax refund alleging that 1) the imposition and
collection of thebusiness tax on its gross receipts violates Section 133 of the
Local Government Codewhich grants tax exemption to common carriers; 2) the authority
of cities to impose andcollect a tax on the gross receipts of “contractors and independent
contractors” under Sec.141 (e) and 151 does not include the authority to collect
such taxes on
transportationc o n t r a c t o r s f o r , a s d e f i n e d u n d e r S e c . 1 3 1 ( h ) , t
h e t e r m “ c o n t r a c t o r s ” e x c l u d e s transportation contractors; and, 3) the City
Treasurer illegally and erroneously imposedand collected the said tax, thus meriting the
immediate refund of the tax paid.
ISSUES:
1. WON FPIC is a common carrier; 2. WON it is exempted from paying the
taxesrequired by the City Treasurer
HELD:
1. Yes. FPIC is engaged in the business
o f t r a n s p o r t i n g o r c a r r y i n g g o o d s , i . e . petroleum products, for hire as a public
employment. It undertakes to carry for all personsindifferently, that is, to all persons
who choose to employ its services, and transports the goods by land and
for compensation.
common carrier -
holds himself out to the public as engaged in the bu
s i n e s s o f transporting persons or property from place to place, f
o r c o m p e n s a t i o n , o f f e r i n g h i s services to the public generally (see also Art. 1732)
test for determining whether a party is a common carrier of goods:
a. engaged in the business of carrying goods for others as a public employment, and
musthold himself out as ready to engage in the transportation of goods for person generally
asa business and not as a casual occupation;
b. undertakes to carry goods of the kind to which his business is confined
33
c. undertakes to carry by the me thod by which his business is conducted and
over hisestablished roads
d. transportation is for hire
common service coincides with public service
public service
– includes every person that now or hereafter may own, operate. manage,or control in
the Philippines, for hire or compensation, with general or limited
clientele,whether permanent, occasional or accidental, and done for general business
purposes, anycommon carrier, railroad, street railway, traction railway, subway
motor vehicle, either
forf r e i g h t o r p a s s e n g e r , o r b o t h , w i t h o r w i t h o u t f i x e d r o u t e a n d w h
atever may be itsclassification, freight or carrier service of any clas
s, express service, steamboat, orsteamship line, pontines, ferries a
n d w a t e r c r a f t , e n g a g e d i n t h e t r a n s p o r t a t i o n o f passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system gas, electric light heat and power, water supplyand power petroleum,
sewerage system, wire or wireless communications systems, wire orwireless broadcasting
stations and other similar public services (CA No. 1416, as amended,otherwise known as
the Public Service Act)
FPIC - considered a common carrier under Art. 86 of the Petroleum Act of the Philippines(RA
387), which provides that: Art. 86. Pipe line concessionaire as common carrier. — A
pipe line shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to utilize the remaining
transportation capacitypro rata for the transportation of such other petroleum as
may be offered by others for transport, and to charge without discrimination such rates
as may have been approved bythe Secretary of Agriculture and Natural Resources.
FPIC is also a public utility purs uant to Art. 7 of RA 387 which states that
“everythingrelating to the exploration for and exploitation of petroleum . . . and everything
relating tothe manufacture, refining, storage, or transportation by special methods of
petroleum, ishereby declared to be a public utility”
2. Yes. Legal basis is Section 133 (j), of the Local Government Code which provides
that“Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities,municipalities, and barangays shall not extend to the levy of the following: Taxes on
thegross receipts of transportation contractors and persons engaged in the transportation
of passengers or freight by hire and
common carriers
b y a i r , l a n d o r w a t e r , e x c e p t a s provided in this Code”.
 34

Reason for the exception: to avoid duplication of tax.