Vda.

De Nuec
a vs Manila Railroad Company
Facts:
-
At 3 p.m. on Dec. 22, 1958, Fermin Nueca brought 7 sacks of palay to
Manila
Railroad Co. (MRC) at its station in Barrio del Rosario, Camarines Sur, to be
shipped to
the municipality of
Libmanan of the same province.
-
He paid P 0.70 as freight charge and was issued Way Bill No. 56515.
-
The cargo was loaded on the freight wagon of Train 537. Passengers boarded the
train and shunting operations started to hook a wagon thereto.
-
Before the train reached the turnoff switch, its passenger coach fell on its
side
some 40 m from the station. The wagon pinned Nueca, killing him instantly.
-
Nueca‘s widow and children bring this claim for damages, alleging that the Nueca
was a passenger
and his death was caused by MRC‘s negligence.
-
MRC disclaimed liability stating: (1) it exercised due care in safeguarding the
passengers during the shunting operation, (2) Nueca was not a passenger but a
trespasser,
(3) even if Nueca were a passenger,
he illegally boarded the train without permission by
not paying the fare, (4) the mishap was not attributable to any defect in MRC
equipment,
(5) that the accident happened due to force majeur.
-
MRC presented evidence showing there was no mechanical defe
ct, but it did not
explain why the accident occurred or show that force majeur caused the mishap.
-
The lower court absolved MRC of liability and held that Nueca was a
trespasser
since he did not buy any ticket, and in any case, was not in a proper place f
or passengers.
Issue:
1.
W/N Nueca was a passenger?
2.
W/N MRC is liable?
3.
Was the accident due to MRC‘s negligence or force majeur?
4.
Is Nueca liable for contributory negligence?
Held:
1.
No, Nueca was not a passenger thus, MRC did not owe him extra
ordinary
diligence.
A passenger is one who travels in a public conveyance by virtue of a contract,
express or
implied, with the carrier as to the payment of the fare, or that which is
accepted as an
equivalent.
The relation of passenger and carrier commen
ces when one puts himself in the care of the
carrier, or directly under its control, with the bona fide intention of becoming
a
passenger, and is accepted as such by the carrier
–
as where he makes a contract for
trasportation and presents himself at the p
roper place and in a proper manner to be
transported.
Even disregarding the matter of tickets, and assuming Nueca intended to be a
passenger,
he was never accepted as such by MRC as he did not present himself at the proper
place
and in a proper manner to
be transported.
2.
Yes, the liability of railroad companies to persons upon the premises is determined
by the general rules of negligence relating to duties of owners/occupiers of property.
While railroad companies are not bound to the same degree of c
are in regard to strangers
who are unlawfully upon the premises of its passengers, it may still be liable
to such
strangers for negligent or tortious acts.
Here, Nueca was not on the track, but either unlawfully inside the baggage car or
beside
the track.
It is normal for people to walk on the track or roadbed when there is no oncoming
train
and to walk beside the track when a train passes. This practice is tolerated
by MRC.
Generally, MRC‘s stations are not enclosed, and is easily accessible to the publi
c.
3.
MRC is negligent; doctrine of res ipsa loquitur applied.
The train was under the complete control of the railroad company at the time
of the
accident. The baggage car would not have been derailed if the train had
been properly
operated.
Res ipsa loq
uitur is a rule of evidence peculiar to the law of negligence which recognizes
that prima facie negligence may be established without direct proof and
furnishes a
substitute for specific proof of negligence.
4. No.
An invitation to stay in the premises is
implied from the lack of prohibition to outsiders to
keep off the premises, hence, a stranger who is injured by a derailed train while
staying
beside a railroad track is not guilty of contributory negligence

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80447 January 31, 1989

BALIWAG TRANSIT, INC., petitioner,

vs.
HON. COURT OF APPEALS and SPS. SOTERO CAILIPAN, JR. and ZENAIDA LOPEZ and
GEORGE L. CAILIPAN, respondents.

Sta. Maria & Associates for petitioner.

Punzalan and Associates Law Office for respondents.

MELENCIO-HERRERA, J.:
On 10 April 1985 a Complaint for damages arising from breach of contract of carriage was filed by
private respondents, the Spouses Sotero Cailipan, Jr. and Zenaida Lopez, and their son George, of
legal age, against petitioner Baliwag Transit (Baliwag, for brevity). The Complaint alleged that
George, who was a paying passenger on a Baliwag bus on 17 December 1984, suffered multiple
serious physical injuries when he was thrown off said bus driven in a careless and negligent manner
by Leonardo Cruz, the authorized bus driver, along Barangay Patubig, Marilao, Bulacan. As a result,
he was confined in the hospital for treatment, incurring medical expenses, which were borne by his
parents, the respondent Spouses, in the sum of about P200,000.00 plus other incidental expenses
of about P10,000.00.

On 26 April 1985 an Answer was filed by petitioner alleging that the cause of the injuries sustained
by George was solely attributable to his own voluntary act in that, without warning and provocation,
he suddenly stood up from his seat and headed for the door of the bus as if in a daze, opened it and
jumped off while said bus was in motion, in spite of the protestations by the driver and without the
knowledge of the conductor.

Baliwag then filed a Third-Party Complaint against Fortune Insurance & Surety Company, Inc., on its
third-party liability insurance in the amount of P50,000.00. In its Answer, Fortune Insurance claimed
limited liability, the coverage being subject to a Schedule of Indemnities forming part of the
insurance policy.

On 14 November 1985 and 18 November 1985, respectively, Fortune Insurance and Baliwag each
filed Motions to Dismiss on the ground that George, in consideration of the sum of P8,020.50 had
executed a "Release of Claims" dated 16 May 1985. These Motions were denied by the Trial Court
in an Order dated 13 January 1986 as they were filed beyond the time for pleading and after the
Answer were already filed.

On 5 February 1986 Baliwag filed a Motion to Admit Amended Answer, which was granted by the
Trial Court. The Amended Answer incorporated the affirmative defense in the Motion to Dismiss to
the effect that on 16 May 1985, George bad been paid all his claims for damages arising from the
incident subject matter of the complaint when he executed the following "Release of Claims":

For and in consideration of the payment to me/us of the sum of EIGHT THOUSAND
TWENTY and 50/100 PESOS ONLY (P8,020.50), the receipt of which is hereby
acknowledged, I/we, being of lawful age, do hereby release, acquit and forever
discharge Fortune Insurance and/or Baliwag transit, Inc. his/her heirs, executors and
assigns, from any and all liability now accrued or hereafter to accrue on account of
any and all claims or causes of action which I/we now or may here after have for
personal injuries, damage to property, loss of services, medical expenses, losses or
damages of any and every kind or nature whatsoever, now known or what may
hereafter develop by me/us sustained or received on or about 17th day of December,
1984 through Reckless Imprudence Resulting to Physical Injuries, and I/we hereby
declare that I/we fully understand the terms of this settlement and voluntarily accept
said sum for the purpose of making a full and final compromise adjustment and
settlement of the injuries and damages, expenses and inconvenience above
mentioned. (Rollo, p. 11)

During the preliminary hearing on the aforementioned affirmative defense, Baliwag waived the
presentation of testimonial evidence and instead offered as its Exhibit "1" the "Release of Claims"
signed by George and witnessed by his brother Benjamin L. Cailipan, a licensed engineer.
By way of opposition to petitioner's affirmative defense, respondent Sotero Cailipan, Jr. testified that
be is the father of George, who at the time of the incident was a student, living with his parents and
totally dependent on them for their support; that the expenses for his hospitalization were shouldered
by his parents; and that they had not signed the "Release of Claims."

In an Order dated 29 August 1986, the Regional Trial Court of Bulacan, Branch 20, 1 dismissed the
Complaint and Third-party Complaint, ruling that since the contract of carriage is between Baliwag
and George L. Cailipan, the latter, who is of legal age, had the exclusive right to execute the
Release of Claims despite the fact that he is still a student and dependent on his parents for support.
Consequently, the execution by George of the Release of Claims discharges Baliwag and Fortune
Insurance.

Aggrieved, the Spouses appealed to respondent Court of Appeals.

On 22 October 1987, the Appellate Court rendered a Decision 2 setting aside the appealed Order
and holding that the "Release of Claims" cannot operate as a valid ground for the dismissal of the
case because it does not have the conformity of all the parties, particularly George's parents, who
have a substantial interest in the case as they stand to be prejudiced by the judgment because they
spent a sizeable amount for the medical bills of their son; that the Release of Claims was secured by
Fortune Insurance for the consideration of P8,020.50 as the full and final settlement of its liability
under the insurance policy and not for the purpose of releasing Baliwag from its liability as a carrier
in this suit for breach of contract. The Appellate Court also ordered the remand of the case to the
lower Court for trial on the merits and for George to return the amount of P8,020.50 to Fortune
Insurance.

Hence, this Petition for Review on certiorari by Baliwag assailing the Appellate Court judgment.

The issue brought to the fore is the legal effect of the Release of Claims executed by George during
the pendency of this case.

We hold that since the suit is one for breach of contract of carriage, the Release of Claims executed
by him, as the injured party, discharging Fortune Insurance and Baliwag from any and all liability is
valid. He was then of legal age, a graduating student of Agricultural Engineering, and had the
capacity to do acts with legal effect (Article 37 in relation to Article 402, Civil Code). Thus, he could
sue and be sued even without the assistance of his parents.

Significantly, the contract of carriage was actually between George, as the paying passenger, and
Baliwag, as the common carrier. As such carrier, Baliwag was bound to carry its passengers safely
as far as human care and foresight could provide, and is liable for injuries to them through the
negligence or wilful acts of its employees (Articles 1755 and 1759, Civil Code). Thus, George had
the right to be safely brought to his destination and Baliwag had the correlative obligation to do so.
Since a contract may be violated only by the parties thereto, as against each other, in an action upon
that contract, the real parties in interest, either as plaintiff or as defendant, must be parties to said
contract (Marimperio Compania Naviera, S.A. vs. Court of Appeals, No. L-40234, December 14,
1987, 156 SCRA 368). A real party-in-interest -plaintiff is one who has a legal right while a real party-
in-interest-defendant is one who has a correlative legal obligation whose act or omission violates the
legal right of the former (Lee vs. Romillo, Jr., G.R. No. 60973, May 28, 1988). In the absence of any
contract of carriage between Baliwag and George's parents, the latter are not real parties-in-interest
in an action for breach of that contract.

The general rule of the common law is that every action must be brought in the name
of the party whose legal right has been invaded or infringed. 15 Enc. P1. & Pr. p.
 484. "For the immediate wrong and damage the person injured is the only one who
can maintain the action." Id. p. 578. The person who sustains an injury is the person
to bring an action for the injury against the wrongdoer." Dicey parties to Actions, 347.
(Cited in Green v. Shoemaker, 73 A 688, 23 L.R.A., N.S. 667).

There is no question regarding the genuineness and due execution of the Release of Claims. It is a
duly notarized public document. It clearly stipulates that the consideration of P8,020.50 received by
George was "to release and forever discharge Fortune Insurance and/or Baliwag from any and all
liabilities now accrued or to accrue on account of any and all claims or causes of action ... for
personal injuries, damage to property, loss of services, medical expenses, losses or damages of any
and every kind or nature whatsoever, sustained by him on 17 December 1984 thru Reckless
Imprudence Resulting to Physical Injuries." Consequently, the ruling of respondent Appellate Court
that the "Release of Claims" was intended only as the full and final settlement of a third-party liability
for bodily injury claim and not for the purpose of releasing Baliwag from its liability, if any, in a breach
of a contract of carriage, has to be rejected for being contrary to the very terms thereof. If the terms
of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control (Article 1370, Civil Code). The phraseology "any and all
claims or causes of action" is broad enough to include all damages that may accrue to the injured
party arising from the unfortunate accident.

The Release of Claims had the effect of a compromise agreement since it was entered into for the
purpose of making a full and final compromise adjustment and settlement of the cause of action
involved. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid
a litigation or put an end to one already commenced (Article 2028, Civil Code). The Release of
Claims executed by the injured party himself wrote finish to this litigation.

WHEREFORE, the Decision dated 22 October 1987 of respondent Court of Appeals is SET ASIDE,
the Decision of the Regional Trial Court of Bulacan, Branch 20, is REINSTATED, and the Complaint
and Third-Party Complaint are hereby ordered DISMISSED. No costs.

SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

.R. No. 111127 July 26, 1996

MR. & MRS. ENGRACIO FABRE, JR. and PORFIRIO CABIL, petitioners,
vs.
COURT OF APPEALS, THE WORD FOR THE WORLD CHRISTIAN FELLOWSHIP, INC.,
AMYLINE ANTONIO, JOHN RICHARDS, GONZALO GONZALES, VICENTE V. QUE, JR., ICLI
CORDOVA, ARLENE GOJOCCO, ALBERTO ROXAS CORDERO, RICHARD BAUTISTA,
JOCELYN GARCIA, YOLANDA CORDOVA, NOEL ROQUE, EDWARD TAN, ERNESTO
NARCISO, ENRIQUETA LOCSIN, FRANCIS NORMAN O. LOPES, JULIUS CAESAR, GARCIA,
ROSARIO MA. V. ORTIZ, MARIETTA C. CLAVO, ELVIE SENIEL, ROSARIO MARA-MARA,
TERESITA REGALA, MELINDA TORRES, MARELLA MIJARES, JOSEFA CABATINGAN, MARA
NADOC, DIANE MAYO, TESS PLATA, MAYETTE JOCSON, ARLENE Y. MORTIZ, LIZA MAYO,
CARLOS RANARIO, ROSAMARIA T. RADOC and BERNADETTE FERRER, respondents.
MENDOZA, J.:p

This is a petition for review on certiorari of the decision of the Court of Appeals1 in CA-GR No. 28245, dated September 30, 1992, which
affirmed with modification the decision of the Regional Trial Court of Makati, Branch 58, ordering petitioners jointly and severally to pay
damages to private respondent Amyline Antonio, and its resolution which denied petitioners' motion for reconsideration for lack of merit.

Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus. They
used the bus principally in connection with a bus service for school children which they operated in
Manila. The couple had a driver, Porfirio J. Cabil, whom they hired in 1981, after trying him out for
two weeks, His job was to take school children to and from the St. Scholastica's College in Malate,
Manila.

On November 2, 1984 private respondent Word for the World Christian Fellowship Inc. (WWCF)
arranged with petitioners for the transportation of 33 members of its Young Adults Ministry from
Manila to La Union and back in consideration of which private respondent paid petitioners the
amount of P3,000.00.

The group was scheduled to leave on November 2, 1984, at 5:00 o'clock in the afternoon. However,
as several members of the party were late, the bus did not leave the Tropical Hut at the corner of
Ortigas Avenue and EDSA until 8:00 o'clock in the evening. Petitioner Porfirio Cabil drove the
minibus.

The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at
Carmen was under repair, sot hat petitioner Cabil, who was unfamiliar with the area (it being his first
trip to La Union), was forced to take a detour through the town of Baay in Lingayen, Pangasinan. At
11:30 that night, petitioner Cabil came upon a sharp curve on the highway, running on a south to
east direction, which he described as "siete." The road was slippery because it was raining, causing
the bus, which was running at the speed of 50 kilometers per hour, to skid to the left road shoulder.
The bus hit the left traffic steel brace and sign along the road and rammed the fence of one Jesus
Escano, then turned over and landed on its left side, coming to a full stop only after a series of
impacts. The bus came to rest off the road. A coconut tree which it had hit fell on it and smashed its
front portion.

Several passengers were injured. Private respondent Amyline Antonio was thrown on the floor of the
bus and pinned down by a wooden seat which came down by a wooden seat which came off after
being unscrewed. It took three persons to safely remove her from this portion. She was in great pain
and could not move.

The driver, petitioner Cabil, claimed he did not see the curve until it was too late. He said he was not
familiar with the area and he could not have seen the curve despite the care he took in driving the
bus, because it was dark and there was no sign on the road. He said that he saw the curve when he
was already within 15 to 30 meters of it. He allegedly slowed down to 30 kilometers per hour, but it
was too late.

The Lingayen police investigated the incident the next day, November 3, 1984. On the basis of their
finding they filed a criminal complaint against the driver, Porfirio Cabil. The case was later filed with
the Lingayen Regional Trial Court. Petitioners Fabre paid Jesus Escano P1,500.00 for the damage
to the latter's fence. On the basis of Escano's affidavit of desistance the case against petitioners
Fabre was dismissed.

Amyline Antonio, who was seriously injured, brought this case in the RTC of Makati, Metro Manila.
As a result of the accident, she is now suffering from paraplegia and is permanently paralyzed from
the waist down. During the trial she described the operations she underwent and adduced evidence
regarding the cost of her treatment and therapy. Immediately after the accident, she was taken to the
Nazareth Hospital in Baay, Lingayen. As this hospital was not adequately equipped, she was
transferred to the Sto. Niño Hospital, also in the town of Ba-ay, where she was given sedatives. An
x-ray was taken and the damage to her spine was determined to be too severe to be treated there.
She was therefore brought to Manila, first to the Philippine General Hospital and later to the Makati
Medical Center where she underwent an operation to correct the dislocation of her spine.

In its decision dated April 17, 1989, the trial court found that:

No convincing evidence was shown that the minibus was properly checked for travel to a long
distance trip and that the driver was properly screened and tested before being admitted for
employment. Indeed, all the evidence presented have shown the negligent act of the defendants
which ultimately resulted to the accident subject of this case.

Accordingly, it gave judgment for private respondents holding:

Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms. Amyline Antonio
were the only ones who adduced evidence in support of their claim for damages, the Court is
therefore not in a position to award damages to the other plaintiffs.

WHEREFORE, premises considered, the Court hereby renders judgment against defendants Mr. &
Mrs. Engracio Fabre, Jr. and Porfirio Cabil y Jamil pursuant to articles 2176 and 2180 of the Civil
Code of the Philippines and said defendants are ordered to pay jointly and severally to the plaintiffs
the following amount:

1) P93,657.11 as compensatory and actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff

Amyline Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages; and

5) 25% of the recoverable amount as attorney's fees;

6) Costs of suit.

SO ORDERED.

The Court of Appeals affirmed the decision of the trial court with respect to Amyline Antonio but
dismissed it with respect to the other plaintiffs on the ground that they failed to prove their respective
claims. The Court of Appeals modified the award of damages as follows:

1) P93,657.11 as actual damages;

2) P600,000.00 as compensatory damages;

3) P50,000.00 as moral damages;

 4) P20,000.00 as exemplary damages;

5) P10,000.00 as attorney's fees; and

6) Costs of suit.

The Court of Appeals sustained the trial court's finding that petitioner Cabil failed to exercise due
care and precaution in the operation of his vehicle considering the time and the place of the
accident. The Court of Appeals held that the Fabres were themselves presumptively negligent.
Hence, this petition. Petitioners raise the following issues:

I. WHETHER OR NOT PETITIONERS WERE NEGLIGENT.

II. WHETHER OF NOT PETITIONERS WERE LIABLE FOR THE

INJURIES SUFFERED BY PRIVATE RESPONDENTS.

III WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN

THE POSITIVE, UP TO WHAT EXTENT.

Petitioners challenge the propriety of the award of compensatory damages in the amount of
P600,000.00. It is insisted that, on the assumption that petitioners are liable an award of
P600,000.00 is unconscionable and highly speculative. Amyline Antonio testified that she was a
casual employee of a company called "Suaco," earning P1,650.00 a month, and a dealer of Avon
products, earning an average of P1,000.00 monthly. Petitioners contend that as casual employees
do not have security of tenure, the award of P600,000.00, considering Amyline Antonio's earnings, is
without factual basis as there is no assurance that she would be regularly earning these amounts.

With the exception of the award of damages, the petition is devoid of merit.

First, it is unnecessary for our purpose to determine whether to decide this case on the theory that
petitioners are liable for breach of contract of carriage or culpa contractual or on the theory of quasi
delict or culpa aquiliana as both the Regional Trial Court and the Court of Appeals held, for although
the relation of passenger and carrier is "contractual both in origin and nature," nevertheless "the act
that breaks the contract may be also a tort." 2 In either case, the question is whether the bus driver,
petitioner Porfirio Cabil, was negligent.

The finding that Cabil drove his bus negligently, while his employer, the Fabres, who owned the bus,
failed to exercise the diligence of a good father of the family in the selection and supervision of their
employee is fully supported by the evidence on record. These factual findings of the two courts we
regard as final and conclusive, supported as they are by the evidence. Indeed, it was admitted by
Cabil that on the night in question, it was raining, and as a consequence, the road was slippery, and
it was dark. He averred these facts to justify his failure to see that there lay a sharp curve ahead.
However, it is undisputed that Cabil drove his bus at the speed of 50 kilometers per hour and only
slowed down when he noticed the curve some 15 to 30 meters ahead. 3 By then it was too late for
him to avoid falling off the road. Given the conditions of the road and considering that the trip was
Cabil's first one outside of Manila, Cabil should have driven his vehicle at a moderate speed. There
is testimony 4 that the vehicles passing on that portion of the road should only be running 20
kilometers per hour, so that at 50 kilometers per hour, Cabil was running at a very high speed.

Considering the foregoing — the fact that it was raining and the road was slippery, that it was dark,
that he drove his bus at 50 kilometers an hour when even on a good day the normal speed was only
20 kilometers an hour, and that he was unfamiliar with the terrain, Cabil was grossly negligent and
should be held liable for the injuries suffered by private respondent Amyline Antonio.

Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise to the presumption that
his employers, the Fabres, were themselves negligent in the selection and supervisions of their
employee.

Due diligence in selection of employees is not satisfied by finding that the applicant possessed a
professional driver's license. The employer should also examine the applicant for his qualifications,
experience and record of service. 5 Due diligence in supervision, on the other hand, requires the
formulation of rules and regulations for the guidance of employees and issuance of proper
instructions as well as actual implementation and monitoring of consistent compliance with the rules.6

In the case at bar, the Fabres, in allowing Cabil to drive the bus to La Union, apparently did not
consider the fact that Cabil had been driving for school children only, from their homes to the St.
Scholastica's College in Metro Manila. 7They had hired him only after a two-week apprenticeship.
They had hired him only after a two-week apprenticeship. They had tested him for certain matters,
such as whether he could remember the names of the children he would be taking to school, which
were irrelevant to his qualification to drive on a long distance travel, especially considering that the
trip to La Union was his first. The existence of hiring procedures and supervisory policies cannot be
casually invoked to overturn the presumption of negligence on the part of an employer. 8

Petitioners argue that they are not liable because (1) an earlier departure (made impossible by the
congregation's delayed meeting) could have a averted the mishap and (2) under the contract, the
WWCF was directly responsible for the conduct of the trip. Neither of these contentions hold water.
The hour of departure had not been fixed. Even if it had been, the delay did not bear directly on the
cause of the accident. With respect to the second contention, it was held in an early case that:

[A] person who hires a public automobile and gives the driver directions as to the place to which he
wishes to be conveyed, but exercises no other control over the conduct of the driver, is not
responsible for acts of negligence of the latter or prevented from recovering for injuries suffered from
a collision between the automobile and a train, caused by the negligence or the automobile driver. 9

As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres, did not
have to be engaged in the business of public transportation for the provisions of the Civil Code on
common carriers to apply to them. As this Court has held: 10

Art. 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.

The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such carrying
only as an ancillary activity (in local idiom, as "a sideline"). Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from
a narrow segment of the general population. We think that Article 1732 deliberately
refrained from making such distinctions.
 As common carriers, the Fabres were found to exercise "extraordinary diligence" for
the safe transportation of the passengers to their destination. This duty of care is not
excused by proof that they exercise the diligence of a good father of the family in the
selection and supervision of their employee. As Art. 1759 of the Code provides:

Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former's employees although such employees may
have acted beyond the scope of their authority or in violation of the orders of the
common carriers.

This liability of the common carriers does not cease upon proof that they exercised
all the diligence of a good father of a family in the selection and supervision of their
employees.

The same circumstances detailed above, supporting the finding of the trial court and of the appellate
court that petitioners are liable under Arts. 2176 and 2180 for quasi delict, fully justify findings them
guilty of breach of contract of carriage under Arts. 1733, 1755 and 1759 of the Civil Code.

Secondly, we sustain the award of damages in favor of Amyline Antonio. However, we think the
Court of Appeals erred in increasing the amount of compensatory damages because private
respondents did not question this award as inadequate. 11 To the contrary, the award of P500,000.00
for compensatory damages which the Regional Trial Court made is reasonable considering the
contingent nature of her income as a casual employee of a company and as distributor of beauty
products and the fact that the possibility that she might be able to work again has not been
foreclosed. In fact she testified that one of her previous employers had expressed willingness to
employ her again.

With respect to the other awards, while the decisions of the trial court and the Court of Appeals do
not sufficiently indicate the factual and legal basis for them, we find that they are nevertheless
supported by evidence in the records of this case. Viewed as an action for quasi delict, this case falls
squarely within the purview of Art. 2219(2) providing for the payment of moral damages in cases
of quasi delict. On the theory that petitioners are liable for breach of contract of carriage, the award
of moral damages is authorized by Art. 1764, in relation to Art. 2220, since Cabil's gross negligence
amounted to bad faith.12 Amyline Antonio's testimony, as well as the testimonies of her father and
copassengers, fully establish the physical suffering and mental anguish she endured as a result of
the injuries caused by petitioners' negligence.

The award of exemplary damages and attorney's fees was also properly made. However, for the
same reason that it was error for the appellate court to increase the award of compensatory
damages, we hold that it was also error for it to increase the award of moral damages and reduce
the award of attorney's fees, inasmuch as private respondents, in whose favor the awards were
made, have not appealed. 13

As above stated, the decision of the Court of Appeals can be sustained either on the theory of quasi
delict or on that of breach of contract. The question is whether, as the two courts below held,
petitioners, who are the owners and driver of the bus, may be made to respond jointly and severally
to private respondent. We hold that they may be. In Dangwa Trans. Co. Inc. v. Court of
Appeals, 14 on facts similar to those in this case, this Court held the bus company and the driver
jointly and severally liable for damages for injuries suffered by a passenger. Again, in Bachelor
Express, Inc. v. Court of
Appeals 15 a driver found negligent in failing to stop the bus in order to let off passengers when a
fellow passenger ran amuck, as a result of which the passengers jumped out of the speeding bus
and suffered injuries, was held also jointly and severally liable with the bus company to the injured
passengers.

The same rule of liability was applied in situations where the negligence of the driver of the bus on
which plaintiff was riding concurred with the negligence of a third party who was the driver of another
vehicle, thus causing an accident. In Anuran v. Buño, 16 Batangas Laguna Tayabas Bus
Co. v. Intermediate Appellate Court, 17 and Metro Manila Transit Corporation v. Court of
Appeals, 18 the bus company, its driver, the operator of the other vehicle and the driver of the vehicle
were jointly and severally held liable to the injured passenger or the latters' heirs. The basis of this
allocation of liability was explained in Viluan v. Court of Appeals, 19 thus:

Nor should it make any difference that the liability of petitioner [bus owner] springs
from contract while that of respondents [owner and driver of other vehicle] arises
from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56
Phil. 177, that in case of injury to a passenger due to the negligence of the driver of
the bus on which he was riding and of the driver of another vehicle, the drivers as
well as the owners of the two vehicles are jointly and severally liable for damages.
Some members of the Court, though, are of the view that under the circumstances
they are liable on quasi-delict. 20

It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals 21 this Court exonerated the
jeepney driver from liability to the injured passengers and their families while holding the owners of
the jeepney jointly and severally liable, but that is because that case was expressly tried and
decided exclusively on the theory of culpa contractual. As this Court there explained:

The trial court was therefore right in finding that Manalo (the driver) and spouses Mangune and
Carreon (the jeepney owners) were negligent. However, its ruling that spouses Mangune and
Carreon are jointly and severally liable with Manalo is erroneous. The driver cannot be held jointly
and severally liable with carrier in case of breach of the contract of carriage. The rationale behind
this is readily discernible. Firstly, the contract of carriage is between the carrier is exclusively
responsible therefore to the passenger, even if such breach be due to the negligence of his driver
(see Viluan v. The Court of Appeals, et al., G.R. Nos. L-21477-81, April 29, 1966, 16 SCRA 742). 22

As in the case of BLTB, private respondents in this case and her coplaintiffs did not stake out their
claim against the carrier and the driver exclusively on one theory, much less on that of breach of
contract alone. After all, it was permitted for them to allege alternative causes of action and join as
many parties as may be liable on such causes of action 23 so long as private respondent and her
coplaintiffs do not recover twice for the same injury. What is clear from the cases is the intent of the
plaintiff there to recover from both the carrier and the driver, thus, justifying the holding that the
carrier and the driver were jointly and severally liable because their separate and distinct acts
concurred to produce the same injury.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION as to award
of damages. Petitioners are ORDERED to PAY jointly and severally the private respondent Amyline
Antonio the following amounts:

1) P93,657.11 as actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

5) 25% of the recoverable amount as attorney's fees; and

6) costs of suit.

SO ORDERED.

G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, Petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE
AIRLINES, Respondents.

ROMERO, J.:

In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of
respondent Court of Appeals 1 promulgated on September 7, 1995, which affirmed the award of
damages and attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch
17, in favor of private respondent GOP Mahtani as well as the dismissal of its third-party complaint
against Philippine Airlines (PAL). 2

The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit,
he obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn,
purchased a ticket from BA where the following itinerary was indicated: 3

CARRIER FLIGHT DATE TIME STATUS

MANILA MNL PR 310 Y 16 APR. 1730 OK

HONGKONG HKG BA 20 M 16 APR. 2100 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

HONGKONG HKG PR 311 Y

MANILA MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via
PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage
containing his clothings and personal effects, confident that upon reaching Hongkong, the same would
be transferred to the BA flight bound for Bombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that
upon inquiry from the BA representatives, he was told that the same might have been diverted to
London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim by
accomplishing the "Property Irregularity Report." 4
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and
attorney's fees 5 against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-
9076.

On September 4, 1990, BA filed its answer with counter claim 6 to the complaint raising, as special and
affirmative defenses, that Mahtani did not have a cause of action against it. Likewise, on November 9,
1990, BA filed a third-party complaint 7 against PAL alleging that the reason for the non-transfer of
the luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any time for the
proper transfer of Mahtani's luggage to the BA aircraft bound for Bombay.

On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any
liability, arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in
Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities should be considered as
transfer to BA. 8

After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in favor
of Mahtani, 9 the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the defendant
for which defendant is ordered to pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the
value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars representing the value of the
contents of plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual damages and
twenty percent (20%) of the total amount imposed against the defendant for attorney's fees and costs
of this action.

The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for lack of
cause of action.

SO ORDERED.

Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's findings.
Thus:

WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to be in
accordance with law and evidence, the same is hereby AFFIRMED in toto, with costs against
defendant-appellant.

SO ORDERED. 10

BA is now before us seeking the reversal of the Court of Appeals' decision.

In essence, BA assails the award of compensatory damages and attorney's fees, as well as the
dismissal of its third-party complaint against PAL. 11

Regarding the first assigned issue, BA asserts that the award of compensatory damages in the
separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without basis since
Mahtani in his complaint 12 stated the following as the value of his personal belongings:

8. On the said travel, plaintiff took with him the following items and its corresponding value, to wit:

1. personal belonging P10,000.00

2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for
in the ticket, which reads: 13

Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in advance
and additional charges are paid:

1. For most international travel (including domestic corporations of international journeys) the liability
limit is approximately U.S. $9.07 per pound (U.S. $20.000) per kilo for checked baggage and U.S.
$400 per passenger for unchecked baggage.

Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's contract
of carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its
destination and a contract to transport passengers to their destination. A business intended to serve
the traveling public primarily, it is imbued with public interest, hence, the law governing common
carriers imposes an exacting standard. 14 Neglect or malfeasance by the carrier's employees could
predictably furnish bases for an action for damages. 15

In the instant case, it is apparent that the contract of carriage was between Mahtani and BA.
Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a
number of cases 16 we have assessed the airlines' culpability in the form of damages for breach of
contract involving misplaced luggage.

In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant
satisfactorily prove during the trial the existence of the factual basis of the damages and its causal
connection to defendant's acts. 17

In this regard, the trial court granted the following award as compensatory damages:

Since plaintiff did not declare the value of the contents in his luggage and even failed to show receipts
of the alleged gifts for the members of his family in Bombay, the most that can be expected for
compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined
value of Four Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven
Thousand (P7,000.00) Pesos representing the purchase price of the two (2) suit cases.

However, as earlier stated, it is the position of BA that there should have been no separate award for
the luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for
the luggage, 18 and therefore, its liability is limited, at most, only to the amount stated in the ticket.

Considering the facts of the case, we cannot assent to such specious argument.

Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to
recover a greater amount. Article 22(1) of the Warsaw Convention, 19 provides as follows:

xxx xxx xxx

(2) In the transportation of checked baggage and goods, the liability of the carrier shall be limited to a
sum of 250 francs per kilogram, unless the consignor has made, at time the package was handed over
to the carrier, a special declaration of the value at delivery and has paid a supplementary sum if the
case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum,
unless he proves that the sum is greater than the actual value to the consignor at delivery.

American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount
in excess of the limits specified in the tariff which was filed with the proper authorities, such tariff
being binding, on the passenger regardless of the passenger's lack of knowledge thereof or assent
thereto. 20 This doctrine is recognized in this jurisdiction. 21
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion
contracts where the facts and circumstances justify that they should be disregarded. 22

In addition, we have held that benefits of limited liability are subject to waiver such as when the air
carrier failed to raise timely objections during the trial when questions and answers regarding the
actual claims and damages sustained by the passenger were asked. 23

Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of
limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to the
misplacement of his luggage, without any objection. In this regard, we quote the pertinent transcript
of stenographic notes of Mahtani's direct testimony: 24

Q - How much are you going to ask from this court?

A - P100,000.00.

Q - What else?

A - Exemplary damages.

Q - How much?

A - P100,000.00.

Q - What else?

A - The things I lost, $5,000.00 for the gifts I lost and my personal belongings, P10,000.00.

Q - What about the filing of this case?

A - The court expenses and attorney's fees is 30%.

Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of
the adverse party to be inadmissible for any reason, the latter has the right to object. However, such
right is a mere privilege which can be waived. Necessarily, the objection must be made at the earliest
opportunity, lest silence when there is opportunity to speak may operate as a waiver of
objections. 25 BA has precisely failed in this regard.

To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even
conducted his own cross-examination as well. 26 In the early case of Abrenica v. Gonda, 27 we ruled
that:

. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the
admission of any evidence must be made at the proper time, and that if not so made it will be
understood to have been waived. The proper time to make a protest or objection is when, from the
question addressed to the witness, or from the answer thereto, or from the presentation of proof, the
inadmissibility of evidence is, or may be inferred.

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to
great respect. 28 Since the actual value of the luggage involved appreciation of evidence, a task within
the competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of
fact, thus, a finding not reviewable by this Court. 29
As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals
justified its ruling in this wise, and we quote: 30

Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint against PAL.

The contract of air transportation in this case pursuant to the ticket issued by appellant to plaintiff-
appellee was exclusively between the plaintiff Mahtani and defendant-appellant BA. When plaintiff
boarded the PAL plane from Manila to Hongkong, PAL was merely acting as a subcontractor or agent
of BA. This is shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is
specifically provided on the "Conditions of Contract," paragraph 4 thereof that:

4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single

operation.

The rule that carriage by plane although performed by successive carriers is regarded as a single
operation and that the carrier issuing the passenger's ticket is considered the principal party and the
other carrier merely subcontractors or agent, is a settled issue.

We cannot agree with the dismissal of the third-complaint.

In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 31 we expounded on the
nature of a third-party complaint thus:

The third-party complaint is, therefore, a procedural device whereby a "third party" who is neither a
party nor privy to the act or deed complained of by the plaintiff, may be brought into the case with
leave of court, by the defendant, who acts, as third-party plaintiff to enforce against such third-party
defendant a right for contribution, indemnity, subrogation or any other relief, in respect of the
plaintiff's claim. The third-party complaint is actually independent of and separate and distinct from
the plaintiff's complaint. Were it not for this provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by the defendant against the third-party.
But the Rules permit defendant to bring in a third-party defendant or so to speak, to litigate his
separate cause of action in respect of plaintiff's claim against a third-party in the original and principal
case with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of
disposing expeditiously in one litigation the entire subject matter arising from one particular set of
facts.

Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their
contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the
latter naturally denies. In other words, BA and PAL are blaming each other for the incident.

In resolving this issue, it is worth observing that the contract of air transportation was exclusively
between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the former's
journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of
Contracts" of the ticket 32 issued by BA to Mahtani confirms that the contract was one of continuous
air transportation from Manila to Bombay.

4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single

operation.

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila
to Hongkong acted as the agent of BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent
is also responsible for any negligence in the performance of its function. 33 and is liable for damages
which the principal may suffer by reason of its negligent act. 34 Hence, the Court of Appeals erred
when it opined that BA, being the principal, had no cause of action against PAL, its agent or sub-
contractor.

Also, it is worth mentioning that both BA and PAL are members of the International Air Transport
Association (IATA), wherein member airlines are regarded as agents of each other in the issuance of
the tickets and other matters pertaining to their relationship. 35Therefore, in the instant case, the
contractual relationship between BA and PAL is one of agency, the former being the principal, since it
was the one which issued the confirmed ticket, and the latter the agent.

Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German Airlines
v. Court of Appeals. 36 In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering
five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry
Antiporda to a specific destination "bumped" him off.

An action for damages was filed against Lufthansa which, however, denied any liability, contending
that its responsibility towards its passenger is limited to the occurrence of a mishap on its own line.
Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of
carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya.

In rejecting Lufthansa's argument, we ruled:

In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with
Antiporda and remains to be so, regardless of those instances when actual carriage was to be
performed by various carriers. The issuance of confirmed Lufthansa ticket in favor of Antiporda
covering his entire five-leg trip abroad successive carriers concretely attest to this.

Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA alone,
and not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is
relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of
Appeals, 37 while not exactly in point, the case, however, illustrates the principle which governs this
particular situation. In that case, we recognized that a carrier (PAL), acting as an agent of another
carrier, is also liable for its own negligent acts or omission in the performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the
purpose of ultimately determining who was primarily at fault as between them, is without legal basis.
After all, such proceeding is in accord with the doctrine against multiplicity of cases which would entail
receiving the same or similar evidence for both cases and enforcing separate judgments therefor. It
must be borne in mind that the purpose of a third-party complaint is precisely to avoid delay and
circuitry of action and to enable the controversy to be disposed of in one suit. 38 It is but logical, fair
and equitable to allow BA to sue PAL for indemnification, if it is proven that the latter's negligence was
the proximate cause of Mahtani's unfortunate experience, instead of totally absolving PAL from any
liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 43309
dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British
Airways dated November 9, 1990 against Philippine Airlines. No costs.

SO ORDERED.

G.R. No. L-18965 October 30, 1964

COMPAÑIA MARITIMA, petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta Gibbs & Ozaeta for respondent.

BAUTISTA ANGELO, J.:

Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the
services of the Compañia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp
from the former's Sasa private pier at Davao City to Manila and for their subsequent transhipment to
Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral contract was later on
confirmed by a formal and written booking issued by Macleod's branch office in Sasa and
handcarried to Compañia Maritima's branch office in Davao in compliance with which the latter sent
to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was
completed on October 29, 1952. These two lighters were manned each by a patron and an assistant
patron. The patrons of both barges issued the corresponding carrier's receipts and that issued by the
patron of Barge No. 1025 reads in part:

Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel
Navigator.

FINAL DESTINATION: Boston.

Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the
government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot
belonging to Compañia Maritima on which the hemp was to be loaded. During the night of October
29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the damage or loss of
1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the carrier's
main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was
brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying.
During the period from November 1-15, 1952, the carrier's trucks and lighters hauled from Odell to
Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the original cargo of
1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After reclassification, the
value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72.
Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking,
grading, rebating, and other fees for washing, cleaning and redrying in the amount of P19.610.00,
the total loss adds up to P60,421.02.

All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025,
were insured with the Insurance Company of North America against all losses and damages. In due
time, Macleod filed a claim for the loss it suffered as above stated with said insurance company, and
after the same had been processed, the sum of P64,018.55 was paid, which was noted down in a
document which aside from being a receipt of the amount paid, was a subrogation agreement
between Macleod and the insurance company wherein the former assigned to the latter its rights
over the insured and damaged cargo. Having failed to recover from the carrier the sum of
P60,421.02, which is the only amount supported by receipts, the insurance company instituted the
present action on October 28, 1953. After trial, the court a quo rendered judgment ordering the
carrier to pay the insurance company the sum of P60,421.02, with legal interest thereon from the
date of the filing of the complaint until fully paid, and the costs. This judgment was affirmed by the
Court of Appeals on December 14, 1960. Hence, this petition for review.

The issues posed before us are: (1) Was there a contract of carriage between the carrier and the
shipper even if the loss occurred when the hemp was loaded on a barge owned by the carrier which
was loaded free of charge and was not actually loaded on the S.S. Bowline Knot which would carry
the hemp to Manila and no bill of lading was issued therefore?; (2) Was the damage caused to the
cargo or the sinking of the barge where it was loaded due to a fortuitous event, storm or natural
disaster that would exempt the carrier from liability?; (3) Can respondent insurance company sue the
carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the
carrier as insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in
regarding Exhibit NNN-1 as an implied admission by the carrier of the correctness and sufficiency of
the shipper's statement of accounts contrary to the burden of proof rule?; and (5) Can the insurance
company maintain this suit without proof of its personality to do so?

1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and
Company contracted by telephone the services of petitioner to ship the hemp in question from the
former's private pier at Sasa, Davao City, to Manila, to be subsequently transhipped to Boston,
Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written booking
issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two of its lighters
to undertake the service. It also appears that the patrons of said lighters were employees of the
carrier with due authority to undertake the transportation and to sign the documents that may be
necessary therefor so much so that the patron of LCT No. 1025 signed the receipt covering the
cargo of hemp loaded therein as follows: .

Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel
Navigator.

FINAL DESTINATION: Boston.

The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at
Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of
carriage already entered into between the carrier and the shipper, for that preparatory step is but
part and parcel of said contract of carriage. The lighters were merely employed as the first step of
the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the
rights and obligations of the parties attached thereby subjecting them to the principles and usages of
the maritime law. In other words, here we have a complete contract of carriage the consummation of
which has already begun: the shipper delivering the cargo to the carrier, and the latter taking
possession thereof by placing it on a lighter manned by its authorized employees, under which
Macleod became entitled to the privilege secured to him by law for its safe transportation and
delivery, and the carrier to the full payment of its freight upon completion of the voyage.

The receipt of goods by the carrier has been said to lie at the foundation of the contract to
carry and deliver, and if actually no goods are received there can be no such contract. The
liability and responsibility of the carrier under a contract for the carriage of goods
commence on their actual delivery to, or receipt by, the carrier or an authorized agent.
... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is
the custom to deliver in that way, is a good delivery and binds the vessel receiving the
freight, the liability commencing at the time of delivery to the lighter. ... and,
similarly, where there is a contract to carry goods from one port to another, and they
cannot be loaded directly on the vessel and lighters are sent by the vessel to bring the
goods to it, the lighters are for the time its substitutes, so that the bill of landing is
applicable to the goods as soon as they are placed on the lighters. (80 C.J.S., p. 901,
emphasis supplied)
 ... The test as to whether the relation of shipper and carrier had been established is,
Had the control and possession of the cotton been completely surrendered by the
shipper to the railroad company? Whenever the control and possession of goods
passes to the carrier and nothing remains to be done by the shipper, then it can be
said with certainty that the relation of shipper and carrier has been established.
Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas
River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St. L., I.M. & S.R.
Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et
al., 200 S.W. 148).

The claim that there can be no contract of affreightment because the hemp was not actually loaded
on the ship that was to take it from Davao City to Manila is of no moment, for, as already stated, the
delivery of the hemp to the carrier's lighter is in line with the contract. In fact, the receipt signed by
the patron of the lighter that carried the hemp stated that he was receiving the cargo "in behalf of
S.S. Bowline Knot in good order and condition." On the other hand, the authorities are to the effect
that a bill of lading is not indispensable for the creation of a contract of carriage.

Bill of lading not indispensable to contract of carriage. — As to the issuance of a bill of

lading, although article 350 of the Code of Commerce provides that "the shipper as well as
the carrier of merchandise or goods may mutua-lly demand that a bill of lading is not
indispensable. As regards the form of the contract of carriage it can be said that provided
that there is a meeting of the minds and from such meeting arise rights and obligations, there
should be no limitations as to form." The bill of lading is not essential to the contract,
although it may become obligatory by reason of the regulations of railroad companies, or as
a condition imposed in the contract by the agreement of the parties themselves. The bill of
lading is juridically a documentary proof of the stipulations and conditions agreed upon by
both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the
Code does not demand, as necessary requisite in the contract of transportation, the delivery
of the bill of lading to the shipper, but gives right to both the carrier and the shipper to
mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895).
(Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13)

The liability of the carrier as common carrier begins with the actual delivery of the goods for
transportation, and not merely with the formal execution of a receipt or bill of lading; the
issuance of a bill of lading is not necessary to complete delivery and acceptance. Even
where it is provided by statute that liability commences with the issuance of the bill of lading,
actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288)

2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind
the claim of force majeure or storm which occurred on the night of October 29, 1952. But the
evidence fails to bear this out.

Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but
to lack of adequate precautions or measures taken by the carrier to prevent the loss as may be
inferred from the following findings of the Court of Appeals:

Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had
cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the same
manner as rain entered "thru tank man-holes", according to the patron of LCT No. 1023 (exh.
JJJ-4) — conclusively showing that the barge was not seaworthy — it should be noted that
on the night of the nautical accident there was no storm, flood, or other natural disaster or
calamity. Certainly, winds of 11 miles per hour, although stronger than the average 4.6 miles
 per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be classified as
storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to 75
miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of
from 55 to 74 miles per hour in order to be classified as storm (Northern Assurance Co., Ltd.
vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167-R, March 12, 1959).

The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors,
attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of various buoyancy
compartments' (exh. JJJ); and this report finds confirmation on the above-mentioned admission of
two witnesses for appellant concerning the cracks of the lighter's bottom and the entrance of the rain
water 'thru manholes'." We are not prepared to dispute this finding of the Court of Appeals.

3. There can also be no doubt that the insurance company can recover from the carrier as assignee
of the owner of the cargo for the insurance amount it paid to the latter under the insurance contract.
And this is so because since the cargo that was damaged was insured with respondent company
and the latter paid the amount represented by the loss, it is but fair that it be given the right to
recover from the party responsible for the loss. The instant case, therefore, is not one between the
insured and the insurer, but one between the shipper and the carrier, because the insurance
company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of
action against the carrier on account of the damage of the cargo, no valid reason is seen why such
action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor
can the carrier set up as a defense any defect in the insurance policy not only because it is not a
privy to it but also because it cannot avoid its liability to the shipper under the contract of carriage
which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting
the following comments of the Court of Appeals:

It was not imperative and necessary for the trial court to pass upon the question of whether
or not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134
isued by appellee. Appellant was neither a party nor privy to this insurance contract, and
therefore cannot avail itself of any defect in the policy which may constitute a valid reason for
appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever
defect the policy contained, if any, is deemed to have been waived by the subsequent
payment of Macleod's claim by appellee. Besides, appellant is herein sued in its capacity as
a common carrier, and appellee is suing as the assignee of the shipper pursuant to exhibit
MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the
Philippines for the los or damage to the 1,162 bales of hemp after these were received in
good order and condition by the patron of appellant's LCT No. 1025, it necessarily follows
that appellant is likewise liable to appellee who, as assignee of Macleod, merely stepped into
the shoes of and substi-tuted the latter in demanding from appellant the payment for the loss
and damage aforecited.

4. It should be recalled in connection with this issue that during the trial of this case the carrier asked
the lower court to order the production of the books of accounts of the Odell Plantation containing
the charges it made for the loss of the damaged hemp for verification of its accountants, but later it
desisted therefrom on the claim that it finds their production no longer necessary. This desistance
notwithstanding, the shipper however pre-sented other documents to prove the damage it suffered in
connection with the cargo and on the strength thereof the court a quo ordered the carrier to pay the
sum of P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the
desistance of the carrier from producing the books of accounts of Odell Plantation implies an
admission of the correctness of the statements of accounts contained therein, petitioner now
contends that the Court of Appeals erred in basing the affirmance of the award on such erroneous
interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of accounts
of Odell Plantation presented in court is tantamount to an admission that the statements contained
therein are correct and their verification not necessary because its main defense here, as well as
below, was that it is not liable for the loss because there was no contract of carriage between it and
the shipper and the loss caused, if any, was due to a fortuitous event. Hence, under the carrier's
theory, the correctness of the account representing the loss was not so material as would
necessitate the presentation of the books in question. At any rate, even if the books of accounts
were not produced, the correctness of the accounts cannot now be disputed for the same is
supported by the original documents on which the entries in said books were based which were
presented by the shipper as part of its evidence. And according to the Court of Appeals, these
documents alone sufficiently establish the award of P60,412.02 made in favor of respondent.

5. Finally, with regard to the question concerning the personality of the insurance company to
maintain this action, we find the same of no importance, for the attorney himself of the carrier
admitted in open court that it is a foreign corporation doing business in the Philippines with a
personality to file the present action.

WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.

G.R. No. 145804 February 6, 2003

LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN, petitioners,

vs.
MARJORIE NAVIDAD, Heirs of the Late NICANOR NAVIDAD & PRUDENT SECURITY
AGENCY, respondents.

DECISION

VITUG, J.:

The case before the Court is an appeal from the decision and resolution of the Court of Appeals,
promulgated on 27 April 2000 and 10 October 2000, respectively, in CA-G.R. CV No. 60720, entitled
"Marjorie Navidad and Heirs of the Late Nicanor Navidad vs. Rodolfo Roman, et. al.," which has
modified the decision of 11 August 1998 of the Regional Trial Court, Branch 266, Pasig City,
exonerating Prudent Security Agency (Prudent) from liability and finding Light Rail Transit Authority
(LRTA) and Rodolfo Roman liable for damages on account of the death of Nicanor Navidad.

On 14 October 1993, about half an hour past seven o’clock in the evening, Nicanor Navidad, then
drunk, entered the EDSA LRT station after purchasing a "token" (representing payment of the fare).
While Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the security
guard assigned to the area approached Navidad. A misunderstanding or an altercation between the
two apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how
the fight started or who, between the two, delivered the first blow or how Navidad later fell on the
LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo
Roman, was coming in. Navidad was struck by the moving train, and he was killed instantaneously.

On 08 December 1994, the widow of Nicanor, herein respondent Marjorie Navidad, along with her
children, filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the
Metro Transit Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA
and Roman filed a counterclaim against Navidad and a cross-claim against Escartin and Prudent.
Prudent, in its answer, denied liability and averred that it had exercised due diligence in the selection
and supervision of its security guards.
The LRTA and Roman presented their evidence while Prudent and Escartin, instead of presenting
evidence, filed a demurrer contending that Navidad had failed to prove that Escartin was negligent in
his assigned task. On 11 August 1998, the trial court rendered its decision; it adjudged:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants
Prudent Security and Junelito Escartin ordering the latter to pay jointly and severally the plaintiffs the
following:

"a) 1) Actual damages of P44,830.00;

2) Compensatory damages of P443,520.00;

3) Indemnity for the death of Nicanor Navidad in the sum of P50,000.00;

"b) Moral damages of P50,000.00;

"c) Attorney’s fees of P20,000;

"d) Costs of suit.

"The complaint against defendants LRTA and Rodolfo Roman are dismissed for lack of merit.

"The compulsory counterclaim of LRTA and Roman are likewise dismissed."1

Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its
now assailed decision exonerating Prudent from any liability for the death of Nicanor Navidad and,
instead, holding the LRTA and Roman jointly and severally liable thusly:

"WHEREFORE, the assailed judgment is hereby MODIFIED, by exonerating the appellants from any
liability for the death of Nicanor Navidad, Jr. Instead, appellees Rodolfo Roman and the Light Rail
Transit Authority (LRTA) are held liable for his death and are hereby directed to pay jointly and
severally to the plaintiffs-appellees, the following amounts:

a) P44,830.00 as actual damages;

b) P50,000.00 as nominal damages;

c) P50,000.00 as moral damages;

d) P50,000.00 as indemnity for the death of the deceased; and

e) P20,000.00 as and for attorney’s fees."2

The appellate court ratiocinated that while the deceased might not have then as yet boarded the
train, a contract of carriage theretofore had already existed when the victim entered the place where
passengers were supposed to be after paying the fare and getting the corresponding token therefor.
In exempting Prudent from liability, the court stressed that there was nothing to link the security
agency to the death of Navidad. It said that Navidad failed to show that Escartin inflicted fist blows
upon the victim and the evidence merely established the fact of death of Navidad by reason of his
having been hit by the train owned and managed by the LRTA and operated at the time by Roman.
The appellate court faulted petitioners for their failure to present expert evidence to establish the fact
that the application of emergency brakes could not have stopped the train.

The appellate court denied petitioners’ motion for reconsideration in its resolution of 10 October
2000.

In their present recourse, petitioners recite alleged errors on the part of the appellate court; viz:

"I.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY DISREGARDING THE

FINDINGS OF FACTS BY THE TRIAL COURT

"II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT PETITIONERS

ARE LIABLE FOR THE DEATH OF NICANOR NAVIDAD, JR.

"III.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RODOLFO

ROMAN IS AN EMPLOYEE OF LRTA."3

Petitioners would contend that the appellate court ignored the evidence and the factual findings of
the trial court by holding them liable on the basis of a sweeping conclusion that the presumption of
negligence on the part of a common carrier was not overcome. Petitioners would insist that
Escartin’s assault upon Navidad, which caused the latter to fall on the tracks, was an act of a
stranger that could not have been foreseen or prevented. The LRTA would add that the appellate
court’s conclusion on the existence of an employer-employee relationship between Roman and
LRTA lacked basis because Roman himself had testified being an employee of Metro Transit and
not of the LRTA.

Respondents, supporting the decision of the appellate court, contended that a contract of carriage
was deemed created from the moment Navidad paid the fare at the LRT station and entered the
premises of the latter, entitling Navidad to all the rights and protection under a contractual relation,
and that the appellate court had correctly held LRTA and Roman liable for the death of Navidad in
failing to exercise extraordinary diligence imposed upon a common carrier.

Law and jurisprudence dictate that a common carrier, both from the nature of its business and for
reasons of public policy, is burdened with the duty of exercising utmost diligence in ensuring the
safety of passengers.4 The Civil Code, governing the liability of a common carrier for death of or
injury to its passengers, provides:

"Article 1755. A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all
the circumstances.

"Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as prescribed in articles 1733 and 1755."
"Article 1759. Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former’s employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers.

"This liability of the common carriers does not cease upon proof that they exercised all the diligence
of a good father of a family in the selection and supervision of their employees."

"Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the
willful acts or negligence of other passengers or of strangers, if the common carrier’s employees
through the exercise of the diligence of a good father of a family could have prevented or stopped
the act or omission."

The law requires common carriers to carry passengers safely using the utmost diligence of
very cautious persons with due regard for all circumstances.5 Such duty of a common carrier
to provide safety to its passengers so obligates it not only during the course of the trip but
for so long as the passengers are within its premises and where they ought to be in
pursuance to the contract of carriage.6 The statutory provisions render a common carrier
liable for death of or injury to passengers (a) through the negligence or wilful acts of its
employees or b) on account of wilful acts or negligence of other passengers or of strangers if
the common carrier’s employees through the exercise of due diligence could have prevented
or stopped the act or omission.7 In case of such death or injury, a carrier is presumed to have
been at fault or been negligent, and8 by simple proof of injury, the passenger is relieved of the duty to
still establish the fault or negligence of the carrier or of its employees and the burden shifts upon
the carrier to prove that the injury is due to an unforeseen event or to force majeure.9 In the
absence of satisfactory explanation by the carrier on how the accident occurred, which petitioners,
according to the appellate court, have failed to show, the presumption would be that it has been at
fault,10 an exception from the general rule that negligence must be proved.11

The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required
of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a
carrier may choose to hire its own employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common carrier is not relieved of its
responsibilities under the contract of carriage.

Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 217612 and related provisions, in conjunction with Article 2180,13 of the Civil Code.
The premise, however, for the employer’s liability is negligence or fault on the part of the employee.
Once such fault is established, the employer can then be made liable on the basis of the
presumption juris tantum that the employer failed to exercise diligentissimi patris families in the
selection and supervision of its employees. The liability is primary and can only be negated by
showing due diligence in the selection and supervision of the employee, a factual matter that has not
been shown. Absent such a showing, one might ask further, how then must the liability of the
common carrier, on the one hand, and an independent contractor, on the other hand, be described?
It would be solidary. A contractual obligation can be breached by tort and when the same act or
omission causes the injury, one resulting in culpa contractual and the other in culpa aquiliana, Article
219414 of the Civil Code can well apply.15 In fine, a liability for tort may arise even under a contract,
where tort is that which breaches the contract.16 Stated differently, when an act which constitutes a
breach of contract would have itself constituted the source of a quasi-delictual liability had no
contract existed between the parties, the contract can be said to have been breached by tort,
thereby allowing the rules on tort to apply.17
Regrettably for LRT, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad,
this Court is concluded by the factual finding of the Court of Appeals that "there is nothing to link
(Prudent) to the death of Nicanor (Navidad), for the reason that the negligence of its employee,
Escartin, has not been duly proven x x x." This finding of the appellate court is not without substantial
justification in our own review of the records of the case.

There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act
or omission, he must also be absolved from liability. Needless to say, the contractual tie between the
LRT and Navidad is not itself a juridical relation between the latter and Roman; thus, Roman can be
made liable only for his own fault or negligence.

The award of nominal damages in addition to actual damages is untenable. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant,
may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.18 It is an established rule that nominal damages cannot co-exist with compensatory
damages.19

WHEREFORE, the assailed decision of the appellate court is AFFIRMED with MODIFICATION but
only in that (a) the award of nominal damages is DELETED and (b) petitioner Rodolfo Roman is
absolved from liability. No costs.

SO ORDERED.

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,

vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan. Upon gathering
sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler trucks
which he owned for hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which
various merchants wanted delivered to differing establishments in Pangasinan. For that service, respondent charged freight rates which were
commonly lower than regular commercial rates.

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of
General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for
the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a
truck driven by respondent himself, while 600 cartons were placed on board the other truck which
was driven by Manuel Estrada, respondent's driver and employee.

Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and
the cargo.

On 6 January 1971, petitioner commenced action against private respondent in the Court of First
Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost
merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a
common carrier, and having failed to exercise the extraordinary diligence required of him by the law,
should be held liable for the value of the undelivered goods.

In his Answer, private respondent denied that he was a common carrier and argued that he could
not be held responsible for the value of the lost goods, such loss having been due to force majeure.

On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a
common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well
as for P 4,000.00 as damages and P 2,000.00 as attorney's fees.

On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering
him a common carrier; in finding that he had habitually offered trucking services to the public; in not
exempting him from liability on the ground of force majeure; and in ordering him to pay damages and
attorney's fees.

The Court of Appeals reversed the judgment of the trial court and held that respondent had been
engaged in transporting return loads of freight "as a casual
occupation — a sideline to his scrap iron business" and not as a common carrier. Petitioner came to
this Court by way of a Petition for Review assigning as errors the following conclusions of the Court
of Appeals:

1. that private respondent was not a common carrier;

2. that the hijacking of respondent's truck was force majeure; and

3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p.
111)

We consider first the issue of whether or not private respondent Ernesto Cendana may, under the
facts earlier set forth, be properly characterized as a common carrier.

The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.

The above article makes no distinction between one whose principal business activity is the carrying
of persons or goods or both, and one who does such carrying only as an ancillary activity (in local
Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or
population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly
with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as
amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:

... every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or without fixed route and whatever may
be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or
dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)

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 back-hauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private 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.

The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of
public convenience or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent precisely for failing to
comply with applicable statutory requirements. The business of a common carrier impinges directly
and intimately upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely facultative by simply failing to
obtain the necessary permits and authorizations.

We turn then to the liability of private respondent as a common carrier.

Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a
very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as
of passengers. The specific import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.
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:

(1) Flood, storm, earthquake, lightning or other natural disaster or

calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the
containers; and
(5) Order or act of competent public authority.

It is important to point out that the above list of causes of loss, destruction or deterioration which
exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the
foregoing list, even if they appear to constitute a species of force majeure fall within the scope of
Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article 1733. (Emphasis
supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in
the instant case — the hijacking of the carrier's truck — does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of
the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the
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.

Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent
should have hired a security guard presumably to ride with the truck carrying the 600 cartons of
Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary
diligence required private respondent to retain a security guard to ride with the truck and to engage
brigands in a firelight at the risk of his own life and the lives of the driver and his helper.

The precise issue that we address here relates to the specific requirements of the duty of
extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or
armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article
1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745,
numbers 4, 5 and 6, Article 1745 provides in relevant part:

Any of the following or similar stipulations shall be considered unreasonable, unjust

and contrary to public policy:

xxx xxx xxx

 (5) that the common carrier shall not be responsible for the acts or
omissions of his or its employees;

(6) that the common carrier's liability for acts committed by thieves, or
of robbers who donot act with grave or irresistible threat, violence or
force, is dispensed with or diminished; and

(7) that the common carrier shall not responsible for the loss,
destruction or deterioration of goods on account of the defective
condition of the car vehicle, ship, airplane or other equipment used in
the contract of carriage. (Emphasis supplied)

Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to
divest or to diminish such responsibility — even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence
or force." 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."

In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of
First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v.
Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for
delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the
accused acted with grave, if not irresistible, threat, violence or force.3 Three (3) of the five (5) hold-
uppers were armed with firearms. The robbers not only took away the truck and its cargo but also
kidnapped the driver and his helper, detaining them for several days and later releasing them in
another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon
City. The Court of First Instance convicted all the accused of robbery, though not of robbery in
band. 4

In these circumstances, 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 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.

We, therefore, agree with the result reached by the Court of Appeals that private respondent
Cendana is not liable for the value of the undelivered merchandise which was lost because of an
event entirely beyond private respondent's control.

ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the
Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas,
respondents.

MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial
Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners'
complaint for a business tax refund imposed by the City of Batangas.

Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to
contract, install and operate oil pipelines. The original pipeline concession was granted in
19671 and renewed by the Energy Regulatory Board in 1992. 2

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent
City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal
year 1993 pursuant to the Local Government Code3. The respondent City Treasurer assessed
a business tax on the petitioner amounting to P956,076.04 payable in four installments based
on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted
to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest
in the amount of P239,019.01 for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

Please note that our Company (FPIC) is a pipeline operator with a government
concession granted under the Petroleum Act. It is engaged in the business of
transporting petroleum products from the Batangas refineries, via pipeline, to
Sucat and JTF Pandacan Terminals. As such, our Company is exempt from
paying tax on gross receipts under Section 133 of the Local Government Code
of 1991 . . . .

Moreover, Transportation contractors are not included in the enumeration of

contractors under Section 131, Paragraph (h) of the Local Government Code.
Therefore, the authority to impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local Government Code
does not include the power to levy on transportation contractors.

The imposition and assessment cannot be categorized as a mere fee

authorized under Section 147 of the Local Government Code. The said section
limits the imposition of fees and charges on business to such amounts as may
be commensurate to the cost of regulation, inspection, and licensing. Hence,
assuming arguendo that FPIC is liable for the license fee, the imposition
thereof based on gross receipts is violative of the aforecited provision. The
amount of P956,076.04 (P239,019.01 per quarter) is not commensurate to the
 cost of regulation, inspection and licensing. The fee is already a revenue
raising measure, and not a mere regulatory imposition.4

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.5

On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint6 for tax refund with prayer for writ of preliminary injunction against respondents
City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint,
petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its
gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities
to impose and collect a tax on the gross receipts of "contractors and independent
contractors" under Sec. 141 (e) and 151 does not include the authority to collect such taxes
on transportation contractors for, as defined under Sec. 131 (h), the term "contractors"
excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously
imposed and collected the said tax, thus meriting the immediate refund of the tax paid.7

Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies only to
"transportation contractors and persons engaged in the transportation by hire and common
carriers by air, land and water." Respondents assert that pipelines are not included in the
term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships
and the like. Respondents further posit that the term "common carrier" under the said code
pertains to the mode or manner by which a product is delivered to its destination.8

On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in
this wise:

. . . Plaintiff is either a contractor or other independent contractor.

. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule
that tax exemptions are to be strictly construed against the taxpayer, taxes
being the lifeblood of the government. Exemption may therefore be granted
only by clear and unequivocal provisions of law.

Plaintiff claims that it is a grantee of a pipeline concession under Republic Act

387. (Exhibit A) whose concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.

Even the Local Government Code imposes a tax on franchise holders under
Sec. 137 of the Local Tax Code. Such being the situation obtained in this case
(exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:

1. That the exemption granted under Sec. 133 (j)

encompasses only common carriers so as not to
overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a
special carrier extending its services and facilities
 to a single specific or "special customer" under a
"special contract."

2. The Local Tax Code of 1992 was basically

enacted to give more and effective local
autonomy to local governments than the previous
enactments, to make them economically and
financially viable to serve the people and
discharge their functions with a concomitant
obligation to accept certain devolution of powers,
. . . So, consistent with this policy even franchise
grantees are taxed (Sec. 137) and contractors are
also taxed under Sec. 143 (e) and 151 of the
Code.9

Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for consideration
and adjudication. 10 On November 29, 1995, the respondent court rendered a
decision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion
for reconsideration was denied on July 18, 1996. 12

Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996. 13Petitioner moved for a reconsideration which was granted by this Court
in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner
is not a common carrier or a transportation contractor, and (2) the exemption sought for by
petitioner is not clear under the law.

There is merit in the petition.

A "common carrier" may be defined, broadly, as one who holds himself out to the public as
engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.

Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or
association engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying

goods for others as a public employment, and
must hold himself out as ready to engage in the
transportation of goods for person generally as a
business and not as a casual occupation;

2. He must undertake to carry goods of the kind to

which his business is confined;
 3. He must undertake to carry by the method by
which his business is conducted and over his
established roads; and

4. The transportation must be for hire. 15

Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e.
petroleum products, for hire as a public employment. It undertakes to carry for all persons
indifferently, that is, to all persons who choose to employ its services, and transports the
goods by land and for compensation. The fact that petitioner has a limited clientele does not
exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals 16we
ruled that:

The above article (Art. 1732, Civil Code) makes no distinction

between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only
as an ancillary activity (in local idiom, as a "sideline"). Article
1732 . . . avoids making any distinction between a person or
enterprise offering transportation service on
a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article

1732 may be seen to coincide neatly with the notion of "public
service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law
on common carriers set forth in the Civil Code. Under Section
13, paragraph (b) of the Public Service Act, "public service"
includes:

every person that now or hereafter may own,

operate. manage, or control in the Philippines, for
hire or compensation, with general or limited
clientele, whether permanent, occasional or
accidental, and done for general business
purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle,
either for freight or passenger, or both, with or
without fixed route and whatever may be its
classification, freight or carrier service of any
class, express service, steamboat, or steamship
line, pontines, ferries and water craft, engaged in
the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock,
ice plant, ice-refrigeration plant, canal, irrigation
system gas, electric light heat and power, water
 supply andpower petroleum, sewerage system,
wire or wireless communications systems, wire or
wireless broadcasting stations and other similar
public services. (Emphasis Supplied)

Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the
Local Government Code refers only to common carriers transporting goods and passengers
through moving vehicles or vessels either by land, sea or water, is erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code
makes no distinction as to the means of transporting, as long as it is by land, water or air. It
does not provide that the transportation of the passengers or goods should be by motor
vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:

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

line shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by
others for transport, and to charge without discrimination such
rates as may have been approved by the Secretary of
Agriculture and Natural Resources.

Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:

that everything relating to the exploration for and exploitation of

petroleum . . . and everything relating to the manufacture,
refining, storage, or transportation by special methods of
petroleum, is hereby declared to be a public utility. (Emphasis
Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR
Ruling No. 069-83, it declared:

. . . since [petitioner] is a pipeline concessionaire that is

engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 . . . .
Such being the case, it is not subject to withholding tax
prescribed by Revenue Regulations No. 13-78, as amended.

From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and,
therefore, exempt from the business tax as provided for in Section 133 (j), of the Local
Government Code, to wit:

Sec. 133. Common Limitations on the Taxing Powers of Local

Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
 xxx xxx xxx

(j) Taxes on the gross receipts of

transportation contractors and
persons engaged in the
transportation of passengers or
freight by hire and common carriers
by air, land or water, except as
provided in this Code.

The deliberations conducted in the House of Representatives on the Local Government Code
of 1991 are illuminating:

MR. AQUINO (A). Thank you, Mr. Speaker.

Mr. Speaker, we would like to proceed to page 95, line

1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on

the Taxing Powers of Local Government Units." . . .

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business of

transportation. This appears to be one of those being deemed to
be exempted from the taxing powers of the local government
units. May we know the reason why the transportation business
is being excluded from the taxing powers of the local
government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in

Section 121 (now Sec. 131), line 16, paragraph 5. It states that
local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98

of Book II, one can see there that provinces have the power to
impose a tax on business enjoying a franchise at the rate of not
more than one-half of 1 percent of the gross annual receipts. So,
transportation contractors who are enjoying a franchise would
be subject to tax by the province. That is the exception, Mr.
Speaker.

What we want to guard against here, Mr. Speaker, is the

imposition of taxes by local government units on the carrier
business. Local government units may impose taxes on top of
what is already being imposed by the National Internal Revenue
Code which is the so-called "common carriers tax." We do not
want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may
impose this tax at a specific rate.
 MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . .
. 18

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again on its
gross receipts in its transportation of petroleum business would defeat the purpose of the
Local Government Code.

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE.

SO ORDERED.

G.R. No. 157917 August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and the
COURT OF APPEALS Respondents.

DECISION

BERSAMIN, J.:

The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to
observe extraordinary diligence in the conduct of his business. He is presumed to be negligent when
death occurs to a passenger. His liability may include indemnity for loss of earning capacity even if
the deceased passenger may only be an unemployed high school student at the time of the
accident.

The Case

By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the
adverse decision promulgated on November 13, 2002, by which the Court of Appeals (CA) affirmed
with modification the decision rendered on December 3, 1999 by the Regional Trial Court (RTC),
Branch 260, in Parañaque City that had decreed them jointly and severally liable with Philippine
National Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita Zarate (Zarates) for
the death of their 15-year old son, Aaron John L. Zarate (Aaron), then a high school student of Don
Bosco Technical Institute (Don Bosco).

Antecedents

The Pereñas were engaged in the business of transporting students from their respective residences
in Parañaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their business, the
Pereñas used a KIA Ceres Van (van) with Plate No. PYA 896, which had the capacity to transport 14
students at a time, two of whom would be seated in the front beside the driver, and the others in the
rear, with six students on either side. They employed Clemente Alfaro (Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don Bosco. On
August 22, 1996, as on previous school days, the van picked Aaron up around 6:00 a.m. from the
Zarates’ residence. Aaron took his place on the left side of the van near the rear door. The van, with
its air-conditioning unit turned on and the stereo playing loudly, ultimately carried all the 14 student
riders on their way to Don Bosco. Considering that the students were due at Don Bosco by 7:15
a.m., and that they were already running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing the narrow
path underneath the Magallanes Interchange that was then commonly used by Makati-bound
vehicles as a short cut into Makati. At the time, the narrow path was marked by piles of construction
materials and parked passenger jeepneys, and the railroad crossing in the narrow path had no
railroad warning signs, or watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.

At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train),
operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange travelling
northbound. As the train neared the railroad crossing, Alfaro drove the van eastward across the
railroad tracks, closely tailing a large passenger bus. His view of the oncoming train was blocked
because he overtook the passenger bus on its left side. The train blew its horn to warn motorists of
its approach. When the train was about 50 meters away from the passenger bus and the van, Alano
applied the ordinary brakes of the train. He applied the emergency brakes only when he saw that a
collision was imminent. The passenger bus successfully crossed the railroad tracks, but the van
driven by Alfaro did not. The train hit the rear end of the van, and the impact threw nine of the 12
students in the rear, including Aaron, out of the van. Aaron landed in the path of the train, which
dragged his body and severed his head, instantaneously killing him. Alano fled the scene on board
the train, and did not wait for the police investigator to arrive.

Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for
damages against Alfaro, the Pereñas, PNR and Alano. The Pereñas and PNR filed their respective
answers, with cross-claims against each other, but Alfaro could not be served with summons.

At the pre-trial, the parties stipulated on the facts and issues, viz:

A. FACTS:

(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;

(2) Spouses Zarate engaged the services of spouses Pereña for the adequate and safe
transportation carriage of the former spouses' son from their residence in Parañaque to his
school at the Don Bosco Technical Institute in Makati City;

(3) During the effectivity of the contract of carriage and in the implementation thereof, Aaron,
the minor son of spouses Zarate died in connection with a vehicular/train collision which
occurred while Aaron was riding the contracted carrier Kia Ceres van of spouses Pereña,
then driven and operated by the latter's employee/authorized driver Clemente Alfaro, which
van collided with the train of PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity
of the Magallanes Interchange in Makati City, Metro Manila, Philippines;

(4) At the time of the vehicular/train collision, the subject site of the vehicular/train collision
was a railroad crossing used by motorists for crossing the railroad tracks;
 (5) During the said time of the vehicular/train collision, there were no appropriate and safety
warning signs and railings at the site commonly used for railroad crossing;

(6) At the material time, countless number of Makati bound public utility and private vehicles
used on a daily basis the site of the collision as an alternative route and short-cut to Makati;

(7) The train driver or operator left the scene of the incident on board the commuter train
involved without waiting for the police investigator;

(8) The site commonly used for railroad crossing by motorists was not in fact intended by
the railroad operator for railroad crossing at the time of the vehicular collision;

(9) PNR received the demand letter of the spouses Zarate;

(10) PNR refused to acknowledge any liability for the vehicular/train collision;

(11) The eventual closure of the railroad crossing alleged by PNR was an internal
arrangement between the former and its project contractor; and

(12) The site of the vehicular/train collision was within the vicinity or less than 100 meters
from the Magallanes station of PNR.

B. ISSUES

(1) Whether or not defendant-driver of the van is, in the performance of his functions, liable
for negligence constituting the proximate cause of the vehicular collision, which resulted in
the death of plaintiff spouses' son;

(2) Whether or not the defendant spouses Pereña being the employer of defendant Alfaro
are liable for any negligence which may be attributed to defendant Alfaro;

(3) Whether or not defendant Philippine National Railways being the operator of the railroad
system is liable for negligence in failing to provide adequate safety warning signs and railings
in the area commonly used by motorists for railroad crossings, constituting the proximate
cause of the vehicular collision which resulted in the death of the plaintiff spouses' son;

(4) Whether or not defendant spouses Pereña are liable for breach of the contract of carriage
with plaintiff-spouses in failing to provide adequate and safe transportation for the latter's
son;

(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary
damages, and attorney's fees;

(6) Whether or not defendants spouses Teodorico and Nanette Pereña observed the
diligence of employers and school bus operators;

(7) Whether or not defendant-spouses are civilly liable for the accidental death of Aaron John
Zarate;
 (8) Whether or not defendant PNR was grossly negligent in operating the commuter train
involved in the accident, in allowing or tolerating the motoring public to cross, and its failure
to install safety devices or equipment at the site of the accident for the protection of the
public;

(9) Whether or not defendant PNR should be made to reimburse defendant spouses for any
and whatever amount the latter may be held answerable or which they may be ordered to
pay in favor of plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts
claimed by the latter in their Complaint by reason of its gross negligence;

(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and
exemplary damages and attorney's fees.2

The Zarates’ claim against the Pereñas was upon breach of the contract of carriage for the safe
transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil Code.

In their defense, the Pereñas adduced evidence to show that they had exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, by making sure that Alfaro had
been issued a driver’s license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro Pereña had sometimes
accompanied Alfaro in the van’s trips transporting the students to school.

For its part, PNR tended to show that the proximate cause of the collision had been the reckless
crossing of the van whose driver had not first stopped, looked and listened; and that the narrow path
traversed by the van had not been intended to be a railroad crossing for motorists.

Ruling of the RTC

On December 3, 1999, the RTC rendered its decision,3 disposing:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering them to jointly and severally pay the plaintiffs as follows:

(1) (for) the death of Aaron- Php50,000.00;

(2) Actual damages in the amount of Php100,000.00;

(3) For the loss of earning capacity- Php2,109,071.00;

(4) Moral damages in the amount of Php4,000,000.00;

(5) Exemplary damages in the amount of Php1,000,000.00;

(6) Attorney’s fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.
On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration,4 reiterating that the
cooperative gross negligence of the Pereñas and PNR had caused the collision that led to the death
of Aaron; and that the damages awarded to the Zarates were not excessive, but based on the
established circumstances.

The CA’s Ruling

Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly and severally liable
together with defendant-appellants spouses Teodorico and Nanette Pereña and defendant-
appellant Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron Zarate and
damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses despite
overwhelming documentary evidence on record, supporting the case of defendants-
appellants Philippine National Railways.

The Pereñas ascribed the following errors to the RTC, namely:

The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral and
exemplary damages and attorney’s fees with the other defendants.

The trial court erred in dismissing the cross-claim of the appellants Pereñas against the Philippine
National Railways and in not holding the latter and its train driver primarily responsible for the
incident.

The trial court erred in awarding excessive damages and attorney’s fees.

The trial court erred in awarding damages in the form of deceased’s loss of earning capacity in the
absence of sufficient basis for such an award.

On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but
limited the moral damages to ₱ 2,500,000.00; and deleted the attorney’s fees because the RTC did
not state the factual and legal bases, to wit:6

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260
of Parañaque City is AFFIRMED with the modification that the award of Actual Damages is reduced
to ₱ 59,502.76; Moral Damages is reduced to ₱ 2,500,000.00; and the award for Attorney’s Fees is
Deleted.

SO ORDERED.

The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the ruling in
Cariaga v. Laguna Tayabas Bus Company and Manila Railroad Company,7 wherein the Court gave
the heirs of Cariaga a sum representing the loss of the deceased’s earning capacity despite Cariaga
being only a medical student at the time of the fatal incident. Applying the formula adopted in the
American Expectancy Table of Mortality:–

2/3 x (80 - age at the time of death) = life expectancy

the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life expectancy
from age of 21 (the age when he would have graduated from college and started working for his own
livelihood) instead of 15 years (his age when he died). Considering that the nature of his work and
his salary at the time of Aaron’s death were unknown, it used the prevailing minimum wage of ₱
280.00/day to compute Aaron’s gross annual salary to be ₱ 110,716.65, inclusive of the thirteenth
month pay. Multiplying this annual salary by Aaron’s life expectancy of 39.3 years, his gross income
would aggregate to ₱ 4,351,164.30, from which his estimated expenses in the sum of ₱
2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net income. Due to Aaron’s
computed net income turning out to be higher than the amount claimed by the Zarates, only ₱
2,109,071.00, the amount expressly prayed for by them, was granted.

On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration.8

Issues

In this appeal, the Pereñas list the following as the errors committed by the CA, to wit:

I. The lower court erred when it upheld the trial court’s decision holding the petitioners jointly and
severally liable to pay damages with Philippine National Railways and dismissing their cross-claim
against the latter.

II. The lower court erred in affirming the trial court’s decision awarding damages for loss of earning
capacity of a minor who was only a high school student at the time of his death in the absence of
sufficient basis for such an award.

III. The lower court erred in not reducing further the amount of damages awarded, assuming
petitioners are liable at all.

Ruling

The petition has no merit.

1.
Were the Pereñas and PNR jointly
and severally liable for damages?

The Zarates brought this action for recovery of damages against both the Pereñas and the PNR,
basing their claim against the Pereñas on breach of contract of carriage and against the PNR on
quasi-delict.

The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.

We concur with the CA.

To start with, the Pereñas’ defense was that they exercised the diligence of a good father of the
family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a
driver’s license and that he had not been involved in any vehicular accident prior to the fatal collision
with the train; that they even had their own son travel to and from school on a daily basis; and that
Teodoro Pereña himself sometimes accompanied Alfaro in transporting the passengers to and from
school. The RTC gave scant consideration to such defense by regarding such defense as
inappropriate in an action for breach of contract of carriage.

We find no adequate cause to differ from the conclusions of the lower courts that the Pereñas
operated as a common carrier; and that their standard of care was extraordinary diligence, not the
ordinary diligence of a good father of a family.

Although in this jurisdiction the operator of a school bus service has been usually regarded as a
private carrier,9primarily because he only caters to some specific or privileged individuals, and his
operation is neither open to the indefinite public nor for public use, the exact nature of the operation
of a school bus service has not been finally settled. This is the occasion to lay the matter to rest.

A carrier is a person or corporation who undertakes to transport or convey goods or persons from
one place to another, gratuitously or for hire. The carrier is classified either as a private/special
carrier or as a common/public carrier.10 A private carrier is one who, without making the activity a
vocation, or without holding himself or itself out to the public as ready to act for all who may desire
his or its services, undertakes, by special agreement in a particular instance only, to transport goods
or persons from one place to another either gratuitously or for hire.11 The provisions on ordinary
contracts of the Civil Code govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In contrast, a common
carrier is a person, corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation, offering such
services to the public.12 Contracts of common carriage are governed by the provisions on common
carriers of the Civil Code, the Public Service Act,13 and other special laws relating to transportation. A
common carrier is required to observe extraordinary diligence, and is presumed to be at fault or to
have acted negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.14

In relation to common carriers, the Court defined public use in the following terms in United States v.
Tan Piaco,15viz:

"Public use" is the same as "use by the public". The essential feature of the public use is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In determining whether a use is public, we must
look not only to the character of the business to be done, but also to the proposed mode of doing it.
If the use is merely optional with the owners, or the public benefit is merely incidental, it is not a
public use, authorizing the exercise of the jurisdiction of the public utility commission. There must be,
in general, a right which the law compels the owner to give to the general public. It is not enough that
the general prosperity of the public is promoted. Public use is not synonymous with public interest.
The true criterion by which to judge the character of the use is whether the public may enjoy it by
right or only by permission.

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided any
distinction between a person or an enterprise offering transportation on a regular or an isolated
basis; and has not distinguished a carrier offering his services to the general public, that is, the
general community or population, from one offering his services only to a narrow segment of the
general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code coincides
neatly with the notion of public service under the Public Service Act, which supplements the law on
common carriers found in the Civil Code. Public service, according to Section 13, paragraph (b) of
the Public Service Act, includes:

x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for
hire or compensation, with general or limited clientèle, whether permanent or occasional, and done
for the general business purposes, any common carrier, railroad, street railway, traction railway,
subway motor vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express service, steamboat,
or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, ice-refrigeration plant, canal, irrigation system, gas,
electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public services. x
x x.17

Given the breadth of the aforequoted characterization of a common carrier, the Court has
considered as common carriers pipeline operators,18 custom brokers and warehousemen,19 and barge
operators20 even if they had limited clientèle.

As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of the
business actually transacted, or the number and character of the conveyances used in the activity,
but whether the undertaking is a part of the activity engaged in by the carrier that he has held out to
the general public as his business or occupation. If the undertaking is a single transaction, not a part
of the general business or occupation engaged in, as advertised and held out to the general public,
the individual or the entity rendering such service is a private, not a common, carrier. The question
must be determined by the character of the business actually carried on by the carrier, not by any
secret intention or mental reservation it may entertain or assert when charged with the duties and
obligations that the law imposes.21

Applying these considerations to the case before us, there is no question that the Pereñas as the
operators of a school bus service were: (a) engaged in transporting passengers generally as a
business, not just as a casual occupation; (b) undertaking to carry passengers over established
roads by the method by which the business was conducted; and (c) transporting students for a fee.
Despite catering to a limited clientèle, the Pereñas operated as a common carrier because they held
themselves out as a ready transportation indiscriminately to the students of a particular school living
within or near where they operated the service and for a fee.

The common carrier’s standard of care and vigilance as to the safety of the passengers is defined by
law. Given the nature of the business and for reasons of public policy, the common carrier is bound
"to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case."22 Article 1755 of
the Civil Code specifies that the common carrier should "carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious persons, with a
due regard for all the circumstances." To successfully fend off liability in an action upon the death or
injury to a passenger, the common carrier must prove his or its observance of that extraordinary
diligence; otherwise, the legal presumption that he or it was at fault or acted negligently would
stand.23 No device, whether by stipulation, posting of notices, statements on tickets, or otherwise,
may dispense with or lessen the responsibility of the common carrier as defined under Article 1755
of the Civil Code. 24
And, secondly, the Pereñas have not presented any compelling defense or reason by which the
Court might now reverse the CA’s findings on their liability. On the contrary, an examination of the
records shows that the evidence fully supported the findings of the CA.

As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be negligent
at the time of the accident because death had occurred to their passenger.25 The presumption of
negligence, being a presumption of law, laid the burden of evidence on their shoulders to establish
that they had not been negligent.26 It was the law no less that required them to prove their
observance of extraordinary diligence in seeing to the safe and secure carriage of the passengers to
their destination. Until they did so in a credible manner, they stood to be held legally responsible for
the death of Aaron and thus to be held liable for all the natural consequences of such death.

There is no question that the Pereñas did not overturn the presumption of their negligence by
credible evidence. Their defense of having observed the diligence of a good father of a family in the
selection and supervision of their driver was not legally sufficient. According to Article 1759 of the
Civil Code, their liability as a common carrier did not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employee. This was the
reason why the RTC treated this defense of the Pereñas as inappropriate in this action for breach of
contract of carriage.

The Pereñas were liable for the death of Aaron despite the fact that their driver might have acted
beyond the scope of his authority or even in violation of the orders of the common carrier.27 In this
connection, the records showed their driver’s actual negligence. There was a showing, to begin with,
that their driver traversed the railroad tracks at a point at which the PNR did not permit motorists
going into the Makati area to cross the railroad tracks. Although that point had been used by
motorists as a shortcut into the Makati area, that fact alone did not excuse their driver into taking that
route. On the other hand, with his familiarity with that shortcut, their driver was fully aware of the
risks to his passengers but he still disregarded the risks. Compounding his lack of care was that loud
music was playing inside the air-conditioned van at the time of the accident. The loudness most
probably reduced his ability to hear the warning horns of the oncoming train to allow him to correctly
appreciate the lurking dangers on the railroad tracks. Also, he sought to overtake a passenger bus
on the left side as both vehicles traversed the railroad tracks. In so doing, he lost his view of the train
that was then coming from the opposite side of the passenger bus, leading him to miscalculate his
chances of beating the bus in their race, and of getting clear of the train. As a result, the bus avoided
a collision with the train but the van got slammed at its rear, causing the fatality. Lastly, he did not
slow down or go to a full stop before traversing the railroad tracks despite knowing that his
slackening of speed and going to a full stop were in observance of the right of way at railroad tracks
as defined by the traffic laws and regulations.28He thereby violated a specific traffic regulation on right
of way, by virtue of which he was immediately presumed to be negligent.29

The omissions of care on the part of the van driver constituted negligence,30 which, according to
Layugan v. Intermediate Appellate Court,31 is "the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or
the doing of something which a prudent and reasonable man would not do,32 or as Judge Cooley
defines it, ‘(t)he failure to observe for the protection of the interests of another person, that degree of
care, precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury.’"33

The test by which to determine the existence of negligence in a particular case has been aptly stated
in the leading case of Picart v. Smith,34 thuswise:
The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case
is not determined by reference to the personal judgment of the actor in the situation before him. The
law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence
and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of
course be always determined in the light of human experience and in view of the facts involved in
the particular case. Abstract speculation cannot here be of much value but this much can be
profitably said: Reasonable men govern their conduct by the circumstances which are before them
or known to them. They are not, and are not supposed to be, omniscient of the future. Hence they
can be expected to take care only when there is something before them to suggest or warn of
danger. Could a prudent man, in the case under consideration, foresee harm as a result of the
course actually pursued? If so, it was the duty of the actor to take precautions to guard against that
harm. Reasonable foresight of harm, followed by the ignoring of the suggestion born of this
prevision, is always necessary before negligence can be held to exist. Stated in these terms, the
proper criterion for determining the existence of negligence in a given case is this: Conduct is said to
be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect
harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against
its consequences. (Emphasis supplied)

Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was entirely negligent when he
traversed the railroad tracks at a point not allowed for a motorist’s crossing despite being fully aware
of the grave harm to be thereby caused to his passengers; and when he disregarded the foresight of
harm to his passengers by overtaking the bus on the left side as to leave himself blind to the
approach of the oncoming train that he knew was on the opposite side of the bus.

Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate Court,35 where the
Court held the PNR solely liable for the damages caused to a passenger bus and its passengers
when its train hit the rear end of the bus that was then traversing the railroad crossing. But the
circumstances of that case and this one share no similarities. In Philippine National Railways v.
Intermediate Appellate Court, no evidence of contributory negligence was adduced against the
owner of the bus. Instead, it was the owner of the bus who proved the exercise of extraordinary
diligence by preponderant evidence. Also, the records are replete with the showing of negligence on
the part of both the Pereñas and the PNR. Another distinction is that the passenger bus in Philippine
National Railways v. Intermediate Appellate Court was traversing the dedicated railroad crossing
when it was hit by the train, but the Pereñas’ school van traversed the railroad tracks at a point not
intended for that purpose.

At any rate, the lower courts correctly held both the Pereñas and the PNR "jointly and severally"
liable for damages arising from the death of Aaron. They had been impleaded in the same complaint
as defendants against whom the Zarates had the right to relief, whether jointly, severally, or in the
alternative, in respect to or arising out of the accident, and questions of fact and of law were
common as to the Zarates.36 Although the basis of the right to relief of the Zarates (i.e., breach of
contract of carriage) against the Pereñas was distinct from the basis of the Zarates’ right to relief
against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless could be held
jointly and severally liable by virtue of their respective negligence combining to cause the death of
Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence despite the school
van of the Pereñas traversing the railroad tracks at a point not dedicated by the PNR as a railroad
crossing for pedestrians and motorists, because the PNR did not ensure the safety of others through
the placing of crossbars, signal lights, warning signs, and other permanent safety barriers to prevent
vehicles or pedestrians from crossing there. The RTC observed that the fact that a crossing guard
had been assigned to man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was
aware of the risks to others as well as the need to control the vehicular and other traffic there. Verily,
the Pereñas and the PNR were joint tortfeasors.

2.
Was the indemnity for loss of
Aaron’s earning capacity proper?

The RTC awarded indemnity for loss of Aaron’s earning capacity. Although agreeing with the RTC
on the liability, the CA modified the amount. Both lower courts took into consideration that Aaron,
while only a high school student, had been enrolled in one of the reputable schools in the Philippines
and that he had been a normal and able-bodied child prior to his death. The basis for the
computation of Aaron’s earning capacity was not what he would have become or what he would
have wanted to be if not for his untimely death, but the minimum wage in effect at the time of his
death. Moreover, the RTC’s computation of Aaron’s life expectancy rate was not reckoned from his
age of 15 years at the time of his death, but on 21 years, his age when he would have graduated
from college.

We find the considerations taken into account by the lower courts to be reasonable and fully
warranted.

Yet, the Pereñas submit that the indemnity for loss of earning capacity was speculative and
unfounded. They cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity for victim
1âwphi1

Jussi Leino’s loss of earning capacity as a pilot for being speculative due to his having graduated
from high school at the International School in Manila only two years before the shooting, and was at
the time of the shooting only enrolled in the first semester at the Manila Aero Club to pursue his
ambition to become a professional pilot. That meant, according to the Court, that he was for all
intents and purposes only a high school graduate.

We reject the Pereñas’ submission.

First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi Leino
was not akin to that of Aaron here. The CA and the RTC were not speculating that Aaron would be
some highly-paid professional, like a pilot (or, for that matter, an engineer, a physician, or a lawyer).
Instead, the computation of Aaron’s earning capacity was premised on him being a lowly minimum
wage earner despite his being then enrolled at a prestigious high school like Don Bosco in Makati, a
fact that would have likely ensured his success in his later years in life and at work.

And, secondly, the fact that Aaron was then without a history of earnings should not be taken against
his parents and in favor of the defendants whose negligence not only cost Aaron his life and his right
to work and earn money, but also deprived his parents of their right to his presence and his services
as well. Our law itself states that the loss of the earning capacity of the deceased shall be the liability
of the guilty party in favor of the heirs of the deceased, and shall in every case be assessed and
awarded by the court "unless the deceased on account of permanent physical disability not caused
by the defendant, had no earning capacity at the time of his death."38 Accordingly, we emphatically
hold in favor of the indemnification for Aaron’s loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time or earnings but for
loss of the deceased’s power or ability to earn money.39
This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna Tayabas
Bus Company and Manila Railroad Company,40 fourth-year medical student Edgardo Carriaga’s
earning capacity, although he survived the accident but his injuries rendered him permanently
incapacitated, was computed to be that of the physician that he dreamed to become. The Court
considered his scholastic record sufficient to justify the assumption that he could have finished the
medical course and would have passed the medical board examinations in due time, and that he
could have possibly earned a modest income as a medical practitioner. Also, in People v.
Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and murder victim Allan
Gomez could have easily landed good-paying jobs had they graduated in due time, and that their
jobs would probably pay them high monthly salaries from ₱ 10,000.00 to ₱ 15,000.00 upon their
graduation. Their earning capacities were computed at rates higher than the minimum wage at the
time of their deaths due to their being already senior agriculture students of the University of the
Philippines in Los Baños, the country’s leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

The Pereñas plead for the reduction of the moral and exemplary damages awarded to the Zarates in
the respective amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the ground that such amounts
were excessive.

The plea is unwarranted.

The moral damages of ₱ 2,500,000.00 were really just and reasonable under the established
circumstances of this case because they were intended by the law to assuage the Zarates’ deep
mental anguish over their son’s unexpected and violent death, and their moral shock over the
senseless accident. That amount would not be too much, considering that it would help the Zarates
obtain the means, diversions or amusements that would alleviate their suffering for the loss of their
child. At any rate, reducing the amount as excessive might prove to be an injustice, given the
passage of a long time from when their mental anguish was inflicted on them on August 22, 1996.

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only
to render effective the desired example for the public good. As a common carrier, the Pereñas
needed to be vigorously reminded to observe their duty to exercise extraordinary diligence to
prevent a similarly senseless accident from happening again. Only by an award of exemplary
damages in that amount would suffice to instill in them and others similarly situated like them the
ever-present need for greater and constant vigilance in the conduct of a business imbued with public
interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated on
November 13, 2002; and ORDER the petitioners to pay the costs of suit.

SO ORDERED.

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,

vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA, respondents.

Gonzales, Sinense, Jimenez & Associates for petitioner.

Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier into a
private one as to negate the civil law presumption of negligence in case of loss or damage to its
cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of
New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in
bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei
Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union,
Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued
on the date of departure.

On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant
to the Uniform General Charter2 was entered into between Mitsubishi as shipper/charterer and KKKK
as shipowner, in Tokyo, Japan.3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.

Before loading the fertilizer aboard the vessel, four (4) of her holds4 were all presumably inspected
by the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the
charter-party which reads:

16. . . . At loading port, notice of readiness to be accomplished by certificate from

National Cargo Bureau inspector or substitute appointed by charterers for his
account certifying the vessel's readiness to receive cargo spaces. The vessel's hold
to be properly swept, cleaned and dried at the vessel's expense and the vessel to be
presented clean for use in bulk to the satisfaction of the inspector before daytime
commences. (emphasis supplied)

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the
shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin,
then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire
voyage.5

Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened
with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied
dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S.
clause).6 The hatches remained open throughout the duration of the discharge.7

Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was
transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to
the warehouse, the trucks were made to pass through a weighing scale where they were individually
weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy,
certain portions of the route to the warehouse were sandy and the weather was variable, raining
occasionally while the discharge was in progress.8 The petitioner's warehouse was made of
corrugated galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered
and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between
and alongside the trucks to contain spillages of the ferilizer.9

It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th,
14th and 18th).10A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI),
was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the
vessel prior to and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI)
dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea
fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained in a
Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the
cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for
commerce, having been polluted with sand, rust and
dirt. 12

Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies
(SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged
shortage in the goods shipped and the diminution in value of that portion said to have been
contaminated with dirt. 13

Respondent SSA explained that they were not able to respond to the consignee's claim for payment
because, according to them, what they received was just a request for shortlanded certificate and
not a formal claim, and that this "request" was denied by them because they "had nothing to do with
the discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed an action for damages with the
Court of First Instance of Manila. The defendant carrier argued that the strict public policy governing
common carriers does not apply to them because they have become private carriers by reason of
the provisions of the charter-party. The court a quo however sustained the claim of the plaintiff
against the defendant carrier for the value of the goods lost or damaged when it ruled thus: 15

. . . Prescinding from the provision of the law that a common carrier is presumed
negligent in case of loss or damage of the goods it contracts to transport, all that a
shipper has to do in a suit to recover for loss or damage is to show receipt by the
carrier of the goods and to delivery by it of less than what it received. After that, the
burden of proving that the loss or damage was due to any of the causes which
exempt him from liability is shipted to the carrier, common or private he may be.
Even if the provisions of the charter-party aforequoted are deemed valid, and the
defendants considered private carriers, it was still incumbent upon them to prove that
the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with
their failure to destroy the presumption of negligence against them, the defendants
are liable (emphasis supplied).

On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from
liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc.,17 the appellate court ruled that the cargo
vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common
carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on common
carriers which set forth a presumption of negligence do not find application in the case at bar. Thus
—

. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee

to adduce sufficient evidence to prove the negligence of the defendant carrier as
 alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon
whom rests the burden of proving his cause of action, fails to show in a satisfactory
manner the facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense (Moran, Commentaries on the Rules of
Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).

But, the record shows that the plaintiff-appellee dismally failed to prove the basis of
its cause of action, i.e. the alleged negligence of defendant carrier. It appears that
the plaintiff was under the impression that it did not have to establish defendant's
negligence. Be that as it may, contrary to the trial court's finding, the record of the
instant case discloses ample evidence showing that defendant carrier was not
negligent in performing its obligation . . . 18 (emphasis supplied).

Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of
Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present
controversy because the issue raised therein is the validity of a stipulation in the charter-party
delimiting the liability of the shipowner for loss or damage to goods cause by want of due deligence
on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the
presumption of negligence provided under the Civil Code applies only to common carriers and not to
private carriers. 19 Petitioner further argues that since the possession and control of the vessel
remain with the shipowner, absent any stipulation to the contrary, such shipowner should made
liable for the negligence of the captain and crew. In fine, PPI faults the appellate court in not applying
the presumption of negligence against respondent carrier, and instead shifting the onus probandi on
the shipper to show want of due deligence on the part of the carrier, when he was not even at hand
to witness what transpired during the entire voyage.

As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by
reason of a charter-party; in the negative, whether the shipowner in the instant case was able to
prove that he had exercised that degree of diligence required of him under the law.

It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so,
we find it fitting to first define important terms which are relevant to our discussion.

A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; 20 a contract of affreightment by which the
owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter
parties are of two types: (a) contract of affreightment which involves the use of shipping space on
vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by
demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a
transfer to him of its entire command and possession and consequent control over its navigation,
including the master and the crew, who are his servants. Contract of affreightment may either be
time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage
charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party provides for
the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage,
the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray
the expenses for the maintenance of the ship.

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil
Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as
ready to engage in carrying goods or transporting passengers or both for compensation as a public
employment and not as a casual occupation. The distinction between a "common or public carrier"
and a "private or special carrier" lies in the character of the business, such that if the undertaking is a
single transaction, not a part of the general business or occupation, although involving the carriage
of goods for a fee, the person or corporation offering such service is a private carrier. 24

Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry.25 In the
case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will
suffice. Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are
presumed to have been at fault or to have acted negligently, and the burden of proving otherwise
rests on them.26 On the contrary, no such presumption applies to private carriers, for whosoever
alleges damage to or deterioration of the goods carried has the onus of proving that the cause was
the negligence of the carrier.

It is not disputed that respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V
"Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner
and therefore continued to be under its direct supervision and control. Hardly then can we charge
the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the
charterer did not have any control of the means in doing so. This is evident in the present case
considering that the steering of the ship, the manning of the decks, the determination of the course
of the voyage and other technical incidents of maritime navigation were all consigned to the officers
and crew who were screened, chosen and hired by the shipowner. 27

It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only,
as in the case of a time-charter or voyage-charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least
insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in
a time or voyage charter retains possession and control of the ship, although her holds may, for the
moment, be the property of the charterer. 28

Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship
Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity
of a stipulation in the charter-party exempting the shipowners from liability for loss due to the
negligence of its agent, and not the effects of a special charter on common carriers. At any rate, the
rule in the United States that a ship chartered by a single shipper to carry special cargo is not a
common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing
concern for safety in the transportation of passengers and /or carriage of goods by sea requires a
more exacting interpretation of admiralty laws, more particularly, the rules governing common
carriers.

We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30 —

As a matter of principle, it is difficult to find a valid distinction between cases in which

a ship is used to convey the goods of one and of several persons. Where the ship
herself is let to a charterer, so that he takes over the charge and control of her, the
case is different; the shipowner is not then a carrier. But where her services only are
let, the same grounds for imposing a strict responsibility exist, whether he is
employed by one or many. The master and the crew are in each case his servants,
the freighter in each case is usually without any representative on board the ship; the
same opportunities for fraud or collusion occur; and the same difficulty in discovering
the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same
was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to
respondent to prove that he has exercised extraordinary diligence required by law or that the loss,
damage or deterioration of the cargo was due to fortuitous event, or some other circumstances
inconsistent with its liability. 31

To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
faciepresumption of negligence.

The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977
before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified
that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and
fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon
hatches were closed and sealed with iron lids, then covered with three (3) layers of serviceable
tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the
ship was in transit as the weight of the steel covers made it impossible for a person to open without
the use of the ship's boom. 32

It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the
vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee
boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores, and
a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the hull of
the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who were
overseeing the whole operation on rotation basis. 34

Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously
overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of
the cargo. This was confirmed by respondent appellate court thus —

. . . Be that as it may, contrary to the trial court's finding, the record of the instant
case discloses ample evidence showing that defendant carrier was not negligent in
performing its obligations. Particularly, the following testimonies of plaintiff-appellee's
own witnesses clearly show absence of negligence by the defendant carrier; that the
hull of the vessel at the time of the discharge of the cargo was sealed and nobody
could open the same except in the presence of the owner of the cargo and the
representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the
hatches was made of steel and it was overlaid with tarpaulins, three layers of
tarpaulins and therefore their contents were protected from the weather (TSN, 5 April
1978, p. 24); and, that to open these hatches, the seals would have to be broken, all
the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).

The period during which private respondent was to observe the degree of diligence required of it as
a public carrier began from the time the cargo was unconditionally placed in its charge after the
vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel
reached its destination and its hull was reexamined by the consignee, but prior to unloading. This is
clear from the limitation clause agreed upon by the parties in the Addendum to the standard
"GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense
to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper
stowage only when the stowing is done by stevedores employed by him, and therefore under his
control and supervision, not when the same is done by the consignee or stevedores under the
employ of the latter. 36

Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration which the goods may suffer during the transportation by reason of fortuitous
event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the
shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless,
shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against
him, that they arose through his negligence or by reason of his having failed to take the precautions
which usage has established among careful persons. 38

Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped
and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working
with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and
carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is
highly soluble in water. However, during storage, nitrogen and ammonia do not normally evaporate
even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80)
degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a
clamped shell, losses due to spillage during such operation amounting to one percent (1%) against
the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the
clamped shell which does not seal very tightly. Also, the wind tends to blow away some of the
materials during the unloading process.

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely
high temperature in its place of storage, or when it comes in contact with water. When Urea is
drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion
which is in liquid form still remains potent and usable although no longer saleable in its original
market value.

The probability of the cargo being damaged or getting mixed or contaminated with foreign particles
was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the
inimical effects of the elements and the grimy condition of the various pieces of equipment used in
transporting and hauling it.

The evidence of respondent carrier also showed that it was highly improbable for sea water to seep
into the vessel's holds during the voyage since the hull of the vessel was in good condition and her
hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy
to carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more
likely to have occurred while the same was being transported from the ship to the dump trucks and
finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and
cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar
order cargo" as contained in their report to PPI was just an approximation or estimate made by
them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo.

The Court notes that it was in the month of July when the vessel arrived port and unloaded her
cargo. It rained from time to time at the harbor area while the cargo was being discharged according
to the supply officer of PPI, who also testified that it was windy at the waterfront and along the
shoreline where the dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer
carries with it the risk of loss or damage. More so, with a variable weather condition prevalent during
its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to
face. Clearly, respondent carrier has sufficiently proved the inherent character of the goods which
makes it highly vulnerable to deterioration; as well as the inadequacy of its packaging which further
contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the
carrier was remise in the exercise of due diligence in order to minimize the loss or damage to the
goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which
reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the
First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.
G.R. No. L-8095 March 31, 1915

F.C. FISHER, plaintiff,

vs.
YANGCO STEAMSHIP COMPANY, J.S. STANLEY, as Acting Collector of Customs of the
Philippine Islands, IGNACIO VILLAMOR, as Attorney-General of the Philippine Islands, and
W.H. BISHOP, as prosecuting attorney of the city of Manila, respondents.

Haussermann, Cohn and Fisher for plaintiff.

Office of the Solicitor-General Harvey for respondents.

CARSON, J.:

The real question involved in these proceedings is whether the refusal of the owners and officers of
a steam vessel, duly licensed to engage in the coastwise trade of the Philippine Islands and
engaged in that trade as a common carrier, to accept for carriage "dynamite, powder or other
explosives" from any and all shippers who may offer such explosives for carriage can be held to be a
lawful act without regard to any question as to the conditions under which such explosives are
offered to carriage, or as to the suitableness of the vessel for the transportation of such explosives,
or as to the possibility that the refusal to accept such articles of commerce in a particular case may
have the effect of subjecting any person or locality or the traffic in such explosives to an undue,
unreasonable or unnecessary prejudice or discrimination.

Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco Steamship
Company, the owner of a large number of steam vessels, duly licensed to engage in the coastwise
trade of the Philippine Islands; that on or about June 10, 1912, the directors of the company adopted
a resolution which was thereafter ratified and affirmed by the shareholders of the company,
"expressly declaring and providing that the classes of merchandise to be carried by the company in
its business as a common carrier do not include dynamite, powder or other explosives, and
expressly prohibiting the officers, agents and servants of the company from offering to carry,
accepting for carriage said dynamite, powder or other explosives;" that thereafter the respondent
Acting Collector of Customs demanded and required of the company the acceptance and carriage of
such explosives; that he has refused and suspended the issuance of the necessary clearance
documents of the vessels of the company unless and until the company consents to accept such
explosives for carriage; that plaintiff is advised and believes that should the company decline to
accept such explosives for carriage, the respondent Attorney-General of the Philippine Islands and
the respondent prosecuting attorney of the city of Manila intend to institute proceedings under the
penal provisions of sections 4, 5, and 6 of Act No. 98 of the Philippine Commission against the
company, its managers, agents and servants, to enforce the requirements of the Acting Collector of
Customs as to the acceptance of such explosives for carriage; that notwithstanding the demands of
the plaintiff stockholder, the manager, agents and servants of the company decline and refuse to
cease the carriage of such explosives, on the ground that by reason of the severity of the penalties
with which they are threatened upon failure to carry such explosives, they cannot subject themselves
to "the ruinous consequences which would inevitably result" from failure on their part to obey the
demands and requirements of the Acting Collector of Customs as to the acceptance for carriage of
explosives; that plaintiff believes that the Acting Collector of Customs erroneously construes the
provisions of Act No. 98 in holding that they require the company to accept such explosives for
carriage notwithstanding the above mentioned resolution of the directors and stockholders of the
company, and that if the Act does in fact require the company to carry such explosives it is to that
extent unconstitutional and void; that notwithstanding this belief of complainant as to the true
meaning of the Act, the questions involved cannot be raised by the refusal of the company or its
agents to comply with the demands of the Acting Collector of Customs, without the risk of irreparable
loss and damage resulting from his refusal to facilitate the documentation of the company's vessels,
and without assuming the company to test the questions involved by refusing to accept such
explosives for carriage.

The prayer of the complaint is as follows:

Wherefore your petitioner prays to this honorable court as follows:

First. That to the due hearing of the above entitled action be issued a writ of prohibition
perpetually restraining the respondent Yangco Steamship Company, its appraisers, agents,
servants or other representatives from accepting to carry and from carrying, in steamers of
said company dynamite, powder or other explosive substance, in accordance with the
resolution of the board of directors and of the shareholders of said company.

Second. That a writ of prohibition be issued perpetually enjoining the respondent J.S.
Stanley as Acting Collector of Customs of the Philippine Islands, his successors, deputies,
servants or other representatives, from obligating the said Yangco Steamship Company, by
any means whatever, to carry dynamite, powder or other explosive substance.

Third. That a writ of prohibition be issued perpetually enjoining the respondent Ignacio
Villamor as Attorney-General of the Philippine Islands, and W.H. Bishop as prosecuting
attorney of the city of Manila, their deputies representatives or employees, from accusing the
said Yangco Steamship Company, its officers, agents or servants, of the violation of Act No.
98 by reason of the failure or omission of the said company to accept for carriage out to carry
dynamite powder or other explosive.

Fourth. That the petitioner be granted such other remedy as may be meet and proper.

To this complaint the respondents demurred, and we are of opinion that the demurrer must be
sustained, on the ground that the complaint does not set forth facts sufficient to constitute a cause of
action.

It will readily be seen that plaintiff seeks in these proceedings to enjoin the steamship company from
accepting for carriage on any of its vessels, dynamite, powder or other explosives, under any
conditions whatsoever; to prohibit the Collector of Customs and the prosecuting officers of the
government from all attempts to compel the company to accept such explosives for carriage on any
of its vessels under any conditions whatsoever; and to prohibit these officials from any attempt to
invoke the penal provisions of Act No. 98, in any case of a refusal by the company or its officers so
to do; and this without regard to the conditions as to safety and so forth under which such explosives
are offered for carriage, and without regard also to any question as to the suitableness for the
transportation of such explosives of the particular vessel upon which the shipper offers them for
carriage; and further without regard to any question as to whether such conduct on the part of the
steamship company and its officers involves in any instance an undue, unnecessary or
unreasonable discrimination to the prejudice of any person, locality or particular kind of traffic.

There are no allegations in the complaint that for some special and sufficient reasons all or indeed
any of the company's vessels are unsuitable for the business of transporting explosives; or that
shippers have declined or will in future decline to comply with such reasonable regulations and to
take such reasonable precautions as may be necessary and proper to secure the safety of the
vessels of the company in transporting such explosives. Indeed the contention of petitioner is that a
common carrier in the Philippine Islands may decline to accept for carriage any shipment of
merchandise of a class which it expressly or impliedly declines to accept from all shippers alike,
because as he contends "the duty of a common carrier to carry for all who offer arises from the
public profession he has made, and limited by it."

In support of this contention counsel cites for a number of English and American authorities,
discussing and applying the doctrine of the common law with reference to common carriers. But it is
unnecessary now to decide whether, in the absence of statute, the principles on which the American
and English cases were decided would be applicable in this jurisdiction. The duties and liabilities of
common carriers in this jurisdiction are defined and fully set forth in Act No. 98 of the Philippine
Commission, and until and unless that statute be declared invalid or unconstitutional, we are bound
by its provisions.

Sections 2, 3 and 4 of the Act are as follows:

SEC. 2. It shall be unlawful for any common carrier engaged in the transportation of
passengers or property as above set forth to make or give any unnecessary or unreasonable
preference or advantage to any particular person, company, firm, corporation or locality, or
any particular kind of traffic in any respect whatsoever, or to subject any particular person,
company, firm, corporation or locality, or any particular kind of traffic, to undue or
unreasonable prejudice or discrimination whatsoever, and such unjust preference or
discrimination is also hereby prohibited and declared to be unlawful.

SEC. 3. No common carrier engaged in the carriage of passengers or property as aforesaid

shall, under any pretense whatsoever, fail or refuse to receive for carriage, and as promptly
as it is able to do so without discrimination, to carry any person or property offering for
carriage, and in the order in which such persons or property are offered for carriage, nor
shall any such common carrier enter into any arrangement, contract or agreement with any
other person or corporation whereby the latter is given an exclusive or preferential or
monopolize the carriage any class or kind of property to the exclusion or partial exclusion of
any other person or persons, and the entering into any such arrangement, contract or
agreement, under any form or pretense whatsoever, is hereby prohibited and declared to be
unlawful.

SEC. 4. Any willful violation of the provisions of this Act by any common carrier engaged in
the transportation of passengers or property as hereinbefore set forth is hereby declared to
be punishable by a fine not exceeding five thousand dollars money of the United States, or
by imprisonment not exceeding two years, or both, within the discretion of the court.

The validity of this Act has been questioned on various grounds, and it is vigorously contended that
in so far as it imposes any obligation on a common carrier to accept for carriage merchandise of a
class which he makes no public profession to carry, or which he has expressly or impliedly
announced his intention to decline to accept for carriage from all shippers alike, it is ultra vires,
unconstitutional and void.

We may dismiss without extended discussion any argument or contention as to the invalidity of the
statute based on alleged absurdities inherent in its provisions or on alleged unreasonable or
impossible requirements which may be read into it by a strained construction of its terms.

We agree with counsel for petitioner that the provision of the Act which prescribes that, "No common
carrier ... shall, under any pretense whatsoever, fail or refuse to receive for carriage ... to carry any
person or property offering for carriage," is not to be construed in its literal sense and without regard
to the context, so as to impose an imperative duty on all common carriers to accept for carriage, and
to carry all and any kind of freight which may be offered for carriage without regard to the facilities
which they may have at their disposal. The legislator could not have intended and did not intend to
prescribe that a common carrier running passenger automobiles for hire must transport coal in his
machines; nor that the owner of a tank steamer, expressly constructed in small watertight
compartments for the carriage of crude oil must accept common carrier must accept and carry
contraband articles, such as opium, morphine, cocaine, or the like, the mere possession of which is
declared to be a criminal offense; nor that common carriers must accept eggs offered for
transportation in paper parcels or any merchandise whatever do defectively packed as to entail upon
the company unreasonable and unnecessary care or risks.

Read in connection with its context this, as well as all the other mandatory and prohibitory provisions
of the statute, was clearly intended merely to forbid failures or refusals to receive persons or
property for carriage involving any "unnecessary or unreasonable preference or advantage to any
particular person, company, firm, corporation, or locality, or any particular kind of traffic in any
respect whatsoever," or which would "subject any particular person, company, firm, corporation or
locality, or any particular kind of traffic to any undue or unreasonable prejudice or discrimination
whatsoever."

The question, then, of construing and applying the statute, in cases of alleged violations of its
provisions, always involves a consideration as to whether the acts complained of had the effect of
making or giving an "unreasonable or unnecessary preference or advantage" to any person, locality
or particular kind of traffic, or of subjecting any person, locality, or particular kind of traffic to any
undue or unreasonable prejudice or discrimination. It is very clear therefore that the language of the
statute itself refutes any contention as to its invalidity based on the alleged unreasonableness of its
mandatory or prohibitory provisions.

So also we may dismiss without much discussion the contentions as to the invalidity of the statute,
which are based on the alleged excessive severity of the penalties prescribed for violation of its
provisions. Upon general principles it is peculiarly and exclusively within the province of the legislator
to prescribe the pains and penalties which may be imposed upon persons convicted of violations of
the laws in force within his territorial jurisdiction. With the exercise of his discretion in this regard
where it is alleged that excessive fines or cruel and unusual punishments have been prescribed, and
even in such cases the courts will not presume to interfere in the absence of the clearest and most
convincing argument and proof in support of such contentions. (Weems vs. United States, 217 U.S.,
349; U.S. vs.Pico, 18 Phil. Rep., 386.) We need hardly add that there is no ground upon which to
rest a contention that the penalties prescribed in the statute under consideration are either excessive
or cruel and unusual, in the sense in which these terms are used in the organic legislation in force in
the Philippine Islands.

But it is contended that on account of the penalties prescribed the statute should be held invalid
upon the principles announced in Ex parte Young (209 U.S., 123, 147, 148); Cotting vs. Goddard
(183 U.S., 79, 102); Mercantile Trust Co. vs. Texas Co. (51 Fed., 529); Louisville Ry. vs. McCord
(103 Fed., 216); Cons. Gas Co. vs. Mayer (416 Fed., 150). We are satisfied however that the
reasoning of those cases is not applicable to the statute under consideration. The principles
announced in those decisions are fairly indicated in the following citations found in petitioner's brief:

But when the legislature, in an effort to prevent any inquiry of the validity of a particular statute, so
burdens any challenge thereof in the courts that the party affected is necessarily constrained to
submit rather than take the chances of the penalties imposed, then it becomes a serious question
whether the party is not deprived of the equal protection of the laws. (Cotting vs. Goddard, 183 U. S.,
79, 102.)
 It may therefore be said that when the penalties for disobedience are by fines so enormous
and imprisonment so severe as to intimidate the company and its officers from resorting to
the courts to test the validity of the legislation, the result is the same as if the law in terms
prohibited the company from seeking judicial construction of laws which deeply affect its
rights.

It is urged that there is no principle upon which to base the claim that a person is entitled to
disobey a statute at least once, for the purpose of testing its validity, without subjecting
himself to the penalties for disobedience provided by the statute in case it is valid. This is not
an accurate statement of the case. Ordinarily a law creating offenses in the nature of
misdemeanors or felonies relates to a subject over which the jurisdiction of the legislature is
complete in any event. In the case, however, of the establishment of certain rates without
any hearing, the validity of such rates necessarily depends upon whether they are high
enough to permit at least some return upon the investment (how much it is not now
necessary to state), and an inquiry as to that fact is a proper subject of judicial investigation.
If it turns out that the rates are too low for that purpose, then they are illegal. Now, to impose
upon a party interested the burden of obtaining a judicial decision of such a question (no
prior hearing having been given) only upon the condition that, if unsuccessful, he must suffer
imprisonment and pay fines, as provided in these acts, is, in effect, to close up all
approaches to the courts, and thus prevent any hearing upon the question whether the rates
as provided by the acts are not too low, and therefore invalid. The distinction is obvious
between a case where the validity of the act depends upon the existence of a fact which can
be determined only after investigation of a very complicated and technical character, and the
ordinary case of a statute upon a subject requiring no such investigation, and over which the
jurisdiction of the legislature is complete in any event.

We hold, therefore, that the provisions of the acts relating to the enforcement of the rates,
either for freight or passengers, by imposing such enormous fines and possible
imprisonment as a result of an unsuccessful effort to test the validity of the laws themselves,
are unconstitutional on their face, without regard to the question of the insufficiency of those
rates. (Ex parte Young, 209 U.S., 123 147, 148.)

An examination of the general provisions of our statute, of the circumstances under which it was
enacted, the mischief which it sought to remedy and of the nature of the penalties prescribed for
violations of its terms convinces us that, unlike the statutes under consideration in the above cited
cases, its enactment involved no attempt to prevent common carriers "from resorting to the courts to
test the validity of the legislation;" no "effort to prevent any inquiry" as to its validity. It imposes no
arbitrary obligation upon the company to do or to refrain from doing anything. It makes no attempt to
compel such carriers to do business at a fixed or arbitrarily designated rate, at the risk of separate
criminal prosecutions for every demand of a higher or a different rate. Its penalties can be imposed
only upon proof of "unreasonable," "unnecessary" and "unjust" discriminations, and range from a
maximum which is certainly not excessive for willful, deliberate and contumacious violations of its
provisions by a great and powerful corporation, to a minimum which may be a merely nominal fine.
With so wide a range of discretion for a contention on the part of any common carrier that it or its
officers are "intimidated from resorting to the courts to test the validity" of the provisions of the
statute prohibiting such "unreasonable," "unnecessary" and "unjust" discriminations, or to test in any
particular case whether a given course of conduct does in fact involve such discrimination. We will
presume, for the purpose of declaring the statute invalid, that there is so real a danger that the
Courts of First Instance and this court on appeal will abuse the discretion thus conferred upon us, as
to intimidate any common carrier, acting in good faith, from resorting to the courts to test the validity
of the statute. Legislative enactments, penalizing unreasonable discriminations, unreasonable
restraints of trade, and unreasonable conduct in various forms of human activity are so familiar and
have been so frequently sustained in the courts, as to render extended discussion unnecessary to
refute any contention as to the invalidity of the statute under consideration, merely it imposes upon
the carrier the obligation of adopting one of various courses of conduct open to it, at the risk of
incurring a prescribed penalty in the event that the course of conduct actually adopted by it should
be held to have involved an unreasonable, unnecessary or unjust discrimination. Applying the test
announced in Ex parte Young, supra, it will be seen that the validity of the Act does not depend upon
"the existence of a fact which can be determined only after investigation of a very complicated and
technical character," and that "the jurisdiction of the legislature" over the subject with which the
statute deals "is complete in any event." There can be no real question as to the plenary power of
the legislature to prohibit and to penalize the making of undue, unreasonable and unjust
discriminations by common carriers to the prejudice of any person, locality or particular kind of traffic.
(See Munn vs.Illinois, 94 U.S., 113, and other cases hereinafter cited in support of this proposition.)

Counsel for petitioner contends also that the statute, if construed so as to deny the right of the
steamship company to elect at will whether or not it will engage in a particular business, such as that
of carrying explosives, is unconstitutional "because it is a confiscation of property, a taking of the
carrier's property without due process of law," and because it deprives him of his liberty by
compelling him to engage in business against his will. The argument continues as follows:

To require of a carrier, as a condition to his continuing in said business, that he must carry
anything and every thing is to render useless the facilities he may have for the carriage of
certain lines of freight. It would be almost as complete a confiscation of such facilities as if
the same were destroyed. Their value as a means of livelihood would be utterly taken away.
The law is a prohibition to him to continue in business; the alternative is to get out or to go
into some other business — the same alternative as was offered in the case of the Chicago
& N.W. Ry. vs. Dey (35 Fed. Rep., 866, 880), and which was there commented on as
follows:

"Whatever of force there may be in such arguments, as applied to mere personal

property capable of removal and use elsewhere, or in other business, it is wholly
without force as against railroad corporations, so large a proportion of whose
investment is in the soil and fixtures appertaining thereto, which cannot be removed.
For a government, whether that government be a single sovereign or one of the
majority, to say to an individual who has invested his means in so laudable an
enterprise as the construction of a railroad, one which tends so much to the wealth
and prosperity of the community, that, if he finds that the rates imposed will cause
him to do business at a loss, he may quit business, and abandon that road, is the
very irony of despotism. Apples of Sodom were fruit of joy in comparison. Reading,
as I do, in the preamble of the Federal Constitution, that it was ordained to "establish
justice," I can never believe that it is within the property of an individual invested in
and used for a purpose in which even the Argus eyes of the police power can see
nothing injurious to public morals, public health, or the general welfare. I read also in
the first section of the bill of rights of this state that "all men are by nature free and
equal, and have certain inalienable rights, among which are those of enjoying and
defending life and liberty, acquiring, possessing, and protecting property, and
pursuing and obtaining safety and happiness;" and I know that, while that remains as
the supreme law of the state, no legislature can directly or indirectly lay its withering
or destroying hand on a single dollar invested in the legitimate business of
transportation." (Chicago & N.W. Ry. vs. Dey, 35 Fed. Rep., 866, 880.)

It is manifest, however, that this contention is directed against a construction of the statute, which, as
we have said, is not warranted by its terms. As we have already indicated, the statute does not
"require of a carrier, as a condition to his continuing in said business, that he must carry anything
and everything," and thereby "render useless the facilities he may have for the carriage of certain
lines of freight." It merely forbids failures or refusals to receive persons or property for
carriage which have the effect of giving an "unreasonable or unnecessary preference or
advantage" to any person, locality or particular kind of traffic, or of subjecting any person,
locality or particular kind of traffic to any undue or unreasonable prejudice or discrimination.

Counsel expressly admits that the statute, "as a prohibition against discrimination is a fair,
reasonable and valid exercise of government," and that "it is necessary and proper that such
discrimination be prohibited and prevented," but he contends that "on the other hand there is no
reasonable warrant nor valid excuse for depriving a person of his liberty by requiring him to engage
in business against his will. If he has a rolling boat, unsuitable and unprofitable for passenger trade,
he may devote it to lumber carrying. To prohibit him from using it unless it is fitted out with doctors
and stewards and staterooms to carry passengers would be an invalid confiscation of this property.
A carrier may limit his business to the branches thereof that suit his convenience. If his wagon be
old, or the route dangerous, he may avoid liability for loss of passengers' lives and limbs by carrying
freight only. If his vehicles require expensive pneumatic tires, unsuitable for freight transportation, ha
may nevertheless carry passengers. The only limitation upon his action that it is competent for
the governing authority to impose is to require him to treat all alike. His limitations must
apply to all, and they must be established limitations. He cannot refuse to carry a case of
red jusi on the ground that he has carried for others only jusi that he was green, or blue, or
black. But he can refuse to carry redjusi, if he has publicly professed such a limitation upon
his business and held himself out as unwilling to carry the same for anyone."

To this it is sufficient answer to say that there is nothing in the statute which would deprive any
person of his liberty "by requiring him to engage in business against his will." The prohibitions of the
statute against undue, unnecessary or unreasonable regulations which the legislator has seen fit to
prescribe for the conduct of the business in which the carrier is engaged of his own free will and
accord. In so far as the self-imposed limitations by the carrier upon the business conducted by him,
in the various examples given by counsel, do not involve an unreasonable or unnecessary
discrimination the statute would not control his action in any wise whatever. It operates only in cases
involving such unreasonable or unnecessary preferences or discriminations. Thus in the hypothetical
case suggested by the petitioner, a carrier engaged in the carriage of green, blue or black jusi, and
duly equipped therefor would manifestly be guilty of "giving an unnecessary and unreasonable
preference to a particular kind of traffic" and of subjecting to "an undue and reasonable prejudice a
particular kind of traffic," should he decline to carry red jusi, to the prejudice of a particular shipper or
of those engaged in the manufacture of that kind of jusi, basing his refusal on the ground of "mere
whim or caprice" or of mere personal convenience. So a public carrier of passengers would not be
permitted under this statute to absolve himself from liability for a refusal to carry a Chinaman, a
Spaniard, an American, a Filipino, or a mestizo by proof that from "mere whim or caprice or personal
scruple," or to suit his own convenience, or in the hope of increasing his business and thus making
larger profits, he had publicly announced his intention not to carry one or other of these classes of
passengers.

The nature of the business of a common carrier as a public employment is such that it is
clearly within the power of the state to impose such just and reasonable regulations thereon
in the interest of the public as the legislator may deem proper. Of course such regulations
must not have the effect of depriving an owner of his property without due process of law,
nor of confiscating or appropriating private property without just compensation, nor of
limiting or prescribing irrevocably vested rights or privileges lawfully acquired under a
charter or franchise. But aside from such constitutional limitations, the determination of the
nature and extent of the regulations which should be prescribed rests in the hands of the
legislator.
Common carriers exercise a sort of public office, and have duties to perform in which the
public is interested. Their business is, therefore, affected with a public interest, and is subject
of public regulation. (New Jersey Steam Nav. Co. vs. Merchants Bank, 6 How., 344, 382;
Munn vs. Illinois, 94 U.S., 113, 130.) Indeed, this right of regulation is so far beyond question
that it is well settled that the power of the state to exercise legislative control over railroad
companies and other carriers "in all respects necessary to protect the public against danger,
injustice and oppression" may be exercised through boards of commissioners. (New York
etc. R. Co. vs. Bristol, 151 U.S., 556, 571; Connecticut etc. R. Co. vs. Woodruff, 153 U.S., 689.)

Regulations limiting of passengers the number of passengers that may be carried in a particular
vehicle or steam vessel, or forbidding the loading of a vessel beyond a certain point, or prescribing
the number and qualifications of the personnel in the employ of a common carrier, or forbidding
unjust discrimination as to rates, all tend to limit and restrict his liberty and to control to some degree
the free exercise of his discretion in the conduct of his business. But since the Granger cases were
decided by the Supreme Court of the United States no one questions the power of the legislator to
prescribe such reasonable regulations upon property clothed with a public interest as he may deem
expedient or necessary to protect the public against danger, injustice or oppression.
(Munn vs. Illinois, 94 U.S., 113, 130; Chicago etc. R. Co. vs. Cutts, 94 U.S., 155; Budd vs. New
York, 143 U.S., 517; Cotting vs. Goddard, 183 U.S., 79.) The right to enter the public employment as
a common carrier and to offer one's services to the public for hire does not carry with it the right to
conduct that business as one pleases, without regard to the interest of the public and free from such
reasonable and just regulations as may be prescribed for the protection of the public from the
reckless or careless indifference of the carrier as to the public welfare and for the prevention of
unjust and unreasonable discrimination of any kind whatsoever in the performance of the carrier's
duties as a servant of the public.

Business of certain kinds, including the business of a common carrier, holds such a peculiar
relation to the public interest that there is superinduced upon it the right of public regulation.
(Budd vs. New York, 143 U.S., 517, 533.) When private property is "affected with a public
interest it ceases to be juris privati only." Property becomes clothed with a public interest
when used in a manner to make it of public consequence and affect the community at large.
"When, therefore, one devotes his property to a use in which the public has an interest, he, in
effect, grants to the public an interest in that use, and must submit to be controlled by the
public for the common good, to the extent of the interest he has thus created. He may
withdraw his grant by discontinuing the use, but so long as he maintains the use he must
submit to control." (Munn vs. Illinois, 94 U.S., 113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S., 174;
Budd vs. New York, 143 U.S., 517; Louisville etc. Ry. Co. vs. Kentucky, 161 U.S., 677, 695.)

Of course this power to regulate is not a power to destroy, and limitation is not the equivalent of
confiscation. Under pretense of regulating fares and freight the state can not require a railroad
corporation to carry persons or property without reward. Nor can it do that which in law amounts to a
taking of private property for public use without just compensation, or without due process of law.
(Chicago etc. R. Co. vs. Minnesota, 134 U.S., 418; Minneapolis Eastern R. Co. vs. Minnesota, 134
U.S., 467.) But the judiciary ought not to interfere with regulations established and palpably
unreasonable as to make their enforcement equivalent to the taking of property for public use
without such compensation as under all the circumstances is just both to the owner and to the
public, that is, judicial interference should never occur unless the case presents, clearly and beyond
all doubt, such a flagrant attack upon the rights of property under the guise of regulations as to
compel the court to say that the regulation in question will have the effect to deny just compensation
for private property taken for the public use. (Chicago etc. R. Co. vs. Wellman, 143 U.S., 339;
Smyth vs. Ames, 169 U.S., 466, 524; Henderson Bridge Co. vs. Henderson City, 173 U.S., 592,
614.)
Under the common law of England it was early recognized that common carriers owe to the public
the duty of carrying indifferently for all who may employ them, and in the order in which application is
made, and without discrimination as to terms. True, they were allowed to restrict their business so as
to exclude particular classes of goods, but as to the kinds of property which the carrier was in the
habit of carrying in the prosecution of his business he was bound to serve all customers alike
(State vs. Cincinnati etc. R. Co., 47 Ohio St., 130, 134, 138; Louisville etc. Ry. Co. vs. Quezon City
Coal Co., 13 Ky. L. Rep., 832); and it is to be observed in passing that these common law rules are
themselves regulations controlling, limiting and prescribing the conditions under which common
carriers were permitted to conduct their business. (Munn vs. Illinois, 94 U. S., 113, 133.)

It was found, in the course of time, that the correction of abuses which had grown up with the
enormously increasing business of common carriers necessitated the adoption of statutory
regulations controlling the business of common carriers, and imposing severe and drastic penalties
for violations of their terms. In England, the Railway Clauses Consolidation Act was enacted in 1845,
the Railway and Canal Traffic Act in 1854, and since the passage of those Acts much additional
legislation has been adopted tending to limit and control the conduct of their business by common
carriers. In the United States, the business of common carriers has been subjected to a great variety
of statutory regulations. Among others Congress enacted "The Interstate Commerce Act" (1887) and
its amendments, and the Elkins Act as amended (1906); and most if not all of the States of the Union
have adopted similar legislation regulating the business of common carriers within their respective
jurisdictions. Unending litigation has arisen under these statutes and their amendments, but nowhere
has the right of the state to prescribe just and reasonable regulations controlling and limiting the
conduct of the business of common carriers in the public interest and for the general welfare been
successfully challenged, though of course there has been wide divergence of opinion as to the
reasonableness, the validity and legality of many of the regulations actually adopted.

The power of the Philippine legislator to prohibit and to penalize all and any unnecessary or
unreasonable discriminations by common carriers may be maintained upon the same reasoning
which justified the enactment by the Parliament of England and the Congress of the United States of
the above mentioned statutes prohibiting and penalizing the granting of certain preferences and
discriminations in those countries. As we have said before, we find nothing confiscatory or
unreasonable in the conditions imposed in the Philippine statute upon the business of common
carriers. Correctly construed they do not force him to engage in any business his will or to make use
of his facilities in a manner or for a purpose for which they are not reasonably adapted. It is only
when he offers his facilities as a common carrier to the public for hire, that the statute steps in and
prescribes that he must treat all alike, that he may not pick and choose which customer he will serve,
and, specifically, that he shall not make any undue or unreasonable preferences or discriminations
whatsoever to the prejudice not only of any person or locality but also of any particular kind of traffic.

The legislator having enacted a regulation prohibiting common carriers from giving unnecessary or
unreasonable preferences or advantages to any particular kind of traffic or subjecting any
particular kind of traffic to any undue or unreasonable prejudice or discrimination
whatsoever, it is clear that whatever may have been the rule at the common law, common
carriers in this jurisdiction cannot lawfully decline to accept a particular class of goods for
carriage, to the prejudice of the traffic in those goods, unless it appears that for some
sufficient reason the discrimination against the traffic in such goods is reasonable and
necessary. Mere whim or prejudice will not suffice. The grounds for the discrimination must
be substantial ones, such as will justify the courts in holding the discrimination to have been
reasonable and necessary under all circumstances of the case.

The prayer of the petition in the case at bar cannot be granted unless we hold that the refusal of the
defendant steamship company to accept for carriage on any of its vessels "dynamite, gunpowder or
other explosives" would in no instance involve a violation of the provisions of this statute. There can
be little doubt, however, that cases may and will arise wherein the refusal of a vessel "engaged in
the coastwise trade of the Philippine Islands as a common carrier" to accept such explosives for
carriage would subject some person, company, firm or corporation, or locality, or particular kind of
traffic to a certain prejudice or discrimination. Indeed it cannot be doubted that the refusal of a
"steamship company, the owner of a large number of vessels" engaged in that trade to receive for
carriage any such explosives on any of its vessels would subject the traffic in such explosives to a
manifest prejudice and discrimination. The only question to be determined therefore is whether
such prejudice or discrimination might in any case prove to be undue, unnecessary or
unreasonable.

This of course is, in each case, a question of fact, and we are of the opinion that the facts alleged in
the complaint are not sufficient to sustain a finding in favor of the contentions of the petitioner. It is
not alleged in the complaint that "dynamite, gunpowder and other explosives" can in no event be
transported with reasonable safety on board steam vessels engaged in the business of common
carriers. It is not alleged that all, or indeed any of the defendant steamship company's vessels are
unsuited for the carriage of such explosives. It is not alleged that the nature of the business in which
the steamship company is engaged is such as to preclude a finding that a refusal to accept such
explosives on any of its vessels would subject the traffic in such explosives to an undue and
unreasonable prejudice and discrimination.

Plaintiff's contention in this regard is as follows:

In the present case, the respondent company has expressly and publicly renounced the
carriage of explosives, and expressly excluded the same terms from the business it
conducts. This in itself were sufficient, even though such exclusion of explosives were based
on no other ground than the mere whim, caprice or personal scruple of the carrier. It is
unnecessary, however, to indulge in academic discussion of a moot question, for the
decision not a carry explosives rests on substantial grounds which are self-evident.

We think however that the answer to the question whether such a refusal to carry explosives
involves an unnecessary or unreasonable preference or advantage to any person, locality or
particular kind of traffic or subjects any person, locality or particular to traffic to an undue or
unreasonable prejudice and discrimination is by no means "self-evident," and that it is a question of
fact to be determined by the particular circumstances of each case.

The words "dynamite, powder or other explosives" are broad enough to include matches, and
other articles of like nature, and may fairly be held to include also kerosene oil, gasoline and
similar products of a highly inflammable and explosive character. Many of these articles of
merchandise are in the nature of necessities in any country open to modern progress and
advancement. We are not fully advised as to the methods of transportation by which they are
made commercially available throughout the world, but certain it is that dynamite,
gunpowder, matches, kerosene oil and gasoline are transported on many vessels sailing the
high seas. Indeed it is a matter of common knowledge that common carriers throughout the
world transport enormous quantities of these explosives, on both land and sea, and there can
be little doubt that a general refusal of the common carriers in any country to accept such
explosives for carriage would involve many persons, firms and enterprises in utter ruin, and
would disastrously affect the interests of the public and the general welfare of the
community.

It would be going to far to say that a refusal by a steam vessel engaged in the business of
transporting general merchandise as a common carrier to accept for carriage a shipment of
matches, solely on the ground of the dangers incident to the explosive quality of this class of
merchandise, would not subject the traffic in matches to an unnecessary, undue or unreasonable
prejudice and discrimination without proof that for some special reason the particular vessel is not
fitted to carry articles of that nature. There may be and doubtless are some vessels engaged in
business as common carriers of merchandise, which for lack of suitable deck space or storage
rooms might be justified in declining to carry kerosene oil, gasoline, and similar products, even when
offered for carriage securely packed in cases; and few vessels are equipped to transport those
products in bulk. But in any case of a refusal to carry such products which would subject any person,
locality or the traffic in such products would be necessary to hear evidence before making an
affirmative finding that such prejudice or discrimination was or was not unnecessary, undue or
unreasonable. The making of such a finding would involve a consideration of the suitability of the
vessel for the transportation of such products ; the reasonable possibility of danger or disaster
resulting from their transportation in the form and under the conditions in which they are offered for
carriage; the general nature of the business done by the carrier and, in a word, all the attendant
circumstances which might affect the question of the reasonable necessity for the refusal by the
carrier to undertake the transportation of this class of merchandise.

But it is contended that whatever the rule may be as to other explosives, the exceptional power and
violence of dynamite and gunpowder in explosion will always furnish the owner of a vessel with a
reasonable excuse for his failure or refusal to accept them for carriage or to carry them on board his
boat. We think however that even as to dynamite and gunpowder we would not be justified in making
such a holding unaided by evidence sustaining the proposition that these articles can never be
carried with reasonable safety on any vessel engaged in the business of a common carrier. It is said
that dynamite is so erratic an uncontrollable in its action that it is impossible to assert that it can be
handled with safety in any given case. On the other hand it is contended that while this may be true
of some kinds of dynamite, it is a fact that dynamite can be and is manufactured so as to eliminate
any real danger from explosion during transportation. These are of course questions of fact upon
which we are not qualified to pass judgment without the assistance of expert witnesses who have
made special studies as to the chemical composition and reactions of the different kinds of
dynamite, or attained a thorough knowledge of its properties as a result of wide experience in its
manufacture and transportation.

As we construe the Philippine statute, the mere fact that violent and destructive explosions can be
obtained by the use of dynamite under certain conditions would not be sufficient in itself to justify the
refusal of a vessel, duly licensed as a common carrier of merchandise, to accept it for carriage, if it
can be proven that in the condition in which it is offered for carriage there is no real danger to the
carrier, nor reasonable ground to fear that his vessel or those on board his vessel will be exposed to
unnecessary and unreasonable risk in transporting it, having in mind the nature of his business as a
common carrier engaged in the coastwise trade in the Philippine Islands, and his duty as a servant
of the public engaged in a public employment. So also, if by the exercise of due diligence and the
taking of unreasonable precautions the danger of explosions can be practically eliminated, the
carrier would not be justified in subjecting the traffic in this commodity to prejudice or discrimination
by proof that there would be a possibility of danger from explosion when no such precautions are
taken.

The traffic in dynamite, gunpowder and other explosives is vitally essential to the material
and general welfare of the people of these Islands. If dynamite, gunpowder and other
explosives are to continue in general use throughout the Philippines, they must be
transported by water from port to port in the various islands which make up the Archipelago.
We are satisfied therefore that the refusal by a particular vessel, engaged as a common
carrier of merchandise in the coastwise trade of the Philippine Islands, to accept any or all of
these explosives for carriage would constitute a violation of the prohibitions against
discriminations penalized under the statute, unless it can be shown by affirmative evidence
that there is so real and substantial a danger of disaster necessarily involved in the carriage
of any or all of these articles of merchandise as to render such refusal a due or a necessary
or a reasonable exercise of prudence and discretion on the part of the shipowner.

The complaint in the case at bar lacking the necessary allegations under this ruling, the demurrer
must be sustained on the ground that the facts alleged do not constitute a cause of action.

A number of interesting questions of procedure are raised and discussed in the briefs of counsel. As
to all of these questions we expressly reserve our opinion, believing as we do that in sustaining the
demurrer on the grounds indicated in this opinion we are able to dispose of the real issue involved in
the proceedings without entering upon the discussion of the nice questions which it might have been
necessary to pass upon had it appeared that the facts alleged in the complaint constitute a cause of
action.

We think, however, that we should not finally dispose of the case without indicating that since the
institution of these proceedings the enactment of Acts No. 2307 and No. 2362 (creating a Board of
Public Utility Commissioners and for other purposes) may have materially modified the right to
institute and maintain such proceedings in this jurisdiction. But the demurrer having been formallly
submitted for judgment before the enactment of these statutes, counsel have not been heard in this
connection. We therefore refrain from any comment upon any questions which might be raised as to
whether or not there may be another adequate and appropriate remedy for the alleged wrong set
forth in the complaint. Our disposition of the question raised by the demurrer renders that
unnecessary at this time, though it may not be improper to observe that a careful examination of
those acts confirms us in the holding upon which we base our ruling on this demurrer, that is to say
"That whatever may have been the rule at the common law, common carriers in this jurisdiction
cannot lawfully decline to accept a particular class of goods for carriage, to the prejudice of the traffic
in those goods, unless it appears that for some sufficient reason the discrimination against the traffic
in such goods is reasonable and necessary. Mere prejudice or whim will not suffice. The grounds of
the discrimination must be substantial ones, such as will justify the courts in holding the
discrimination to have been reasonable and necessary under all the circumstances of the case."

Unless an amended complaint be filed in the meantime, let judgment be entered ten days hereafter
sustaining the demurrer and dismissing the complaint with costs against the complainant, and twenty
days thereafter let the record be filed in the archives of original actions in this court. So ordered.

Arellano, C.J., and Trent, J., concur.

Torres and Johnson, JJ., concur in the result.

Separate Opinions

MORELAND, J., concurring.

I may briefly say, although the nature of the action is stated at length in the foregoing opinion, that it
is an action by a shareholder of the Yangco Steamship Co. against the company itself and certain
officials of the Insular Government for an injunction against the company prohibiting it from carrying
dynamite on its ships and preventing the defendant officials from compelling the company to do so
under Act No. 98.
A demurrer was filed to the complaint raising the question not only of its sufficiency in general, but
putting in issue also the right of the plaintiff to maintain the action under the allegations of his
complaint.

It should be noted that all of the boats of the defendant company, under the allegations of the
complaint, are boatswhich carry passengers as well as freight, and that the holding of the opinion
which I am discussing compelspassenger ships to carry dynamite and all other high explosives when
offered for shipment. (See paragraph 3 of the complaint.)

I base my opinion for a dismissal of the complaint on the ground that the plaintiff has not alleged in
his complaint a single one of the grounds, apart from that of being a stockholder, necessary for him
to allege to maintain a shareholder's action.

In the case of Hawes vs. Oakland (104 U.S., 450) it was said relative to the right of a stockholder to
bring an action which should regularly be bought by the company of which he is a stockholder:

We understand that doctrine to be that, to enable a stockholder in a corporation to sustain in

a court of equity in his own name, a suit founded on a right of action existing in the
corporation itself, and in which the corporation itself is the appropriate plaintiff, there must
exist as the foundation of the suit:

Some action or threatened action of the managing board of directors or trustees of the
corporation, which is beyond the authority conferred on them by their character or other
source of organization;

Or such a fraudulent transaction, completed or contemplated by the acting managers, in

connection with some other party, or among themselves, or with other shareholders as will in
serious injury to the corporation, or to the interest of the other shareholders;

Or where the board of directors, or a majority of them, are acting for their own interest, in a
manner destructive of the corporation itself, or of the rights of the other shareholders;

Or where the majority of shareholders themselves are oppressively and illegally pursuing a
course in the name of the corporation, which is in violation of the rights of the other
shareholders, and which can only be restrained by the aid of a court of equity.

It was also said: "In this country the cases outside of the Federal Courts are not numerous, and
while they admit the right of a stockholder to sue in cases where the corporation is the proper party
to bring the suit, they limit this right to cases where the directors are guilty of a fraud or a breach of
trust, or are proceeding ultra vires."

Further on in the same case we find: "Conceding appellant's construction of the company's charter
to be correct, there is nothing which forbids the corporation from dealing with the city in the manner it
has done. That city conferred on the company valuable rights by special ordinance; namely, the use
of the streets for the laying of its pipes, and the privilege of furnishing water to the whole population.

It may be the exercise of the highest wisdom, to let the city use the water in the manner complained
of. The directors are better able to act understandingly on this subject than a stockholder residing in
New York. The great body of the stockholders residing in Oakland or other places in California may
take this view of it, and be content to abide by the action of their directors."
This case is conclusive of the right of the plaintiff in the case at bar to maintain the action. The
complaint is devoid of allegations necessary to sustain a complaint by a shareholder.

The contention of the plaintiff based upon the case of Ex parte Young (209 U.S. 123) is not
sustained by that case. The decision there requires precisely the same allegations in the complaint
as does the case of Hawes vs. Oakland. Not one of those allegations appears in the complaint in the
case at bar except the allegation that the plaintiff is a stockholder.

Indeed, not only does the complaint lack allegations essential to its sufficiency, but it contains
allegations which affirmatively show the plaintiff is not entitled to maintain the action. I do not stop to
enumerate them all. I call attention to one only, namely the allegation that the company, by its
authorized officials, has acted in strict conformity with the plaintiff's wishes and has refused to accept
dynamite for carriage. This allegation shows that the plaintiff has been able to obtain his remedy and
accomplish his purpose within the corporation itself, and it is sufficient, therefore, under the case of
Hawes vs. Oakland and that of Ex parte Young, to require that the demurrer be sustained.

I am opposed to a decision of this case on the merits.

In the first place, there has been no adequate discussion of the merits by the parties. Substantially
all of the brief of the government was devoted to what may be called the technical defects of the
complaint, such as I have referred to above. Indeed, it is doubtful if any portion of the brief can be
said to be directly a discussion of the merits.

In the second place, there is no real pending in this court. It is clear from the complaint that the case
is a collusive one (not in any improper sense) between the plaintiff and the defendant company.
There is no reason found in the complaint why the company should not have brought the action
itself, every member of the board of directors and every stockholder, according to the allegations of
the complaint, being in absolute accord with the contentions of the plaintiff on the proposition that the
company should not carry dynamite, and having passed unanimously resolutions to that effect.
Moreover, there has been no violation of Act No. 98. No shipper, or any other person, has offered
dynamite to the defendant company for shipment, and, accordingly, the defendant company has not
refused t o accept dynamite for carriage. Nor have the defendant government officials begun
proceedings, or threatened to bring proceedings, against the defendant company in any given case.
According to the allegations of the complaint, the parties are straw parties and the case a straw
case.

In the third place, Act No. 98, under which this proceeding is brought and under which, it is alleged,
the defendant public officers are threatening to enforce, has been repealed, in so far as it affects
public service corporations, by Act No. 2307, as amended by Act No. 2362. More than that; not only
has the law been repealed, but proceedings of this character have been placed, in the first instance,
under the exclusive jurisdiction of the Board of Public Utilities. I am unable to see why this court
should, under the facts of this case, undertake to render a decision on the merits when the Act under
which it is brought has been repealed and the jurisdiction to render a decision on the subject matter
involved has been turned over to another body. As I have said before, it was unnecessary to a
decision of this case to touch the merits in any way; and I am opposed to an attempt to lay down a
doctrine on a subject which is within the exclusive jurisdiction of another body created by law
expressly for the purpose of removing such cases as this from the jurisdiction of the courts.

I am of the opinion that the complaint should be dismissed, but upon grounds apart from the merits.
If the merits of the case were alone to govern, I should be distinctly in favor of the plaintiff's
contention so far as it relates to the carriage of dynamite on ships carrying passengers; and, while I
am opposed to a decision on the merits of this case, nevertheless, the merits having been brought
into the case by the opinion of some of my brethren, I desire to refer briefly to the jurisprudence of
the subject.

So far as my researches go, the proposition that passenger boats must carry dynamite and other
high explosives is without support in the decisions of any English speaking country. I have been
unable to find a case anywhere which lays down such a doctrine. Indeed, I have been unable to find
a case which holds that freight boats must carry dynamite or other high explosives. Every case that I
have been able to find states a contrary doctrine; and neither in courts nor in text books is there
even a hint supporting the contention of my brethren. The opinion cites no authorities to support it;
and I am constrained to believe that, in any opinion so elaborately written, cases to support its thesis
would have been cited if any such existed.

On page 372, Vol. 6 of Cyc., will be found the following: "Common carriers owe to the public the duty
of carrying indifferently for all who may employ them, and in the order in which the application is
made, and without discrimination as to terms. They may, however, restrict their business so as to
exclude particular classes of goods, and they are not bound to receive dangerous articles, such as
nitro-glycerine, dynamite, gunpowder, oil of vitriol, matches, etc."

In the case of California Powder Works vs. Atlantic and Pacific R. R. Co. (113 Cal., 329), it was said:
"Nor are the exemptions contained in the contract of the shipping order void for lack of consideration.
The defendant was not obliged to received and transport the powder at all. A common carrier is not
bound to receive ... dangerous articles, as nitro-glycerine, dynamite, gunpowder, aqua fortis, oil of
vitriol, matches, etc."

This, so far as I can learn, is the universal doctrine. The California case is reproduced in 36 L.R.A.,
648 and has appended to it a note. It is well known that the L.R.A. cites in its notes all of the cases
reasonably obtainable relative to the subject matter of the case which it annotates. The note in
L.R.A. with reference to the California case cites a considerable number of authorities holding that a
carrier of goods is not obliged to receive dynamite or other dangerous explosives for carriage. It
does not cite or refer to a case which holds the contrary.

The reporter of the L.R.A, at the beginning of the note with reference to the California case, says:
"The law upon this question is to be drawn from inference or from dicta rather than from decided
cases. California Powder Works vs.Atlantic & Pacific R. R. Co. seems to be the first case to have
squarely decided that the carrier is not bound to transport dangerous articles, although there has
been what may be regarded as a general understanding that such is the fact."

In Hutchinson on Carriers (sec. 145), it is said, relative to the necessity of a carrier receiving for
carriage dynamite or other dangerous explosives: "He may, for instance, lawfully refuse to receive
them (the goods) if they are improperly packed or if they are otherwise in an unfit condition for
carriage. Or he may show that the goods offered were of a dangerous character, which might
subject him or his vehicle, or strangers or his passengers, or his other freight, to the risk of injury."

In a note to the text the author says: "Nor is he bound to accept such articles as nitro-glycerine,
dynamite, gunpowder, oil of vitriol and the like."

In Elliot on Railroads (vol. 4, p. 151), appears the following: "Again, goods may properly be refused
which are tendered in an unfit condition for transportation, or which are dangerous, or which are
reasonably believed to be dangerous."

In the case of Boston & Albany Railroad Co. vs. Shanly (107 Mass., 568), the court said at page
576: "Both the dualin and the exploders are thus alleged to be explosive and dangerous articles.
Each of them was sent without giving notice of its character to the plaintiffs, and they were ignorant
in respect to it. The rule of law on this subject is in conformity with the dictates of common sense and
justice, and is well established. One who has in his possession a dangerous article, which he desires
to send to another, am send it by a common carrier if he will take it; but it is his duty to give him
notice of its character, so that he may either refuse to take it, or be enabled, if he takes it, to make
suitable provision against the danger."

This case cites three English cases as follows, Williams vs. East India Co. (3 East, 192);
Brass vs. Maitland (6 El. & Bl. 470; Farrant vs. Barnes (11 C.B. [N.S.], 553).

In the case of Porcher vs. Northeastern R. Co. (14 Rich. L., 181), the court quoted with approval the
following from Story on Bailments: "If he (the carrier) refuses to take charge of the goods because
his coach is full or because they are of a nature which will at the time expose them to extraordinary
danger or to popular rage, or because he has no convenient means of carrying such goods with
security, etc., these will furnish reasonable grounds for his refusal,and will, if true, be a sufficient
legal defense to a suit for the non-carriage of the goods."

In the case of Fish vs. Chapman (2 Ga., 349), the court said: "A common carrier is bound to convey
the goods of any person offering to pay his hire, unless his carriage be already full, or the risk sought
to be imposed upon him extraordinary, or unless the goods be of a sort which he cannot convey or is
not in the habit of conveying."

In the case of Farrant vs. Barnes, above cited, the court said that the shipper "knowing the
dangerous character of the article and omitting to give notice of it to the carrier so that he might
exercise his discretion as to whether he would take it or not was guilty of a clear breach of duty."

To the same effect, generally, are Jackson vs. Rodgers (2 Show., 327); Riley vs. Horne (5 Bing.,
217); Lane vs. Cotton (1 Ld. Raym., 646); Edwards vs. Sheratt (1 East, 604); Elsee vs. Gatward (5
T. R., 143); Dwight vs. Brewster (1 Pick., 50); Jencks vs. Coleman (2 Summ., 221); Story on Bail.,
322, 323; Patton vs. Magrath (31 Am. Dec., 552).

In Story on Bailments (sec. 508), is found the following: "If a carrier refuses to take charge of goods
because his coach is full; or because the goods are of a nature which will at the time expose them to
extraordinary danger; ... these will furnish reasonable grounds for his refusal; and will, if true, be a
sufficient legal defense to a suit for the non-carriage of the goods."

It will be noted that all of these cases holding that a common carrier is not obliged to receive a
dangerous substance, such as dynamite and other high explosives, refer exclusively to carriers of
merchandise and not to carriers of passengers. If the authorities are uniform in holding that
companies carrying freight are not obliged to accept dangerous explosives for carriage, there can be
no question as to what the rule would be with reference to a carrier of passengers.

Far from requiring passenger boats to accept dynamite and other high explosives for carriage, the
attitude of the people of the United States and of various States is shown by their statutes. The laws
of the United States and of many of the States prohibit passengers boats and passenger trains from
carrying dangerous explosives. Sections 232, 233, 234, 2345 and 236 of the Criminal Code of the
United States (Compiled Stat., 1901), read:

SEC. 232. It shall be unlawful to transport, carry, or convey, any dynamite, gunpowder, or
other explosive, between a place in a foreign country and a place within or subject to the
jurisdiction of the United States, or between a place in any State, Territory, or District of the
United States, or place non-contiguous to but subject to the jurisdiction thereof, and a place
 in any other State, Territory, or District of the United States, or place non-contiguous to but
subject to the jurisdiction thereof, on any vessel or vehicle of any description operated by a
common carrier, which vessel or vehicle is carrying passengers for hire: . . ..

SEC. 233. The Interstate Commerce Commission shall formulate regulations for the safe
transportation of explosives, which shall be binding all common carriers engaged in interstate
or foreign commerce which transport explosives by land. Said commission, of its own motion,
or upon application made by any interested party, may make changes or modifications in
such regulations, made desirable by new information or altered conditions. Such regulations
shall be in accord with the best known practicable means for securing in transit, covering the
packing, marking, loading, handling while in transit, and the precautions necessary to
determine whether the material when offered is in proper condition to transport.

Such regulations, as well as all changes or modifications thereof, shall take effect after ninety
days after their formulation and publication commission and shall be in effect until reversed,
set aside, or modified.

SEC. 234. It shall be unlawful to transport, carry, or convey, liquid nitroglycerin, fulminate in
bulk "in dry condition, or other like explosive, between a place in a foreign country and a
place within or subject to the jurisdiction of the United States, or between a place in one
State, Territory, or District of the United States, or place non-contiguous to but subject to the
jurisdiction thereof, and a place in any other State, Territory, or District of the United States,
or place non-contiguous to but subject to the jurisdiction thereof, on any vessel or vehicle of
any description operated by a common carrier in the transportation of passengers or articles
of commerce by land or water.

SEC. 235. Every package containing explosives or other dangerous articles when presented
to a common carrier for shipment shall have plainly marked on the outside thereof the
contents thereof; and it shall be unlawful for any person to deliver, or cause to be delivered,
to any common carrier engaged in interstate or foreign commerce by land or water, for
interstate or foreign transportation, or to carry upon any vessel or vehicle engaged in
interstate or foreign transportation, any explosive, or other dangerous article, under any false
or deceptive marking, description, invoice, shipping order, or other declaration, or without
informing the agent of such carrier of the true character thereof, at or before the time such
delivery or carriage is made. Whoever shall knowingly violate, or cause to be violated any
provision of this section, or of the three sections last preceding, or any regulation made by
the Interstate Commerce Commission in pursuance thereof, shall be fined not more than two
thousand dollars, or imprisoned not more than eighteen months, or both.

SEC. 236. When the death or bodily injury of any person is caused by the explosion of any
article named in the four sections last preceding, while the same is being placed upon any
vessel or vehicle to be transported in violation thereof, or while the same is being so
transported, or while the same is being removed from such vessel or vehicle, the person
knowingly placing, or aiding or permitting the placing of such articles upon any such vessel
or vehicle, to be so transported, shall be imprisoned not more than ten years.

Human ingenuity has been continuously exercised for ages to make sea travel safe, that men might
sail the seas with as little risk as possible; that they might rely upon the quality of the ship and the
character and experiences of the sailors who manned her; that they might feel that the dangers of
the deep had been reduced to the minimum. Not only this; the abilities of legislators have been taxed
to the same end; to frame that would ensure seaworthy ships, safe appliances, and reliable officers
and crews; to curb the avarice of those who would subordinate the safety of passengers to a desire
for freight; and to so regulate travel by sea that all might safely confide their property and their lives
to the ships sailing under the flag of their country. Can a decision which requires passenger ships to
carry dynamite and all high explosives be made to harmonize with this purpose? What is there in the
Philippine Islands to justify the requirement that passenger ships carry dynamite, while in the United
States the carrying of dynamite by passenger ships is a crime? Why should passengers in the
Philippine Islands be subjected to conditions which are abhorent in the United States? Why compel
shipowners in the Philippine Islands to perform acts which, if done in the United States, would send
them to the penitentiary?

I do not believe that we should require passengers to travel on ships carrying, perhaps, many tons of
nitro-glycerine, dynamite or gunpowder in their holds; nor do I believe that any public official should
do anything calculated to add to the calamity of fire, collision, or shipwreck the horrors of explosion.

ARAULLO, J., dissenting:

I do not agree with the decision of the majority of this court in this case, first, because one of the
grounds of the demurrer to the complaint — the first one — is that of lack of legal capacity to sue on
the part of the plaintiff and nothing is said in the decision regarding this very important point. It is one
which ought to have received special attention, even before the other alleged in the demurrer that
the complaint does not state facts sufficient to constitute a cause of action, and the only one that
received any consideration in the decision in question. Second, because notwithstanding that in the
decision no consideration was paid to the alleged lack of legal capacity on the part of the plaintiff, he
is, reason of the demurrer being sustained, authorized to present an amended complaint within ten
days, an authorization which could not and should not have on the part of said plaintiff was not
lacking.

DECISION OF MARCH 31, 1915.

CARSON, J.:

This case is again before us upon a demurrer interposed by the respondent officials of the Philippine
Government to an amended complaint filed after publication of our decision sustaining the demurrer
to the original complaint.

In our former opinion, entered November 5, 1914, we sustained the demurrer on the ground that the
original complaint did not set forth facts sufficient to constitute a cause of action. In that decision we
held that the statute (Act No. 98) the validity of which was attacked by counsel por plaintiff was,
when rightly construed, a valid and constitutional enactment, and ruled:

That whatever may have been the rule at the common law, common carriers in this jurisdiction
cannot lawfully decline to accept a particular class in those goods, unless it appears that for some
sufficient reason the discrimination against the traffic in such goods is reasonable and necessary.
Mere prejudice or whim will not suffice. The grounds of the discrimination must be substantial ones,
such as will justify the courts in holding the discrimination to have been reasonable and necessary
under all the circumstances of the case.

xxx xxx xxx

 The traffic in dynamite, gunpowder and other explosives is vitally essential to the material
and general welfare of the people of these Islands. If dynamite, gunpowder and other
explosives are to continue in general use throughout the Philippines, they must be
transported by water from port to port in the various islands which make up the Archipelago.
We are satisfied therefore that the refusal by a particular vessel, engaged as a common
carrier of merchandise in the coastwise trade of the Philippine Islands, to accept any or all of
these explosives for carriage would constitute a violation of the prohibitions against
discriminations penalized under the statue, unless it can be shown by affirmative evidence
that there is so real and substantial a danger of disaster necessarily involved in the carriage
of any or all of these articles of merchandise as to render such refusal a due or a necessary
or a reasonable exercise of prudence and discretion on the part of the ship owner.

Resting our judgment on these rulings we held that the allegations of the complaint, which in
substance alleged merely that the respondent officials were coercing the respondent steamship
company to carry explosives upon some of their vessels, under authority of, and in reliance upon the
provisions of the Act, did not set forth facts constituting a cause of action; or in other words, that the
allegations of the complaint even if true, would sustain a finding that the respondent officials were
acting "without or in excess of their jurisdiction" and lawful authority in the premises.

The amended complaint filed on November 14, 1914, is substantially identical with the original
complaint, except that it charges the respondent officials, as of the date of the amended
complaint, with the unlawful exercise of the authority or intent to exercise unlawful authority which
should be restrained, and substitutes the names of the officers now holding the offices of Collector of
Customs, Attorney-General and prosecuting attorney for those of the officials holding those offices at
the date of the filing of the original complaint; and except further that it adds the following allegations:

That each and every one of the vessels of the defendant company is dedicated and devoted
to the carriage of passengers between various ports in the Philippine Islands, and each of
said vessels, on all of said voyages between the said ports, usually and ordinarily does carry
a large number of such passengers.

That dynamite, powder, and other explosives are dangerous commodities that cannot be
handled and transported in the manner and from in which ordinary commodities are handled
and transported. That no degree of care, preparation and special arrangement in the
handling and transportation of dynamite, powder and other explosives will wholly eliminate
the risk and danger of grave peril and loss therefrom, and that the highest possible degree of
care, preparation of said commodities is only capable of reducing the degree of said danger
and peril. That each and every one of the vessels of the defendant company is wholly
without special means for the handling, carriage, or transportation of dynamite, powder and
other explosives and such special means therefor which would appreciably and materially
reduce the danger and peril therefrom cannot be installed in said vessels without a costs and
expense unto said company that is unreasonable and prohibitive.

As we read them, the allegations of the original complaint were intended to raise and did in fact
raise, upon demurrer, a single question which, if ruled upon favorably to the contention of plaintiff,
would, doubtless, have put an end to this litigation and to the dispute between the plaintiff
stockholder of the steamship company and the officials of the Philippine Government out of which it
has arisen.

In their brief, counsel for plaintiff, in discussing their right to maintain an action for a writ of
prohibition, relied upon the authority of Ex parte Young (209 U. S. [123] 163, 165), and asserted that:
 Upon the authority, therefore, of Ex parte Young, supra, the merits of the question pending
between petitioner and respondents in this action is duly presented to this court by the
complaint of petitioner and general demurrer of respondents thereto. That question, in plain
terms, is as follows:

Is the respondent Yangco Steamship Company legally required to accept for carriage and
carry "any person or property offering for carriage?"

"The petitioner contends that the respondent company is a common carrier of only such
articles of freight as they profess to carry and hold themselves out as carrying;" and in
discussing the legal capacity of plaintiff to maintain this action, counsel in their printed brief
asserted that "here we have no address to the court to determine whether a minority or a
majority shall prevail in the corporate affairs; here we ask plainly and unmistakably who shall
fix the limits of the corporate business — the shareholders and directors of the corporation,
or certain officials of the government armed with an unconstitutional statute?

Counsel for plaintiff contended that under the guaranties of the Philippine Bill of Rights a common
carrier in the Philippine Islands may arbitrarily decline to accept for carriage any shipment or
merchandise of a class which it expressly or impliedly declines to accept from all shippers alike; that
"the duty of a common carrier to carry for all who offer arises from the public profession he has
made, and is limited by it;" that under this doctrine the respondent steamship company might lawfully
decline to accept for carriage "dynamite, powder or other explosives," without regard to any question
as to the conditions under which such explosives are offered for carriage, or as to the suitableness
of its vessels for the transportation of such explosives, or as to the possibility that the refusal to
accept such articles of commerce in a particular case might have the effect of subjecting any person,
locality or the traffic in such explosives to an undue, unreasonable or unnecessary prejudice or
discrimination: and in line with these contentions counsel boldly asserted that Act No. 98 of the
Philippine Commission is invalid and unconstitutional in so far as it announces a contrary doctrine or
lays down a different rule. The pleader who drew up the original complaint appears to have
studiously avoided the inclusion in that complaint of any allegation which might raise any other
question. In doing so he was strictly within his rights, and having in mind the object sought to be
attained, the original complaint is a model of skillful pleading, well calculated to secure the end in
view, that is to say, a judgment on the precise legal issue which the pleader desired to raise as to
the construction and validity of the statute, which would put an end to the controversy, if that issue
were decided in his favor.

Had the contentions of plaintiff as to the unconstitutionality of the statute been well founded, a writ of
prohibition from this court would have furnished an effective and appropriate remedy for the alleged
wrong. The issue presented by the pleadings on the original complaint, involving a question as to the
validity of a statute and affecting, as it did, the shipping and public interests of the whole Islands, and
submitting be complicated question or series of questions of fact, was of such a nature that this court
could not properly deny the right of the plaintiff to invoke its jurisdiction in original proceedings. We
deemed it our duty therefore to resolve the real issue raised by the demurrer, and since we are of
opinion that the contentions of counsel for plaintiff were not well founded, and since a ruling to that
effect necessarily resulted in an order sustaining the demurrer, we did not deem it necessary or
profitable to consider questions of practice or procedure which it might have been necessary to
decide under a contrary ruling as to the principal question raised by the pleadings; nor did we stop to
consider whether the "subject matter involved" in the controversy might properly be submitted to the
Board of Public Utility Commissioners, because upon the authority of Ex parte Young (supra) we are
satisfied as to the jurisdiction and competency of this court to deal with the real issues raised by the
pleadings on the original complaint, and because, furthermore, the Act of the Philippine Legislature
creating the Board of Public Utility Commissioners could not deprive this court of jurisdiction already
invoked in prohibition proceedings instituted for the purpose of restraining the respondent official as
of the Government from the alleged unlawful exercise of authority under color of an invalid and
without jurisdiction in the premises.

The amended complaint, however, presents for adjudication in original prohibition proceedings in
this court questions of a wholly different character from those submitted in the original complaint.

In so far as it reiterates the allegation s of the former complaint to the effect that the respondent
officials are unlawfully coercing the steamship company by virtue and under color of the provisions
of an invalid or unconstitutional statute, it is manifest, of course, that the amended complaint is no
less subject to criticism than was the original complaint. If, therefore, the action can be maintained
upon its allegations that those officials are coercing the company to carry explosives on vessels
which, as a matter of fact, are not suitably equipped for that purpose, and which from the nature of
the business in which they are engaged should not be required to carry explosives.

It will readily be seen, under our former opinion, that these allegations raise no question as to the
validity or constitutionality of any statute; that the real question which plaintiff seeks to submit to this
court in original prohibition proceedings is whether the respondent officials of the Government are
correctly exercising the discretion and authority with which they have been clothed; and that his
contention in the amended complaint is not, as it was in the original complaint, that these officials are
acting without authority and in reliance upon an invalid and unconstitutional statute, but rather that
they are exercising their authority improvidently, unwisely or mistakenly.

Under the provisions of sections 226 and 516 of the Code of Civil Procedure jurisdiction in
prohibition proceedings is conferred upon the courts when the complaint alleges "the proceedings of
any inferior tribunal, corporation, board, or person, whether exercising functions judicial or
ministerial, were without or in excess of the jurisdiction of such tribunal, corporation, board or
person." It is manifest therefore that the allegations of the amended complaint, even if true, will not
sustain the issuance of a writ of prohibition without further amendment unless they be construed to
in effect a charge that the respondent officials are abusing the discretion conferred upon them in the
exercise of their authority in such manner that the acts complained of should be held to be without or
in excess of their jurisdiction.

It may well be doubted whether the doctrine of the case Ex parte Young (supra), relied upon by the
plaintiff in his argument be invoked in support of a right of action predicated upon such premises; so
also, since the acts complained of in the amended complaint are alleged to have been done at a
date subsequent to the enactment of the statutes creating the Board of Public Utility Commissioners,
it may well be doubted whether the courts should entertain prohibition proceedings seeking to
restrain alleged abuses of discretion on the part of officers and officials of the Government, and of
public service corporations with regard to the rules under which such corporations are operated, until
and unless redress for the alleged wrong has been sought at the hands of the Board.

We do not deem it expedient or necessary, however, to consider or decide any of these questions at
this time, because we are of opinion that we should not permit our original jurisdiction to be set in
motion upon the allegations of the amended complaint.

It is true that this court is clothed with original jurisdiction in prohibition proceedings (sec. 516, Act
No. 190). But this jurisdiction is concurrent with the original jurisdiction of the various Courts of First
Instance throughout the Islands, except in cases where the writ runs to restrain those courts
themselves, when of course it is exclusive; and we are satisfied that it could have been the intention
of the legislator to require this court to assume original jurisdiction in all cases wherein the plaintiff
elects to invoke it. Such a practice might result in overwhelming this court with the duty of
entertaining and deciding original proceedings which from their nature could much better be
adjudicated in the trial courts; and in unnecessarily diverting the time and attention of the court from
its important appellate functions to the settlement of controversies of no especial interest to the
public at large, in the course of which it might become necessary to take testimony and to make
findings touching complicated and hotly contested issues of fact.

We are of opinion and so hold that unless special reasons appear therefor, this court should decline
to permit its original jurisdiction to be invoked in prohibition proceedings, and this especially when
the adjudication of the issues raised involves the taking of evidence and the making of findings
touching controverted facts, which, as a rule, can be done so much better in the first instance by a
trial court than an appellate court organized as is ours.

Spelling on Injunctions and Other Extraordinary Remedies (vol. 2, p. 1493), in discussing the cases
in which the appellate courts in the United States permit their original jurisdiction to be invoked
where that jurisdiction is concurrent with that of some inferior court, says:

Of the plan of concurrent jurisdiction West Virginia may be taken as an illustration. The
Supreme Court of Appeals of that State has concurrent original jurisdiction with the circuit
courts in cases of prohibition, but by a rule adopted by the former court it will not take such
original jurisdiction unless reasons appear therefor.

We deemed it proper to assume jurisdiction to adjudicate and decide the issues raised by the rulings
on the original complaint, involving as they did a question as to the validity of a public statute of vital
interest to shippers and shipowners generally as also to the public at large, presenting for
determination no difficult or complicated questions of fact: but we are satisfied that we should decline
to take jurisdiction of the matters relied upon in the amended complaint in support of plaintiff's prayer
for the writ.

The question of the construction and validity of the statute having been disposed of in our ruling on
the demurrer to the original complaint, it must be apparent that of the allegations of the amended
complaint are sufficient to maintain the plaintiff's action for a writ of prohibition, a question as to
which we expressly reserve our opinion, the action should be brought in one of the Courts of First
Instance.

Twenty days hereafter let the complaint de dismissed at the costs of the plaintiff, unless in the
meantime it is amended so as to disclose a right upon the part of the plaintiff to invoke the original
jurisdiction of this court without first proceeding in one of the Courts of First Instance. So ordered.

Arellano, C.J., Torres, and Trent, JJ., concur.

G.R. No. L-8686 July 30, 1915

THE UNITED STATES, plaintiff-appellee,

vs.
PASCUAL QUINAJON and EUGENIO QUITORIANO, defendants-appellants.

Irineo Javier for appellants.

Attorney-General Villamor for appellee.
JOHNSON, J.:

The defendants were charged with a violation of the provisions of Act No. 98. A complaint was
presented in the court of the justice of the peace on the 11th day of November, 1912. A preliminary
examination was had and the defendants were held for trial in the Court of First Instance of the
province of Ilocos Norte.

On the 17th day of November, 1912, the prosecuting attorney of the Province of Ilocos Norte
presented the following complaint:

The undersigned charges Pascual Quinajon and Eugenio Quitoriano, residents of the
municipality of Paoay, Ilocos Norte, P.I., with violating Act No. 98 of the Civil Commission,
within the jurisdiction of this court, as follows:

That the aforementioned accused are now and have been engaged for more than four years
prior to this date in the transportation of passengers and merchandise in the port of Currimao
— that is, in the loading and unloading of passengers and merchandise by means
of virayes from the shore the steamers that anchor in the said port, and vice versa.

That the said accused have been regularly charging 6 centavos for the unloading and
loading of each package of merchandise of cargo, large or small, heavy or light, off or on the
steamers that anchor in the said port of Currimao, and that the unloading is understood to be
from the steamer to the storage warehouses.

That, in the months of June, July, and September, 1912, the said accused, by means of
their virayes and employees, did unload in the port of Currimao aforementioned 5,986 sacks of rice
belonging to the provincial government of Ilocos Norte, P.I., that had come from Manila, P.I., which
sacks were unloaded from the steamers in which they had been shipped and were carried to the
storage warehouses in which they were deposited; that the said accused did willfully, unlawfully, and
criminally demand and collect from the provincial treasurer for the unloading of each one of the said
sacks of rice 10 centavos which, as set forth in the preceding paragraph, they have been regularly
charging for such services in the unloading of the same kind of merchandise and under virtually the
same circumstances and conditions; that the total sum of the payments so made by the provincial
treasurer amounted to P598.60 for the aforesaid 5,986 sacks of rice, the provincial government of
Ilocos Norte, P.I., being thereby damaged in the sum of 359.16, inasmuch as it should have paid
only 239.44, in accordance with the said rate of 6 centavos for each package.

Acts committed in violation of the said Act No. 98 of the Civil Commission.

Upon that complaint the defendants were duly arraigned, tried, found guilty of the crime charged,
and sentenced by the Honorable Dionisio Chanco, judge, to pay a fine of $100 (P200) and costs,
and to return to the provincial government of the Province of Ilocos Norte the sum of P359.16.

From that sentence each of the defendants appealed to this court. In this court they allege that the
lower court committed the following errors:

1. The court erred in holding that the accused had been regularly collecting 6 centavos for
the loading or the unloading of each sack rice from steamers in the port of Currimao.

2. The court erred in holding that the defendants established preferential privileges and
made discriminations in favor of certain shippers, against the provincial government of Ilocos
 Norte, in the loading or unloading of merchandise on to or from the steamers in the port of
Currimao.

3. The court erred, further, in sentencing the accused to pay to the provincial government of
Ilocos Norte the sum of P359.16.

The first assignment of error presents a question of fact only. The appellants allege that the lower
court committed an error in its conclusions of fact. They allege that the lower court committed an
error in deciding that they had regularly charged 6 centavos for each sack of rice loaded or unloaded
at the port of Currimao. The decision of the lower court contains the following statement of facts:

It is proven that the defendants, acting as representatives of the Union Obrera, established
at the port of Currimao, Ilocos Norte, and engaged by means of virayes as common carriers
of passengers and in loading and unloading freight from steamers anchoring at said port, to
the shore or to the warehouses, and vice versa, have regularly collected, during the last four
years, 6 centavos for each sack of rice loaded or unloaded by said association.

It is likewise proven that the same defendants, representing the same association, collected
from the provincial government of Ilocos Norte 10 centavos for each of the 5,986 sacks of
rice which they unloaded from the steamers during the months of June, July, and
September, as property belonging to the said government, a price which differed from the
usual, charge of 6 centavos made to others shippers of said commodity.

The provincial fiscal presented as witnesses in support of the information the Chinese
merchants Cu Chatco, Cu Joco, Sy Yacco, Lim Anco, and Francisco Castro, who testified
that they paid to the defendants for loading and unloading supplies from the steamers at
Currimao 6 centavos for each package of any kind of supplies, large or small, heavy or light.
The two first named, Cu Chatco and Cu Joco, testified, furthermore, that formerly they paid
transportation charges for the loading and discharge of their supplies from the steamers
according to the weight and size of each package, for which purpose a classification was
previously made by weighing and measuring said packages or merchandise. Cu Joco does
not remember how much was paid at that time for each package, but Cu Chatco states that
10 centavos was paid for the transportation of each sack of rice weighing 60 kilos or more.
The two above-named witnesses, Cu Chatco and Cu Joco, add that as the task of weighing
and measuring was very annoying to the Chinese merchants at Laoag, Ilocos Norte, they
suggested to the defendants and entered into an agreement with them, to pay by the lot the
transportation charges covering loaded onto or unloaded from the steamers, at the rate of 6
centavos for each package, heavy or light, large or small.

We have made a careful examination of the evidence adduced during the trial of the cause, and
conclude that said facts are substantially sustained thereby. The evidence clearly shows that the
defendant collected 6 centavos for each package, of whatever kind of merchandise, large or small,
heavy or light, from those merchants only with whom they had a special contract. From other
merchants, with whom they had not made said special contract, as well as the Province of Ilocos
Norte, they collected a different rate. The evidence shows that they collected from the Province of
Ilocos Norte 10 centavos for each sack of rice which they unloaded from the steamers during the
months of June, July, and September. There seems to be no reason for reversing or modifying the
conclusions of the lower court based upon said finding of facts. The effect of collecting a different
amount from different persons for exactly analogous or similar service performed by the defendants
will be discussed when we come to a discussion of the law applicable to the foregoing facts.
The second assignment of error, to wit, that "the lower court committed an error in holding that the
defendants established preferential privileges in favor of certain shippers," presents the question
whether or not the defendants and appellants, in view of the foregoing facts, have violated the
provisions of said Act No. 98.

The facts, as they are disclosed by the record and the findings of the lower court, may be stated
concretely as follows: (1) The defendants, as common carriers, charged and collected from
some shippers and merchants, a certain price for each package of merchandise, loaded or
unloaded, according to a certain schedule. (See Exhibit A.) The prices fixed in the schedule
depended upon the size and weight of the package. (2) The defendants entered into a special
contract with certain merchants, under and by virtue of the terms of which they charged and
collected, for loading merchandise in said port, the sum of 6 centavos for each package, without
reference to its size or weight.

It is contended that it cost any more to load or unload the rice for the province than it did for the
merchants with whom the special contract was made. There is no proof that the conditions were
different. There is no proof that the services rendered by the defendants for the different parties were
unlike or even not contemporaneous. The defendants justify their acts by the fact that they handled
all the merchandise of some merchants, whether the packages were large or small, at the same
price.

Under these facts, the question is squarely presented whether or not the defendants are guilty of a
violation of the spirit or the letter of said Act No. 98. Said Act No. 98 was largely borrowed from the
Act of Congress of February 4, 1887. The language of the two Acts, so far as they relate to the
present case, is practically the same. Said Act of Congress has been construed by the Federal
courts of the United States in several decisions. In view of the United States to said Act of Congress.

The similarity of Act No. 98 and the Act of Congress may be seen in the following quotations:

(Sec. 1, Act No. 98.) (Sec. 2, Act of Congress, Feb. 4, 1887.)

No person or corporation engaged

as a common carrier of passengers or That if any common carrier subject
property shall directly or indirectly by to the provisions of this Act shall,
any special rate, rebate, drawback or directly or indirectly, by any special
other device, charge, demand, collect rate, rebate, drawback, or other device,
or receive from any person or persons, charge, demand, collect, or receive from
a greater or less compensation for any any person or persons a greater or
service rendered, or to be rendered in less compensation for any service
the transportation of passengers or rendered , or to be rendered, in the
property on land or water between any transportation of passengers or
points in the Philippine Islands than property, subject to the provisions of
such common carrier charges, demands, this Act, than it charges, demands,
collects or receives from any other person collects, or receives from any other
or persons for doing for him a like or person or persons for doing
contemporaneous service in the for him or them a like and
transportation of a like kind of traffic contemporaneous service in the
under substantially similar circumstances transportation of a like kind of
and conditions, and any such unjust traffic under substantially similar
discrimination is hereby prohibited and circumstances and conditions, such
declared to be unlawful. common carrier shall be deemed guilty
 of unjust discrimination, which is hereby
prohibited and declared to be unlawful.

(Sec. 2, Act No. 98.) (Sec. 3, Act of Congress, Feb. 4, 1887.)

It shall be unlawful for any

common carrier engaged in the That it shall be unlawful for any common
transportation of passengers or carrier subject to the provisions of this Act
property as above set forth to make to make or give any undue or unreasonable
or give any unnecessary or unreasonable preference or advantage to any particular
preference or advantage to any particular person, company, firm, corporation, or
person, company, firm, corporation or locality, or any particular description of
locality, or any particular kind of traffic traffic, in any respect whatsoever, or to
in any respect whatsoever, or to subject subject any particular person, company,
any particular person, company, firm, firm, corporation, or locality, or any
corporation or locality, or any particular particular description of traffic, to any
kind of traffic, to any undue or undue or unreasonable prejudice or
unreasonable prejudice or discrimination disadvantage in any respect whatsoever.
whatsoever, and such unjust preference
or discrimination is also hereby prohibited
and declared to be unlawful.

Said Act No. 98 is "An Act to regulate commerce in the Philippine Islands." Its purpose, so far
as it is possible, is to compel common carriers to render to all persons exactly the same or
analogous service for exactly the same price, to the end that there may be no unjust
advantage or unreasonable discrimination. It applies to persons or corporation engaged
as common carriers of passengers or property. A common carrier is a person or corporation
whose regular business is to carry passengers or property for all persons who may choose
to employ and renumerate him. A common carrier is a person or corporation who undertakes
to carry goods or persons for hire. The appellants admit that they are common carriers. The
only question presented is whether or not, under the facts, they have violated the Act
regulating commerce in the Philippine Islands. iSSUE

The law provides that no common carrier shall directly or indirectly, by any special rate, rebate,
drawback, or other device, charge, demand collect, or receive from any person or persons, a greater
or less compensation for any service rendered in the transportation of passengers or property,
between points in the Philippine Islands, than he charges, demands, collects, or receives from any
other person or persons, for doing a like or contemporaneous service, under substantially similar
conditions or circumstances.

The law prohibits any common carrier from making or giving any unnecessary or unreasonable
preference or advantage to any particular person, company, firm, corporation or locality, or any
particular kind of traffic, or to subject any particular person, company, firm, corporation, or locality, or
any particular kind of traffic, to any undue or unreasonable prejudice or discrimination whatsoever.

It will be noted that the law requires common carriers to carry for all persons, either passengers or
property, for exactly the same charge for a like or contemporaneous service in the transportation of
like kind of traffic under substantially similar circumstances or conditions. The law prohibits common
carriers from subjecting any person, etc., or locality, or any particular kind of traffic, to any undue or
unreasonable prejudice or discrimination whatsoever. The law does not require that the same
charge shall be made for the carrying of passengers or property, unless all the conditions are alike
and contemporaneous. It is not believed that the law prohibits the charging of a different rate for the
carrying of passengers or property when the actual cost of handling and transporting the same is
different. it is not believed that the law intended to require common carriers to carry the same kind of
merchandise, even at the same price, under different and unlike conditions and where the actual
cost is different. The actual cost of handling and transporting the same quantity of rice, for example,
might be different, depending upon the form of package or other conditions. It would cost more to
handle and transport rice packed in open boxes or baskets, for example, than it would to handle and
transport the same quantity of rice neatly packed in sacks. It would cost more to handle and
transport hemp, when it is unbaled and loose, than it would when it is baled. It might cost more to
handle and transport household goods uncrated than when they are crated. It is not believed that the
law prohibits the charging of a different price for handling and shipping merchandise when the
shipper exercises greater care in preparing the same for shipment, thereby reducing the actual cost
of handling and transporting. If the shipper puts his merchandise in a condition which costs less to
handle and transport, he is certainly entitled to a better rate. The difference in the charge to
different merchants or shippers must be based upon the actual cost of handling and
transporting. The law does not require common carriers to perform different services for the same
price, unless the actual cost is the same. It is when the price charged is for the purpose of favoring
persons or localities or particular kinds of merchandise, that the law intervenes and prohibits. It is
favoritism and discrimination which the law prohibits. The difference in charge must not be
made to favor one merchant, or shipper, or locality, to the disadvantage of another merchant, or
shipper, or locality. If the services are alike and contemporaneous, discrimination in the price
charged is prohibited. For the purposes of the law, it is not sufficient always to say that merchandise
is alike, simply because it is of a like kind or quantity. The quantity, kind, and quality may be exactly
the same, and yet not be alike, so far as the cost of transportation is concerned. Examples have
been given above. Many others might be given. A and B are each shippers of bananas between the
same points. A delivers his bananas to the carrier in separate bundles or bunches, without a
wrapper or any kind of protection, while B delivers exactly the same number of bunches of bananas,
but they are neatly packed in a few boxes or baskets. It does not require much argument to convince
men conversant with the shipping of merchandise, in such a case, that the actual cost of handling
and shipping would be different and would, therefore, not be "alike," although contemporaneous,
perhaps. Neither is it believed that shipments may be rendered unlike by the fact that the total
shipment is composed of different kinds or classes of merchandise. For example, A is a shipper of
rice and hemp and B is a shipper of rice alone. Both A and B prepare their rice for shipment in
exactly the same form of package. It is not believed that the carrier is permitted, under the law, to
carry A's rice for a less price than he carries B's rice, simply because A is also a shipper of hemp. A
difference in the charge for handling and transporting may only be made when the difference is
based upon actual cost. The actual cost may depend upon quantity. A man who ships freight by the
car-load, by reason of the actual cost of handling and shipping, may be entitled, under certain
conditions, to a better rate than the man who ships a single article or package of the same class or
kind of merchandise. A train-load of cattle might be shipped from Dagupan to Manila, for example, at
less cost per head than it would cost to ship just a few head, less than a car-load. The actual cost of
each shipment must necessarily depend upon and be settled by its own proof. This rule, however,
does not prohibit the making of general schedules, providing they are made applicable to all. The
difference in the charge made by the common carrier cannot be made for the purpose of favoring
any person or locality, to the prejudice or disadvantage of another person or locality. A common
carrier may discriminate between shippers when the amount of goods shipped by one actually costs
less to handle and transport, but he cannot discriminate upon the ground simply that he carries all of
the goods of one shipper, while he does not carry all of the goods of another. The difference in the
charge must be the difference in the cost.

It is competent for a common carrier under the law, we believe, to enter into special agreements for
handling and transporting merchandise, whereby advantage may accrue to individuals, when it is
made clearly to appear that by such agreements the common carrier has only its interests and the
legitimate increase of its profits in view, and when the consideration given to the individual is for the
interest of the common carrier alone, and when the common carrier gives all shippers exactly the
same rate, under the same conditions.

The appellants justify the different charge upon the ground that they carried pianos and matches, for
the merchants with whom they had the special contracts, at the same price. It is not believed that a
merchant who happens to be a shipper of both pianos and matches, should have any advantage
over the merchant who ships pianos alone, unless there is some other actual additional cost in the
one case, which does not exist in the other. A common carrier can not discriminate upon the
ground that he carries all of the goods of one shipper, while he does not of another.

In the present case there is no pretense that it actually cost more to handle the rice for the
province than it did for the merchants with whom the special contracts were made. From the
evidence it would seem that there was a clear discrimination made against the province.
Discrimination is the thing which is specifically prohibited and punished under the law.

It is not believed that the law prohibits common carriers from making special rates for the handling
and transporting of merchandise, when the same are made for the purpose of increasing their
business, and to manage their important interests upon the same principles which are regarded as
sound, and adopted in other trades and pursuits. It is not believed that the law requires absolute
equality in all cases. Circumstances and conditions may make it injurious to the carrier. Absolute
equality, under certain circumstances and conditions, may give shippers an advantage over others.
It is only unjust, undue, and unreasonable discrimination which the law forbids. The law of equality is
in force only where the services performed in the different cases are substantially the same, and the
circumstances and conditions are similar. Many considerations may properly enter into the
agreement for the carriage or shipment rate, such as the quantity carried, its nature, its risks, the
expense of carriage at different periods of time, and the like. Numerous circumstances may
intervene, which bear upon the cost and expense of transportation, and it is but just to the carrier
that he be permitted to take these circumstances into consideration, in determining the rate or
amount of his compensation. A question of fact is raised in each case for the courts to decide.

The foregoing conclusions are based upon literally hundreds of decisions of the courts of different
states, and the Supreme Court of the United States, as well as those of England, which have
interpreted statutes analogous to the one under consideration.

In the third assignment of error the appellants allege that the lower court committed an error in
condemning them to pay or return to the provincial government the sum of P359.16. It is not exactly
clear from the decision of the lower court just how he arrived at that conclusion. Section 5 of Act No.
98 provides that any person or corporation, who may be damaged by reason of the doing by a
common carrier of any matters and things prohibited, shall be entitled to sue for and recover all
damages so incurred, etc. It would seem that the defendants and appellants had a right to charge
the provincial government 6 centavos for each sack of rice unloaded. They unloaded for the province
5,986 sacks, for which they charged the sum of P598.60. They had a right to collect 6 centavos, or
the sum of P359.16. The appellants therefore collected from the province more than they had a right
to collect, the difference between P598.60 and 359.16, or P239.44. They should be required,
therefore, to return to the province the excess which they collected, or the sum of P239.44. The
judgment of the lower court, therefore, should be modified in this respect. The defendants are
hereby ordered to return to the Province of Ilocos Norte the sum P239.44, for which sum a judgment
is hereby ordered to be entered against them, for which execution may issue when this judgment
becomes final, in case the same is not paid.

After a careful analysis of the facts, and the law applicable thereto, the judgment of the lower court,
as herein modified, should be and is hereby affirmed with costs. So ordered.
G.R. No. 131621 September 28, 1999

LOADSTAR SHIPPING CO., INC., petitioner,

vs.
COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.

DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the
following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which
affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil Case
No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter MIC) the
amount of P6,067,178, with legal interest from the filing of the compliant until fully paid, P8,000 as
attorney's fees, and the costs of the suit; and (b) its resolution of 19 November 1997, 3 denying
LOADSTAR's motion for reconsideration of said decision.

The facts are undisputed. 1âwphi 1.nêt

On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel)
the following goods for shipment:

a) 705 bales of lawanit hardwood;

b) 27 boxes and crates of tilewood assemblies and the others ;and

c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

The goods, amounting to P6,067,178, were insured for the same amount with MIC against various
risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was
insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November
1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its
cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made a
claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid P6,075,000 to
the insured in full settlement of its claim, and the latter executed a subrogation receipt therefor.

On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking
of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed
that PGAI be ordered to pay the insurance proceeds from the loss the vessel directly to MIC, said
amount to be deducted from MIC's claim from LOADSTAR.

In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that
sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no
cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later
dropped as a party defendant after it paid the insurance proceeds to LOADSTAR.

As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to
elevate the matter to the court of Appeals, which, however, agreed with the trial court and affirmed
its decision in toto.
In dismissing LOADSTAR's appeal, the appellate court made the following observations:

1) LOADSTAR cannot be considered a private carrier on the sole

ground that there was a single shipper on that fateful voyage. The
court noted that the charter of the vessel was limited to the ship, but
LOADSTAR retained control over its crew. 4

2) As a common carrier, it is the Code of Commerce, not the Civil Code,

which should be applied in determining the rights and liabilities of the
parties.

3) The vessel was not seaworthy because it was undermanned on

the day of the voyage. If it had been seaworthy, it could have
withstood the "natural and inevitable action of the sea" on 20
November 1984, when the condition of the sea was moderate. The
vessel sank, not because of force majeure, but because it was not
seaworthy. LOADSTAR'S allegation that the sinking was probably
due to the "convergence of the winds," as stated by a PAGASA
expert, was not duly proven at the trial. The "limited liability" rule,
therefore, is not applicable considering that, in this case, there was
an actual finding of negligence on the part of the carrier.5

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading

do not apply because said provisions bind only the shipper/consignee
and the carrier. When MIC paid the shipper for the goods insured, it
was subrogated to the latter's rights as against the carrier,
LOADSTAR. 6

5) There was a clear breach of the contract of carriage when the

shipper's goods never reached their destination. LOADSTAR's defense
of "diligence of a good father of a family" in the training and selection of
its crew is unavailing because this is not a proper or complete defense
in culpa contractual.

6) "Art. 361 (of the Code of Commerce) has been judicially construed
to mean that when goods are delivered on board a ship in good order
and condition, and the shipowner delivers them to the shipper in bad
order and condition, it then devolves upon the shipowner to both
allege and prove that the goods were damaged by reason of some
fact which legally exempts him from liability." Transportation of the
merchandise at the risk and venture of the shipper means that the
latter bears the risk of loss or deterioration of his goods arising from
fortuitous events, force majeure, or the inherent nature and defects of
the goods, but not those caused by the presumed negligence or fault
of the carrier, unless otherwise proved. 7

The errors assigned by LOADSTAR boil down to a determination of the following issues:

(1) Is the M/V "Cherokee" a private or a common carrier?

(2) Did LOADSTAR observe due and/or ordinary diligence in these

premises.
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was
not issued certificate of public convenience, it did not have a regular trip or schedule nor a fixed
route, and there was only "one shipper, one consignee for a special cargo."

In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely
raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the
cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its
regular business. Moreover, the bills of lading in this case made no mention of any charter party but
only a statement that the vessel was a "general cargo carrier." Neither was there any "special
arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The
singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to
convert the vessel into a private carrier.

As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to
have been negligent, and the burden of proving otherwise devolved upon MIC. 8

LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November
1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the
maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a
voyage. Its crew at the time was experienced, licensed and unquestionably competent. With all these
precautions, there could be no other conclusion except that LOADSTAR exercised the diligence of a good
father of a family in ensuring the vessel's seaworthiness.

LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due
to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November
1984, the weather was fine until the next day when the vessel sank due to strong waves. MCI's
witness, Gracelia Tapel, fully established the existence of two typhoons, "WELFRING" and
"YOLING," inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1
was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the
convergence of winds brought about by these two typhoons strengthened wind velocity in the area,
naturally producing strong waves and winds, in turn, causing the vessel to list and eventually sink.

LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as
what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk,"
LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals
erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and
not to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling in the
case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance
Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10

Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted
beyond the period stated in the bills of lading for instituting the same — suits based upon claims arising
from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from the accrual
of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery was filed only on
4 February 1985.

MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the
cargo was due toforce majeure, because the same concurred with LOADSTAR's fault or negligence.

Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same
must be deemed waived.
Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at
fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage
notwithstanding its knowledge of a typhoon is tantamount to negligence.

We find no merit in this petition.

Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not
necessary that the carrier be issued a certificate of public convenience, and this public
character is not altered by the fact that the carriage of the goods in question was periodic,
occasional, episodic or unscheduled.

In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo or
chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of
the Civil Code. Any stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent is void only if the strict policy governing common carriers is upheld. Such policy
has no force where the public at is not involved, as in the case of a ship totally chartered for the use of a
single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld the Home Insurance
doctrine.

These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that
the factual settings are different. The records do not disclose that the M/V "Cherokee," on the date in
question, undertook to carry a special cargo or was chartered to a special person only. There was no
charter party. The bills of lading failed to show any special arrangement, but only a general provision
to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact that the
vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is
not reason enough to convert the vessel from a common to a private carrier, especially where, as in this
case, it was shown that the vessel was also carrying passengers.

Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common
carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals,15 the
Court juxtaposed the statutory definition of "common carriers" with the peculiar circumstances of that
case, viz.:

The Civil Code defines "common carriers" in the following terms:

Art. 1732. Common carriers are persons, corporations, firms or

associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.

The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as ancillary activity (in local idiom, as "a sideline". Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
 population. We think that Article 1733 deliberately refrained from making such
distinctions.

xxx xxx xxx

It appears to the Court that private respondent is properly characterized as a

common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and eventhough private
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.

The Court of Appeals referred to the fact that private respondent held no certificate of
public convenience, and concluded he was not a common carrier. This is palpable
error. A certificate of public convenience is not a requisite for the incurring of liability
under the Civil Code provisions governing common carriers. That liability arises the
moment a person or firm acts as a common carrier, without regard to whether or not
such carrier has also complied with the requirements of the applicable regulatory
statute and implementing regulations and has been granted a certificate of public
convenience or other franchise. To exempt private respondent from the liabilities of a
common carrier because he has not secured the necessary certificate of public
convenience, would be offensive to sound public policy; that would be to reward
private respondent precisely for failing to comply with applicable statutory
requirements The business of a common carrier impinges directly and intimately
upon the safety and well being and property of those members of the general
community who happen to deal with such carrier. The law imposes duties and
liabilities upon common carriers for the safety and protection of those who utilize their
services and the law cannot allow a common carrier to render such duties and
liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.

Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy
when it embarked on its voyage on 19 November 1984. The vessel was not even sufficiently
manned at the time. "For a vessel to be seaworthy, it must be adequately equipped for the
voyage and manned with a sufficient number of competent officers and crew. The failure of a
common carrier to maintain in seaworthy condition its vessel involved in a contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code." 16

Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied in this
case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel
owner or agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in
having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not
sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the
performance of its duties, LOADSTAR cannot hide behind the "limited liability" doctrine to escape
responsibility for the loss of the vessel and its cargo.

LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods,
in utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray &
Co., Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two
cases that after paying the claim of the insured for damages under the insurance policy, the insurer is
subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in turn, be
recovered by the latter. Since the right of the assured in case of loss or damage to the goods is limited or
restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to
the same limitations and restrictions. We do not agree. In the first place, the cases relied on by
LOADSTAR involved a limitation on the carrier's liability to an amount fixed in the bill of lading which the
parties may enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On
the other hand, the stipulation in the case at bar effectively reduces the common carrier's liability for the
loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the
carrier is not liable for any loss or damage to shipments made at "owner's risk." Such stipulation is
obviously null and void for being contrary to public policy." 20 It has been said:

Three kinds of stipulations have often been made in a bill of lading. The first one
exempting the carrier from any and all liability for loss or damage occasioned by its
own negligence. The second is one providing for an unqualified limitation of such
liability to an agreed valuation. And the third is one limiting the liability of the carrier to
an agreed valuation unless the shipper declares a higher value and pays a higher
rate of. freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy, but the third
is valid and enforceable. 21

Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was
subrogated to all the rights which the latter has against the common carrier, LOADSTAR.

Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's
cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil
Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of
Goods by Sea Act (COGSA) — which provides for a one-year period of limitation on claims for loss
of, or damage to, cargoes sustained during transit — may be applied suppletorily to the case at bar.
This one-year prescriptive period also applies to the insurer of the goods. 22In this case, the period for
filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is
null and void; 23 it must, accordingly, be struck down.

WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the
Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner. 1âwphi1.nêt

SO ORDERED.

G.R. No. L-25599 April 4, 1968

HOME INSURANCE COMPANY, plaintiff-appellee,

vs.
AMERICAN STEAMSHIP AGENCIES, INC. and LUZON STEVEDORING
CORPORATION, defendants,
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellant.

William H. Quasha and Associates for plaintiff-appellee.

Ross, Selph, Salcedo and Associates for defendant-appellant.

BENGZON, J.P., J.:

"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740
jute bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers
1 and 2, both dated January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San
Miguel Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on
March 7, 1963 and was discharged into the lighters of Luzon Stevedoring Company. When the cargo
was delivered to consignee San Miguel Brewery Inc., there were shortages amounting to
P12,033.85, causing the latter to lay claims against Luzon Stevedoring Corporation, Home
Insurance Company and the American Steamship Agencies, owner and operator of SS
Crowborough.

Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 —
the insurance value of the loss, as full settlement of the claim. Having been refused reimbursement
by both the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance
Company, as subrogee to the consignee, filed against them on March 6, 1964 before the Court of
First Instance of Manila a complaint for recovery of P14,870.71 with legal interest, plus attorney's
fees.

In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in
the same quantity and quality that it had received the same from the carrier. It also claimed that
plaintiff's claim had prescribed under Article 366 of the Code of Commerce stating that the claim
must be made within 24 hours from receipt of the cargo.

American Steamship Agencies denied liability by alleging that under the provisions of the Charter
party referred to in the bills of lading, the charterer, not the shipowner, was responsible for any loss
or damage of the cargo. Furthermore, it claimed to have exercised due diligence in stowing the
goods and that as a mere forwarding agent, it was not responsible for losses or damages to the
cargo.

On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring
Corporation, having found the latter to have merely delivered what it received from the carrier in the
same condition and quality, and ordered American Steamship Agencies to pay plaintiff P14,870.71
with legal interest plus P1,000 attorney's fees. Said court cited the following grounds:

(a) The non-liability claim of American Steamship Agencies under the charter party contract
is not tenable because Article 587 of the Code of Commerce makes the ship agent also
civilly liable for damages in favor of third persons due to the conduct of the captain of the
carrier;

(b) The stipulation in the charter party contract exempting the owner from liability is against
public policy under Article 1744 of the Civil Code;

(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at
fault or negligent under Article 1735 of the Civil Code unless they prove extraordinary
diligence, and they cannot by contract exempt themselves from liability resulting from their
negligence or that of their servants; and

(d) When goods are delivered to the carrier in good order and the same are in bad order at
the place of destination, the carrier is prima facie liable.

Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal
brings forth for determination this legal issue: Is the stipulation in the charter party of the owner's
non-liability valid so as to absolve the American Steamship Agencies from liability for loss?

The bills of lading,1 covering the shipment of Peruvian fish meal provide at the back thereof that the
bills of lading shall be governed by and subject to the terms and conditions of the charter party, if
any, otherwise, the bills of lading prevail over all the agreements.2 On the of the bills are stamped
"Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party
dated London, Dec. 13, 1962."

A perusal of the charter party3 referred to shows that while the possession and control of the ship
were not entirely transferred to the charterer,4 the vessel was chartered to its full and complete
capacity (Exh. 3). Furthermore, the, charter had the option to go north or south or vice-
versa,5 loading, stowing and discharging at its risk and expense.6Accordingly, the charter party
contract is one of affreightment over the whole vessel rather than a demise. As such, the liability of
the shipowner for acts or negligence of its captain and crew, would remain in the absence of
stipulation.

Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to
the goods caused by personal want of due diligence on its part or its manager to make the vessel in
all respects seaworthy and to secure that she be properly manned, equipped and supplied or by the
personal act or default of the owner or its manager. Said paragraph, however, exempts the owner of
the vessel from any loss or damage or delay arising from any other source, even from the neglect or
fault of the captain or crew or some other person employed by the owner on board, for whose acts
the owner would ordinarily be liable except for said paragraph..

Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587
of the Code of Commerce making the ship agent civilly liable for indemnities suffered by third
persons arising from acts or omissions of the captain in the care of the goods and Article 1744 of the
Civil Code under which a stipulation between the common carrier and the shipper or owner limiting
the liability of the former for loss or destruction of the goods to a degree less than extraordinary
diligence is valid provided it be reasonable, just and not contrary to public policy. The release from
liability in this case was held unreasonable and contrary to the public policy on common carriers.

The provisions of our Civil Code on common carriers were taken from Anglo-American law.7 Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a
special person only, becomes a private carrier.8 As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not against public policy,9 and is deemed valid.

Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the charter
party absolving the owner from liability for loss due to the negligence of its agent would be void only
if the strict public policy governing common carriers is applied. Such policy has no force where the
public at large is not involved, as in the case of a ship totally chartered for the use of a single party.

And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the
charterer, as shipper, is in fact and legal contemplation merely a receipt and a document of title not a
contract, for the contract is the charter party.10 The consignee may not claim ignorance of said
charter party because the bills of lading expressly referred to the same. Accordingly, the consignees
under the bills of lading must likewise abide by the terms of the charter party. And as stated,
recovery cannot be had thereunder, for loss or damage to the cargo, against the shipowners, unless
the same is due to personal acts or negligence of said owner or its manager, as distinguished from
its other agents or employees. In this case, no such personal act or negligence has been proved.

WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from
liability to plaintiff. No costs. So ordered.

G.R. No. L-61461 August 21, 1987

EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,
vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.

CARDINAL SHIPPING CORPORATION, petitioner,

vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS,
INC., respondents.

GANCAYCO, J.:

The question that is posed in these petitions for review is whether the sea can be considered as a
continuation of the highway. The corollary issue is whether a land transportation company can be
authorized to operate a ferry service or coastwise or interisland shipping service along its authorized
route as an incident to its franchise without the need of filing a separate application for the same.

The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic

corporation engaged in the land transportation business with PUB service for passengers and freight
and various certificates for public conveniences CPC to operate passenger buses from Metro Manila
to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to
Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V
"Black Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and
Allen, Samar that will provide service to company buses and freight trucks that have to cross San
Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due course to the request on
the basis of the following observations:

1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and

Epitacio San Pablo; MARINA policies on interisland shipping restrict the entry of new
operators to Liner trade routes where these are adequately serviced by
existing/authorized operators.

2. Market conditions in the proposed route cannot support the entry of additional
tonnage; vessel acquisitions intended for operations therein are necessarily limited to
those intended for replacement purposes only. 2

PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million
pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it
proposes to operate a ferry service to carry its passenger buses and freight trucks between Allen
and Matnog in connection with its trips to Tacloban City invoking the case of Javellana vs. Public
Service Commission. 3 PANTRANCO claims that it can operate a ferry service in connection with its
franchise for bus operation in the highway from Pasay City to Tacloban City "for the purpose of
continuing the highway, which is interrupted by a small body of water, the said proposed ferry
operation is merely a necessary and incidental service to its main service and obligation of
transporting its passengers from Pasay City to Tacloban City. Such being the case ... there is no
need ... to obtain a separate certificate for public convenience to operate a ferry service between
Allen and Matnog to cater exclusively to its passenger buses and freight trucks.4

Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting
Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the
application for hearing on Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO
from operating the MV "Black Double" otherwise it will be cited to show cause why its CPC should
not be suspended or the pending application denied. 6

Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are
franchise holders of the ferry service in this area interposed their opposition. They claim they
adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked
the legal opinion from the Minister of Justice whether or not a bus company with an existing CPC
between Pasay City and Tacloban City may still be required to secure another certificate in order to
operate a ferry service between two terminals of a small body of water. On October 20, 1981 then
Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus
operators to secure a separate CPC to operate a ferryboat service holding as follows:

Further, a common carrier which has been granted a certificate of public

convenience is expected to provide efficient, convenient and adequate service to the
riding public. (Hocking Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE
521; Louiseville and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of
the public which has accepted the service of a public utility operator to demand that
the service should be conducted with reasonable efficiency. (Almario, supra, citing 73
C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a
ferry service to its Pasay Tacloban route, it merely does so in the discharge of its
duty under its current certificate of public convenience to provide adequate and
convenient service to its riders. Requiring said bus company to obtain another
certificate to operate such ferry service when it merely forms a part — and
constitutes an improvement — of its existing transportation service would simply be
duplicitous and superfluous. 7

Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of
its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect
the same in this wise:

Let the original Certificate of public convenience granted to Pantranco South Express
Co., Inc. be amended to embody the grant of authority to operate a private ferry boat
service as one of the conditions for the grant of the certificate subject to the condition
that the ferryboat shall be for the exclusive use of Pantranco buses, its passengers
and freight trucks, and should it offer itself to the public for hire other than its own
passengers, it must apply for a separate certificate of public convenience as a public
ferry boat service, separate and distinct from its land transport systems. 8

Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration
of said decision and San Pablo filed a supplemental motion for reconsideration that were denied by
the BOT on July 21, 1981. 9

Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary
injunction 10 seeking the revocation of said decision, and pending consideration of the petition, the issuance of a restraining order or
preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following issues:

A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE

PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC
SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION
DATED OCTOBER 23, 1981 WHICH MOTU PROPIOAMENDED RESPONDENT
PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION
OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON — ALLEN,
 SAMAR — EVEN AS THERE MUST BE A FORMAL APPLICATION FOR
AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING
AMENDMENT IS PROPER?

B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF

OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF MATNOG,
SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR
FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR
CONTINUATION OF THE HIGHWAY — IT BEING 23 KILOMETERS OF ROUGH
AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-
ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN
FERRY SERVICE?

C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT

PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER,
NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT
THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF
HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE
FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE?

D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT

PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE
OF THE LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT
APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-
REQUISITE MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO
ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL
AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING
AUTHORIZATION MAY BE GRANTED UNDER BOT — MARINA AGREEMENT OF
AUGUST 10, 1976 AND FEBRUARY 26, 1982?

E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT

PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE
ADEQUATELY SERVICED IF NOT ALREADY "SATURATED" WITH THE
SERVICES OF TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL
SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR
RULE'? 11

By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:

a. the decision did not conform to the procedures laid down by law for an amendment
of the original certificate of public convenience, and the authority to operate a private
ferry boat service to PANTRANCO was issued without ascertaining the established
essential requisites for such grant, hence, violative of due process requirements;

b. the grant to PANTRANCO of authority to operate a ferryboat service as a private

carrier on said route contravenes existing government policies relative to the
rationalization of operations of all water transport utilities;

c. it contravenes the memorandum of agreement between MARINA and the Board of

Transportation; d. the grant of authority to operate a ferry service as a private carrier
is not feasible; it lessens PANTRANCO's liability to passengers and cargo to a
degree less than extraordinary diligence?
 e. PANTRANCO is not a private carrier when it operates its ferry service;

f. it runs counter to the "old operator" doctrine; and

g. the operation by PANTRANCO of the ferry service c•nstitutes undue competition.

The foregoing considerations constitutes the substantial errors committed by the

respondent Board which would more than amply justify review of the questioned
decision by this Honorable Court.12

Both cases were consolidated and are now admitted for decision.

The resolution of all said issues raised revolves on the validity of the questioned BOT decision.

The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a
part of the authority originally granted PANTRANCO in the following manner:

A ferry service, in law, is treated as a continuation of the highway from one side of
the water over which passes to the other side for transportation of passengers or of
travellers with their teams vehicles and such other property as, they may carry or
have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431).
It maybe said to be a necessary service of a specially constructed boat to carry
passengers and property across rivers or bodies of water from a place in one shore
to a point conveniently opposite on the other shore and continuation of the highway
making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac.
N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of transportation but
also the use for that purpose of the respective landings with outlets therefrom. (Nole
vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a
private ferry. A public ferry service is one which all the public have the right to resort
to and for which a regular fare is established and the ferryman is a common carrier
be inbound to take an who apply and bound to keep his ferry in operation and good
repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly
for the use of the owner and though he may take pay for ferriage, he does not follow
it as a business. His ferry is not open to the public at its demand and he may or may
not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696),
Harrison, 140 Ark 158; 215 S.W. 698).

The ferry boat service of Pantranco is a continuation of the highway traversed by its
buses from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through
San Bernardino Strait to Alien (Samar). It is a private carrier because it will be used
exclusively to transport its own buses, passengers and freight trucks traversing the
said route. It will cater exclusively to the needs of its own clientele (passengers on
board- Pantranco buses) and will not offer itself indiscriminately for hire or for
compensation to the general public. Legally therefore, Pantranco has the right to
operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog
(Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses,
passengers and freight trucks without the need of applying for a separate certificate
of public convenience or provisional authority. Since its operation is an integral part
of its land transport system, its original certificate of public convenience should be
amended to include the operation of such ferryboat for its own exclusive use

In Javellana 14 this Court recited the following definition of ferry :

 The term "ferry" implied the continuation by means of boats, barges, or rafts, of a
highway or the connection of highways located on the opposite banks of a stream or
other body of water. The term necessarily implies transportation for a short distance,
almost invariably between two points, which is unrelated to other transportation
.(Emphasis supplied)

The term "ferry" is often employed to denote the right or franchise granted by the
state or its authorized mandatories to continue by means of boats, an interrupted
land highway over the interrupting waters and to charge toll for the use thereof by the
public. In this sense it has also been defined as a privilege, a liberty, to take tolls for
transporting passengers and goods across a lake or stream or some other body of
water, with no essential difference from a bridge franchise except as to the mode of
transportation, 22 Am. Jur. 553.

A "ferry" has been defined by many courts as "a public highway or thoroughfare
across a stream of water or river by boat instead of a bridge." (St. Clare Country v.
Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.)

The term ferry is often employed to denote the right or franchise granted by the state
or its authorized mandatories to continue by means of boats, an interrupted land
highway over the interrupting waters and to charge toll for the use thereof by the
public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann.
Cas. 1914C 1179; etc.) (Emphasis supplied)

"Ferry" is service necessity for common good to reach point across a stream lagoon,
lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'

"Ferry" properly means a place of transit across a river or arm of the sea, but in law it
is treated as a franchise, and defined as the exclusive right to carry passengers
across a river, or arm of the sea, from one vill to another, or to connect a continuous
line of road leading from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C.
A. Wash. 73 F. 2d. 831, 832)'

Includes various waters: (1) But an arm of the sea may include various subordinate
descriptions of waters, where the tide ebbs and flows. It may be a river, harbor,
creek, basin, or bay; and it is sometimes used to designate very extensive reaches of
waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach
C.C. 1093). (2) In an early case the court said: "The distinction between rivers
navigable and not navigable, that is, where the sea does, or does not, ebb and flow,
is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called
arms of the sea, while the latter pass under the denomination of private or inland
rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis supplied)

In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of Gattaran
vs. Elizaga 17 this Court considered as ferry service such water service that crosses rivers.

However, in Javellana We made clear distinction between a ferry service and coastwise or
interisland service by holding that:

We are not unmindful of the reasons adduced by the Commission in considering the
motorboat service between Calapan and Batangas as ferry; but from our
consideration of the law as it stands, particularly Commonwealth Act No. 146, known
 as the Public Service Act and the provisions of the Revised Administrative Code
regarding municipal ferries and those regarding the jurisdiction of the Bureau of
Customs over documentation, registration, licensing, inspection, etc. of steamboats,
motorboats or motor vessels, and the definition of ferry as above quoted we have the
impression and we are inclined to believe that the Legislature intended ferry to mean
the service either by barges or rafts, even by motor or steam vessels, between the
banks of a river or stream to continue the highway which is interrupted by the body of
water, or in some cases to connect two points on opposite shores of an arm of the
sea such as bay or lake which does not involve too great a distance or too long a
time to navigate But where the line or service involves crossing the open sea like the
body of water between the province of Batangas and the island of Mindoro which the
oppositors describe thus "the intervening waters between Calapan and Batangas are
wide and dangerous with big waves where small boat barge, or raft are not adapted
to the service," then it is more reasonable to regard said line or service as more
properly belonging to interisland or coastwise trade. According to the finding of the
Commission itself the distance between Calapan is about 24 nautical miles or about
44.5 kilometers. We do not believe that this is the short distance contemplated by the
Legislature in referring to ferries whether within the jurisdiction of a single
municipality or ferries between two municipalities or provinces. If we are to grant that
water transportation between Calapan and Batangas is ferry service, then there
would be no reason for not considering the same service between the different
islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City of
Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao,
Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.

The Commission makes the distinction between ferry service and motorship in the
coastwise trade, thus:

A ferry service is distinguished from a motorship or motorboat service engaged in the

coastwise trade in that the latter is intended for the transportation of passengers
and/or freight for hire or compensation between ports or places in the Philippines
without definite routes or lines of service.

We cannot agree. The definiteness of the route of a boat is not the deciding factor. A
boat of say the William Lines, Inc. goes from Manila to Davao City via Cebu,
Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite route, and yet it
may not for that reason be regarded as engaged in ferry service. Again, a vessel of
the Compania Maritima makes the trip from Manila to Tacloban and back, twice a
week. Certainly, it has a definite route. But that service is not ferry service, but rather
interisland or coastwise trade.

We believe that it will be more in consonance with the spirit of the law to consider
steamboat or motorboat service between the different islands, involving more or less
great distance and over more or less turbulent and dangerous waters of the open
sea, to be coastwise or inter-island service. Anyway, whether said service between
the different islands is regarded as ferry service or coastwise trade service, as long
as the water craft used are steamboats, motorboats or motor vessels, the result will
be the same as far as the Commission is concerned. " 18 (Emphasis supplied)

This Court takes judicial notice of the fact, and as shown by an examination of the map of the
Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of
Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San
Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance
between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in
about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As
the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be
choppy and rough so that it will not be safe to navigate the same by small boats or barges but only
by such steamboats or vessels as the MV "Black Double. 19

Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is certainly
not a ferry boat service but a coastwise or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be
considered a continuation of the highway. While a ferry boat service has been considered as a continuation of the highway when
crossing rivers or even lakes, which are small body of waters - separating the land, however, when as in this case the two
terminals, Matnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. Respondent
PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with
the provisions of law. Its CPC as a bus transportation cannot be merely amended to include this water service under the guise that
it is a mere private ferry service.

The contention of private respondent PANTRANCO that its ferry service operation is as a private
carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo
trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the
charges for the bus trips and issues separate tickets whenever they board the MV "Black Double"
that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers
it did so as a private carrier and not as a common carrier. The Court does not see any reason why
inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in
passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to
this effect has been submitted. 21 What is even more difficult to comprehend is that while in one
breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is
concerned, in another breath it states that it does not thereby abdicate from its obligation as a
common carrier to observe extraordinary diligence and vigilance in the transportation of its
passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to
operate a private ferry, it can still assert that it cannot be held to account as a common carrier
towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and
interests of its passengers and the cargo owners cannot be allowed.

What appears clear from the record is that at the beginning PANTRANCO planned to operate such
ferry boat service between Matnog and Alien as a common carrier so it requested authority from
MARINA to purchase the vessel M/V "Black Double 22 in accordance with the procedure provided for
by law for such application for a certificate of public convenience. 23 However when its request was
denied as the said routes "are adequately serviced by existing/authorized operators, 24 it
nevertheless purchased the vessel and started operating the same. Obviously to go about this
obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private
ferryboat service across a small body of water for the exclusive use of its buses, trucks and
passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City
to Tacloban so that it believes it need not secure a separate certificate of public
convenience. 25 Based on this representation, no less than the Secretary of Justice was led to render
an affirmative opinion on October 20, 1981, 26 followed a few days later by the questioned decision of
public respondent of October 23, 1981. 27 Certainly the Court cannot give itsimprimatur to such a
situation.

Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat
service but a coastwise or interisland shipping service. Before private respondent may be
issued a franchise or CPC for the operation of the said service as a common carrier, it must comply
with the usual requirements of filing an application, payment of the fees, publication, adducing
evidence at a hearing and affording the oppositors the opportunity to be heard, among others, as
provided by law. 28
WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of
Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982
in the same case denying the motions for reconsideration filed by petitioners are hereby Reversed
and set aside and declared null and void. Respondent PANTRANCO is hereby permanently
enjoined from operating the ferryboat service and/or coastwise/interisland services between Matnog
and Allen until it shall have secured the appropriate Certificate of Public Convenience (CPC) in
accordance with the requirements of the law, with costs against respondent PANTRANCO.

SO ORDERED.

G.R. No. 112287 December 12, 1997

NATIONAL STEEL CORPORATION, Petitioner, v. COURT OF

APPEALS AND VLASONS SHIPPING, INC., Respondents.

G.R. No. 112350 December 12, 1997

VLASONS SHIPPING, INC., Petitioner, v. COURT OF APPEALS

AND NATIONAL STEEL CORPORATION, Respondents.

PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness

of private carrier, its owner's responsibility for damage to the cargo
and its liability for demurrage and attorney's fees. The Court also
reiterates the well-known rule that findings of facts of trial courts,
when affirmed by the Court of Appeals, are binding on this Court.

The Case

Before us are two separate petitions for review filed by National

Steel Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of
which assail the August 12, 1993 Decision of the Court of
Appeals. 1 The Court of Appeals modified the decision of the
Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case
No. 23317. The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant

and against the plaintiff dismissing the complaint with cost against
plaintiff, and ordering plaintiff to pay the defendant on the
counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as
demurrage with interest at the legal rate on both amounts from
April 7, 1976 until the same shall have been fully paid;

2. Attorney's fees and expenses of litigation in the sum of

P100,000.00; and

3. Costs of suit.

SO ORDERED. 2

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is

modified by reducing the award for demurrage to P44,000.00 and
deleting the award for attorney's fees and expenses of litigation.
Except as thus modified, the decision is AFFIRMED. There is no
pronouncement as to costs.

SO ORDERED. 3

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as

such, does not transport cargo or shipment for the general public.
Its services are available only to specific persons who enter into a
special contract of charter party with its owner. It is undisputed that
the ship is a private carrier. And it is in the capacity that its owner,
Vlasons Shipping, Inc., entered into a contract of affreightment or
contract of voyage charter hire with National Steel Corporation.

The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as

Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner,
entered into a Contract of Voyage Charter Hire (Exhibit "B"; also
Exhibit "1") whereby NSC hired VSI's vessel, the MV "VLASONS I" to
make one (1) voyage to load steel products at Iligan City and
discharge them at North Harbor, Manila, under the following terms
and conditions, viz:
1. . . .

2. Cargo: Full cargo of steel products of not less than 2,500 MT,
10% more or less at Master's option.

3. . . .

4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon

presentation of Bill of Lading within fifteen (15) days.

5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.

6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather

Working Day of 24 consecutive hours, Sundays and Holidays
Included).

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.

8. . . .

9. Cargo Insurance: Charterer's and/or Shipper's must insure the

cargoes. Shipowners not responsible for losses/damages except on
proven willful negligence of the officers of the vessel.

10. Other terms: (a) All terms/conditions of NONYAZAI C/P[sic] or

other internationally recognized Charter Party Agreement shall form
part of this Contract.

xxx xxx xxx

The terms "F.I.O.S.T." which is used in the shipping business is a

standard provision in the NANYOZAI Charter Party which stands for
"Freight In and Out including Stevedoring and Trading", which
means that the handling, loading and unloading of the cargoes are
the responsibility of the Charterer. Under Paragraph 5 of the
NANYOZAI Charter Party, it states, "Charterers to load, stow and
discharge the cargo free of risk and expenses to owners. . . .
(Emphasis supplied).

Under paragraph 10 thereof, it is provided that "(o)wners shall,

before and at the beginning of the voyage, exercise due diligence to
make the vessel seaworthy and properly manned, equipped and
supplied and to make the holds and all other parts of the vessel in
which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the
cargo arising or resulting from: unseaworthiness unless caused by
want of due diligence on the part of the owners to make the vessel
seaworthy, and to secure that the vessel is properly manned,
equipped and supplied and to make the holds and all other parts of
the vessel in which cargo is carried, fit and safe for its reception,
carriage and preservation; . . . ; perils, dangers and accidents of the
sea or other navigable waters; . . . ; wastage in bulk or weight or
any other loss or damage arising from inherent defect, quality or
vice of the cargo; insufficiency of packing; . . . ; latent defects not
discoverable by due diligence; any other cause arising without the
actual fault or privity of Owners or without the fault of the agents or
servants of owners."

Paragraph 12 of said NANYOZAI Charter Party also provides that

"(o)wners shall not be responsible for split, chafing and/or any
damage unless caused by the negligence or default of the master
and crew."

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of

Voyage Charter Hire, the MV "VLASONS I" loaded at plaintiffs pier at
Iligan City, the NSC's shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769 packages with a
total weight of about 2,481.19 metric tons for carriage to Manila.
The shipment was placed in the three (3) hatches of the ship. Chief
Mate Gonzalo Sabando, acting as agent of the vessel[,]
acknowledged receipt of the cargo on board and signed the
corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit "D") on
August 8, 1974.

(3) The vessel arrived with the cargo at Pier 12, North Harbor,
Manila, on August 12, 1974. The following day, August 13, 1974,
when the vessel's three (3) hatches containing the shipment were
opened by plaintiff's agents, nearly all the skids of tinplates and hot
rolled sheets were allegedly found to be wet and rusty. The cargo
was discharged and unloaded by stevedores hired by the Charterer.
Unloading was completed only on August 24, 1974 after incurring a
delay of eleven (11) days due to the heavy rain which interrupted
the unloading operations. (Exhibit "E")

(4) To determine the nature and extent of the wetting and rusting,
NSC called for a survey of the shipment by the Manila Adjusters and
Surveyors Company (MASCO). In a letter to the NSC dated March
17, 1975 (Exhibit "G"), MASCO made a report of its ocular
inspection conducted on the cargo, both while it was still on board
the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa,
Manila where the cargo was taken and stored. MASCO reported that
it found wetting and rusting of the packages of hot rolled sheets and
metal covers of the tinplates; that tarpaulin hatch covers were
noted torn at various extents; that container/metal casings of the
skids were rusting all over. MASCO ventured the opinion that
"rusting of the tinplates was caused by contact with SEA WATER
sustained while still on board the vessel as a consequence of the
heavy weather and rough seas encountered while en route to
destination (Exhibit "F"). It was also reported that MASCO's
surveyors drew at random samples of bad order packing materials
of the tinplates and delivered the same to the M.I.T. Testing
Laboratories for analysis. On August 31, 1974, the M.I.T. Testing
Laboratories issued Report No. 1770 (Exhibit "I") which in part,
states, "The analysis of bad order samples of packing materials . . .
shows that wetting was caused by contact with SEA WATER".

(5) On September 6, 1974, on the basis of the aforesaid Report No.

1770, plaintiff filed with the defendant its claim for damages
suffered due to the downgrading of the damaged tinplates in the
amount of P941,145.18. Then on October 3, 1974, plaintiff formally
demanded payment of said claim but defendant VSI refused and
failed to pay. Plaintiff filed its complaint against defendant on April
21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the

aforesaid amount of P941,145.18 as a result of the act, neglect and
default of the master and crew in the management of the vessel as
well as the want of due diligence on the part of the defendant to
make the vessel seaworthy and to make the holds and all other
parts of the vessel in which the cargo was carried, fit and safe for its
reception, carriage and preservation - all in violation of defendant's
undertaking under their Contract of Voyage Charter Hire.

(7) In its answer, defendant denied liability for the alleged damage
claiming that the MV "VLASONS I" was seaworthy in all respects for
the carriage of plaintiff's cargo; that said vessel was not a "common
carrier" inasmuch as she was under voyage charter contract with
the plaintiff as charterer under the charter party; that in the course
of the voyage from Iligan City to Manila, the MV "VLASONS I"
encountered very rough seas, strong winds and adverse weather
condition, causing strong winds and big waves to continuously
pound against the vessel and seawater to overflow on its deck and
hatch covers, that under the Contract of Voyage Charter Hire,
defendant shall not be responsible for losses/damages except on
proven willful negligence of the officers of the vessel, that the
officers of said MV "VLASONS I" exercised due diligence and proper
seamanship and were not willfully negligent; that furthermore the
Voyage Charter Party provides that loading and discharging of the
cargo was on FIOST terms which means that the vessel was free of
risk and expense in connection with the loading and discharging of
the cargo; that the damage, if any, was due to the inherent defect,
quality or vice of the cargo or to the insufficient packing thereof or
to latent defect of the cargo not discoverable by due diligence or to
any other cause arising without the actual fault or privity of
defendant and without the fault of the agents or servants of
defendant; consequently, defendant is not liable; that the
stevedores of plaintiff who discharged the cargo in Manila were
negligent and did not exercise due care in the discharge of the
cargo; land that the cargo was exposed to rain and seawater spray
while on the pier or in transit from the pier to plaintiff's warehouse
after discharge from the vessel; and that plaintiff's claim was highly
speculative and grossly exaggerated and that the small stain marks
or sweat marks on the edges of the tinplates were magnified and
considered total loss of the cargo. Finally, defendant claimed that it
had complied with all its duties and obligations under the Voyage
Charter Hire Contract and had no responsibility whatsoever to
plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its
obligations under the Voyage Charter Hire Contract, plaintiff failed
and refused to pay the agreed charter hire of P75,000.00 despite
demands made by defendant;

(b) That under their Voyage Charter Hire Contract, plaintiff had
agreed to pay defendant the sum of P8,000.00 per day for
demurrage. The vessel was on demurrage for eleven (11) days in
Manila waiting for plaintiff to discharge its cargo from the vessel.
Thus, plaintiff was liable to pay defendant demurrage in the total
amount of P88,000.00.

(c) For filing a clearly unfounded civil action against defendant,

plaintiff should be ordered to pay defendant attorney's fees and all
expenses of litigation in the amount of not less than P100,000.00.

(8) From the evidence presented by both parties, the trial court
came out with the following findings which were set forth in its
decision:

(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in

the tramping service and is available for hire only under special
contracts of charter party as in this particular case.

(b) That for purposes of the voyage covered by the Contract of

Voyage Charter Hire (Exh. "1"), the MV VLASONS I" was covered by
the required seaworthiness certificates including the Certification of
Classification issued by an international classification society, the
NIPPON KAIJI KYOKAI (Exh. "4"); Coastwise License from the Board
of Transportation (Exh. "5"); International Loadline Certificate from
the Philippine Coast Guard (Exh. "6"); Cargo Ship Safety Equipment
Certificate also from the Philippine Coast Guard (Exh. "7"); Ship
Radio Station License (Exh. "8"); Certificate of Inspection by the
Philippine Coast Guard (Exh. "12"); and Certificate of Approval for
Conversion issued by the Bureau of Customs (Exh. "9"). That being
a vessel engaged in both overseas and coastwise trade, the MV
"VLASONS I" has a higher degree of seaworthiness and safety.

(c) Before it proceeded to Iligan City to perform the voyage called

for by the Contract of Voyage Charter Hire, the MV "VLASONS I"
underwent drydocking in Cebu and was thoroughly inspected by the
Philippine Coast Guard. In fact, subject voyage was the vessel's first
voyage after the drydocking. The evidence shows that the MV
"VLASONS I" was seaworthy and properly manned, equipped and
supplied when it undertook the voyage. It has all the required
certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of

the ship. The hatch openings were covered by hatchboards which
were in turn covered by two or double tarpaulins. The hatch covers
were water tight. Furthermore, under the hatchboards were steel
beams to give support.

(e) The claim of the plaintiff that defendant violated the contract of
carriage is not supported by evidence. The provisions of the Civil
Code on common carriers pursuant to which there exists a
presumption of negligence in case of loss or damage to the cargo
are not applicable. As to the damage to the tinplates which was
allegedly due to the wetting and rusting thereof, there is unrebutted
testimony of witness Vicente Angliongto that tinplates "sweat" by
themselves when packed even without being in contract (sic) with
water from outside especially when the weather is bad or raining.
The trust caused by sweat or moisture on the tinplates may be
considered as a loss or damage but then, defendant cannot be held
liable for it pursuant to Article 1734 of the Civil Case which exempts
the carrier from responsibility for loss or damage arising from the
"character of the goods . . ." All the 1,769 skids of the tinplates
could not have been damaged by water as claimed by plaintiff. It
was shown as claimed by plaintiff that the tinplates themselves
were wrapped in kraft paper lining and corrugated cardboards could
not be affected by water from outside.

(f) The stevedores hired by the plaintiff to discharge the cargo of

tinplates were negligent in not closing the hatch openings of the MV
"VLASONS I" when rains occurred during the discharging of the
cargo thus allowing rainwater to enter the hatches. It was proven
that the stevedores merely set up temporary tents to cover the
hatch openings in case of rain so that it would be easy for them to
resume work when the rains stopped by just removing the tent or
canvas. Because of this improper covering of the hatches by the
stevedores during the discharging and unloading operations which
were interrupted by rains, rainwater drifted into the cargo through
the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic]
Charter Party which was expressly made part of the Contract of
Voyage Charter Hire, the loading, stowing and discharging of the
cargo is the sole responsibility of the plaintiff charterer and
defendant carrier has no liability for whatever damage may occur or
maybe [sic] caused to the cargo in the process.

(g) It was also established that the vessel encountered rough seas
and bad weather while en route from Iligan City to Manila causing
sea water to splash on the ship's deck on account of which the
master of the vessel (Mr. Antonio C. Dumlao) filed a "Marine
Protest" on August 13, 1974 (Exh. "15"); which can be invoked by
defendant as a force majeure that would exempt the defendant
from liability.

(h) Plaintiff did not comply with the requirement prescribed in

paragraph 9 of the Voyage Charter Hire contract that it was to
insure the cargo because it did not. Had plaintiff complied with the
requirement, then it could have recovered its loss or damage from
the insurer. Plaintiff also violated the charter party contract when it
loaded not only "steel products", i.e. steel bars, angular bars and
the like but also tinplates and hot rolled sheets which are high grade
cargo commanding a higher freight. Thus plaintiff was able to ship
grade cargo at a lower freight rate.

(i) As regards defendant's counterclaim, the contract of voyage

charter hire under Paragraph 4 thereof, fixed the freight at P30.00
per metric ton payable to defendant carrier upon presentation of the
bill of lading within fifteen (15) days. Plaintiff has not paid the total
freight due of P75,000.00 despite demands. The evidence also
showed that the plaintiff was required and bound under paragraph 7
of the same Voyage Charter Hire contract to pay demurrage of
P8,000.00 per day of delay in the unloading of the cargoes. The
delay amounted to eleven (11) days thereby making plaintiff liable
to pay defendant for demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six
errors:

The trial court erred in finding that the MV "VLASONS I" was
seaworthy, properly manned, equipped and supplied, and that there
is no proof of willful negligence of the vessel's officers.

II

The trial court erred in finding that the rusting of NSC's tinplates
was due to the inherent nature or character of the goods and not
due to contact with seawater.

III

The trial court erred in finding that the stevedores hired by NSC
were negligent in the unloading of NSC's shipment.

IV

The trial court erred in exempting VSI from liability on the ground of
force majeure.

The trial court erred in finding that NSC violated the contract of
voyage charter hire.

VI

The trial court erred in ordering NSC to pay freight, demurrage and
attorney's fees, to VSI. 4

As earlier stated, the Court of Appeals modified the decision of the

trial court by reducing the demurrage from P88,000.00 to
P44,000.00 and deleting the award of attorneys fees and expenses
of litigation. NSC and VSI filed separate motions for reconsideration.
In a Resolution 5 dated October 20, 1993, the appellate court denied
both motions. Undaunted, NSC and VSI filed their respective
petitions for review before this Court. On motion of VSI, the Court
ordered on February 14, 1994 the consolidation of these petitions. 6

The Issues

In its petition 7 and memorandum, 8 NSC raises the following

questions of law and fact:

Questions of Law

1. Whether or not a charterer of a vessel is liable for demurrage due

to cargo unloading delays caused by weather interruption;

2. Whether or not the alleged "seaworthiness certificates" (Exhibits

"3", "4", "5", "6", "7", "8", "9", "11" and "12") were admissible in
evidence and constituted evidence of the vessel's seaworthiness at
the beginning of the voyages; and

3. Whether or not a charterer's failure to insure its cargo exempts

the shipowner from liability for cargo damage.

Questions of Fact

1. Whether or not the vessel was seaworthy and cargo-worthy;

2. Whether or not vessel's officers and crew were negligent in

handling and caring for NSC's cargo;

3. Whether or not NSC's cargo of tinplates did sweat during the

voyage and, hence, rusted on their own; and

4. Whether or not NSC's stevedores were negligent and caused the

wetting[/]rusting of NSC's tinplates.

In its separate petition, 9 VSI submits for the consideration of this

Court the following alleged errors of the CA:

A. The respondent Court of Appeals committed an error of law in

reducing the award of demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in
deleting the award of P100,000 for attorney's fees and expenses of
litigation.

Amplifying the foregoing, VSI raises the following issues in its

memorandum: 10

I. Whether or not the provisions of the Civil Code of the Philippines

on common carriers pursuant to which there exist[s] a presumption
of negligence against the common carrier in case of loss or damage
to the cargo are applicable to a private carrier.

II. Whether or not the terms and conditions of the Contract of

Voyage Charter Hire, including the Nanyozai Charter, are valid and
binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under

the following headings:

1. Questions of Fact

2. Effect of NSC's Failure to Insure the Cargo

3. Admissibility of Certificates Proving Seaworthiness

4. Demurrage and Attorney's Fees.

The Court's Ruling

The Court affirms the assailed Decision of the Court of Appeals,

except in respect of the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted

with NSC as a common carrier or as a private carrier. The resolution
of this preliminary question determines the law, standard of
diligence and burden of proof applicable to the present case.

Article 1732 of the Civil Code defines a common carrier as "persons,

corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the
public." It has been held that the true test of a common carrier is
the carriage of passengers or goods, provided it has space,
for all who opt to avail themselves of its transportation service for a
fee. 11 A carrier which does not qualify under the above test is
deemed a private carrier. "Generally, private carriage is undertaken
by special agreement and the carrier does not hold himself out to
carry goods for the general public. The most typical, although not
the only form of private carriage, is the charter party, a maritime
contract by which the charterer, a party other than the shipowner,
obtains the use and service of all or some part of a ship for a period
of time or a voyage or voyages." 12

In the instant case, it is undisputed that VSI did not offer its
services to the general public. As found by the Regional Trial Court,
it carried passengers or goods only for those it chose under a
"special contract of charter party." 13 As correctly concluded by the
Court of Appeals, the MV Vlasons I "was not a common but a
private carrier." 14Consequently, the rights and obligations of VSI
and NSC, including their respective liability for damage to the cargo,
are determined primarily by stipulations in their contract of private
carriage or charter party. 15 Recently, in Valenzuela Hardwood and
Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers
Shipping Corporation, 16 the Court ruled:

. . . in a contract of private carriage, the parties may freely stipulate

their duties and obligations which perforce would be binding on
them. Unlike in a contract involving a common carrier, private
carriage does not involve the general public. Hence, the stringent
provisions of the Civil Code on common carriers protecting the
general public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. Consequently, the public
policy embodied therein is not contravened by stipulations in a
charter party that lessen or remove the protection given by law in
contracts involving common carriers. 17

Extent of VSI's Responsibility and

Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire, dated
July 17, 1974, that VSI "shall not be responsible for losses except
on proven willful negligence of the officers of the vessel." The
NANYOZAI Charter Party, which was incorporated in the parties'
contract of transportation further provided that the shipowner shall
not be liable for loss of or a damage to the cargo arising or resulting
from unseaworthiness, unless the same was caused by its lack of
due diligence to make the vessel seaworthy or to ensure that the
same was "properly manned, equipped and supplied," and to "make
the holds and all other parts of the vessel in which cargo [was]
carried, fit and safe for its reception, carriage and
preservation." 18 The NANYOZAI Charter Party also provided that
"[o]wners shall not be responsible for split, chafing and/or any
damage unless caused by the negligence or default of the master or
crew." 19

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must

prove that the damage to its shipment was caused by VSI's willful
negligence or failure to exercise due diligence in making MV Vlasons
I seaworthy and fit for holding, carrying and safekeeping the cargo.
Ineluctably, the burden of proof was placed on NSC by the parties'
agreement.

This view finds further support in the Code of Commerce which

pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture

of the shipper, if the contrary has not been expressly stipulated.

Therefore, the damage and impairment suffered by the goods

during the transportation, due to fortuitous event,force majeure, or
the nature and inherent defect of the things, shall be for the
account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising
from the cause mentioned in the preceding article if proofs against
him show that they occurred on account of his negligence or his
omission to take the precautions usually adopted by careful
persons, unless the shipper committed fraud in the bill of lading,
making him to believe that the goods were of a class or quality
different from what they really were.

Because the MV Vlasons I was a private carrier, the shipowner's

obligations are governed by the foregoing provisions of the Code of
Commerce and not by the Civil Code which, as a general rule,
places the prima facie presumption of negligence on a common
carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo,
the burden is on the plaintiff to prove that the carrier was negligent
or unseaworthy, and the fact that the goods were lost or damaged
while in the carrier's custody does not put the burden of proof on
the carrier.

Since . . . a private carrier is not an insurer but undertakes only to

exercise due care in the protection of the goods committed to its
care, the burden of proving negligence or a breach of that duty
rests on plaintiff and proof of loss of, or damage to, cargo while in
the carrier's possession does not cast on it the burden of proving
proper care and diligence on its part or that the loss occurred from
an excepted cause in the contract or bill of lading. However, in
discharging the burden of proof, plaintiff is entitled to the benefit of
the presumptions and inferences by which the law aids the bailor in
an action against a bailee, and since the carrier is in a better
position to know the cause of the loss and that it was not one
involving its liability, the law requires that it come forward with the
information available to it, and its failure to do so warrants an
inference or presumption of its liability. However, such inferences
and presumptions, while they may affect the burden of coming
forward with evidence, do not alter the burden of proof which
remains on plaintiff, and, where the carrier comes forward with
evidence explaining the loss or damage, the burden of going
forward with the evidence is again on plaintiff.

Where the action is based on the shipowner's warranty of

seaworthiness, the burden of proving a breach thereof and that
such breach was the proximate cause of the damage rests on
plaintiff, and proof that the goods were lost or damaged while in the
carrier's possession does not cast on it the burden of proving
seaworthiness. . . . Where the contract of carriage exempts the
carrier from liability for unseaworthiness not discoverable by due
diligence, the carrier has the preliminary burden of proving the
exercise of due diligence to make the vessel seaworthy. 20

In the instant case, the Court of Appeals correctly found the NSC
"has not taken the correct position in relation to the question of who
has the burden of proof. Thus, in its brief (pp. 10-11), after citing
Clause 10 and Clause 12 of the NANYOZAI Charter Party
(incidentally plaintiff-appellant's [NSC's] interpretation of Clause 12
is not even correct), it argues that 'a careful examination of the
evidence will show that VSI miserably failed to comply with any of
these obligation's as if defendant-appellee [VSI] had the burden of
proof." 21

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual

questions is manifestly relevant: (1) whether VSI exercised due
diligence in making MV Vlasons I seaworthy for the intended
purpose under the charter party; (2) whether the damage to the
cargo should be attributed to the willful negligence of the officers
and crew of the vessel or of the stevedores hired by NSC; and (3)
whether the rusting of the tinplates was caused by its own "sweat"
or by contact with seawater.

These questions of fact were threshed out and decided by the trial
court, which had the firsthand opportunity to hear the parties'
conflicting claims and to carefully weigh their respective evidence.
The findings of the trial court were subsequently affirmed by the
Court of Appeals. Where the factual findings of both the trial court
and the Court of Appeals coincide, the same are binding on this
Court. 22 We stress that, subject to some exceptional
instances, 23only questions of law - not questions of fact - may be
raised before this Court in a petition for review under Rule 45 of the
Rules of Court. After a thorough review of the case at bar, we find
no reason to disturb the lower court's factual findings, as indeed
NSC has not successfully proven the application of any of the
aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to
make the ship seaworthy and fit for the carriage of NSC's cargo of
steel and tinplates. This is shown by the fact that it was drylocked
and inspected by the Philippine Coast Guard before it proceeded to
Iligan City for its voyage to Manila under the contract of voyage
charter hire. 24 The vessel's voyage from Iligan to Manila was the
vessel's first voyage after drydocking. The Philippine Coast Guard
Station in Cebu cleared it as seaworthy, fitted and equipped; it met
all requirements for trading as cargo vessel. 25 The Court of Appeals
itself sustained the conclusion of the trial court that MV Vlasons
Iwas seaworthy. We find no reason to modify or reverse this finding
of both the trial and the appellate courts.

Who Were Negligent:

Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the
damage to the cargo was caused by the negligence of the officers
and the crew of MV Vlasons I in making their vessel seaworthy and
fit for the carriage of tinplates. NSC failed to discharge this burden.

Before us, NSC relies heavily on its claim that MV Vlasons I had
used an old and torn tarpaulin or canvas to cover the hatches
through which the cargo was loaded into the cargo hold of the ship.
It faults the Court of Appeals for failing to consider such claim as an
"uncontroverted fact" 26 and denies that MV Vlasons I "was
equipped with new canvas covers in tandem with the old ones as
indicated in the Marine Protest . . ." 27 We disagree.

The records sufficiently support VSI's contention that the ship used
the old tarpaulin, only in addition to the new one used primarily to
make the ship's hatches watertight. The foregoing are clear from
the marine protest of the master of the MV Vlasons I, Antonio C.
Dumlao, and the deposition of the ship's boatswain, Jose Pascua.
The salient portions of said marine protest read:
. . . That the M/V "VLASONS I" departed Iligan City or about 0730
hours of August 8, 1974, loaded with approximately 2,487.9 tons of
steel plates and tin plates consigned to National Steel Corporation;
that before departure, the vessel was rigged, fully equipped and
cleared by the authorities; that on or about August 9, 1974, while in
the vicinity of the western part of Negros and Panay, we
encountered very rough seas and strong winds and Manila office
was advised by telegram of the adverse weather conditions
encountered; that in the morning of August 10, 1974, the weather
condition changed to worse and strong winds and big waves
continued pounding the vessel at her port side causing sea water to
overflow on deck andhatch (sic) covers and which caused the first
layer of the canvass covering to give way while the new canvass
covering still holding on;

That the weather condition improved when we reached Dumali Point

protected by Mindoro; that we re-secured the canvass covering
back to position; that in the afternoon of August 10, 1974, while
entering Maricaban Passage, we were again exposed to moderate
seas and heavy rains; that while approaching Fortune Island, we
encountered again rough seas, strong winds and big waves which
caused the same canvass to give way and leaving the new canvass
holding on;

xxx xxx xxx 28

And the relevant portions of Jose Pascua's deposition are as follows:

q What is the purpose of the canvas cover?

a So that the cargo would not be soaked with water.

q And will you describe how the canvas cover was secured on the
hatch opening?

WITNESS

a It was placed flat on top of the hatch cover, with a little canvas
flowing over the sides and we place[d] a flat bar over the canvas on
the side of the hatches and then we place[d] a stopper so that the
canvas could not be removed.

ATTY DEL ROSARIO

q And will you tell us the size of the hatch opening? The length and
the width of the hatch opening.

a Forty-five feet by thirty-five feet, sir.

xxx xxx xxx

q How was the canvas supported in the middle of the hatch

opening?

a There is a hatch board.

ATTY DEL ROSARIO

q What is the hatch board made of?

a It is made of wood, with a handle.

q And aside from the hatch board, is there any other material there
to cover the hatch?

a There is a beam supporting the hatch board.

q What is this beam made of?

a It is made of steel, sir.

q Is the beam that was placed in the hatch opening covering the
whole hatch opening?

a No, sir.

q How many hatch beams were there placed across the opening?

a There are five beams in one hatch opening.

ATTY DEL ROSARIO

q And on top of the beams you said there is a hatch board. How
many pieces of wood are put on top?

a Plenty, sir, because there are several pieces on top of the hatch
beam.

q And is there a space between the hatch boards?

a There is none, sir.

q They are tight together?

a Yes, sir.

q How tight?

a Very tight, sir.

q Now, on top of the hatch boards, according to you, is the canvass

cover. How many canvas covers?

a Two, sir. 29

That due diligence was exercised by the officers and the crew of
the MV Vlasons I was further demonstrated by the fact that, despite
encountering rough weather twice, the new tarpaulin did not give
way and the ship's hatches and cargo holds remained waterproof.
As aptly stated by the Court of Appeals, ". . . we find no reason not
to sustain the conclusion of the lower court based on overwhelming
evidence, that the MV 'VLASONS I' was seaworthy when it
undertook the voyage on August 8, 1974 carrying on board thereof
plaintiff-appellant's shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769 packages from
NSC's pier in Iligan City arriving safely at North Harbor, Port Area,
Manila, on August 12, 1974; . . . 30

Indeed, NSC failed to discharge its burden to show negligence on

the part of the officers and the crew of MV Vlasons I. On the
contrary, the records reveal that it was the stevedores of NSC who
were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the
hatches when strong rains occasioned by a passing typhoon
disrupted the unloading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater
away from the hatches of the ship. Vicente Angliongto, an officer of
VSI, testified thus:

ATTY ZAMORA:

Q Now, during your testimony on November 5, 1979, you stated on

August 14 you went on board the vessel upon notice from the
National Steel Corporation in order to conduct the inspection of the
cargo. During the course of the investigation, did you chance to see
the discharging operation?

WITNESS:

A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates
already discharged on the pier but majority of the tinplates were
inside the hall, all the hatches were opened.

Q In connection with these cargoes which were unloaded, where is

the place.

A At the Pier.

Q What was used to protect the same from weather?

ATTY LOPEZ:

We object, your Honor, this question was already asked. This

particular matter . . . the transcript of stenographic notes shows the
same was covered in the direct examination.

ATTY ZAMORA:

Precisely, your Honor, we would like to go on detail, this is the

serious part of the testimony.

COURT:
All right, witness may answer.

ATTY LOPEZ:

Q What was used in order to protect the cargo from the weather?

A A base of canvas was used as cover on top of the tin plates, and
tents were built at the opening of the hatches.

Q You also stated that the hatches were already opened and that
there were tents constructed at the opening of the hatches to
protect the cargo from the rain. Now, will you describe [to] the
Court the tents constructed.

A The tents are just a base of canvas which look like a tent of an
Indian camp raise[d] high at the middle with the whole side
separated down to the hatch, the size of the hatch and it is soaks
[sic] at the middle because of those weather and this can be used
only to temporarily protect the cargo from getting wet by rains.

Q Now, is this procedure adopted by the stevedores of covering

tents proper?

A No, sir, at the time they were discharging the cargo, there was a
typhoon passing by and the hatch tent was not good enough to hold
all of it to prevent the water soaking through the canvass and enter
the cargo.

Q In the course of your inspection, Mr. Anglingto [sic], did you see
in fact the water enter and soak into the canvass and tinplates.

A Yes, sir, the second time I went there, I saw it.

Q As owner of the vessel, did you not advise the National Steel
Corporation [of] the procedure adopted by its stevedores in
discharging the cargo particularly in this tent covering of the
hatches?

A Yes, sir, I did the first time I saw it, I called the attention of the
stevedores but the stevedores did not mind at all, so, called the
attention of the representative of the National Steel but nothing was
done, just the same. Finally, I wrote a letter to them. 31

NSC attempts to discredit the testimony of Angliongto by

questioning his failure to complain immediately about the
stevedores' negligence on the first day of unloading, pointing out
that he wrote his letter to petitioner only seven days later. 32 The
Court is not persuaded. Angliongto's candid answer in his
aforequoted testimony satisfactorily explained the delay. Seven
days lapsed because he first called the attention of the stevedores,
then the NSC's representative, about the negligent and defective
procedure adopted in unloading the cargo. This series of actions
constitutes a reasonable response in accord with common sense and
ordinary human experience. Vicente Angliongto could not be blamed
for calling the stevedores' attention first and then the NSC's
representative on location before formally informing NSC of the
negligence he had observed, because he was not responsible for the
stevedores or the unloading operations. In fact, he was merely
expressing concern for NSC which was ultimately responsible for the
stevedores it had hired and the performance of their task to unload
the cargo.

We see no reason to reverse the trial and the appellate courts'

findings and conclusions on this point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred
in finding that the stevedores hired by NSC were negligent in the
unloading of NSC's shipment. We do not think so. Such negligence
according to the trial court is evident in the stevedores hired by
[NSC], not closing the hatch of MV 'VLASONS I' when rains occurred
during the discharging of the cargo thus allowing rain water and
seawater spray to enter the hatches and to drift to and fall on the
cargo. It was proven that the stevedores merely set up temporary
tents or canvas to cover the hatch openings when it rained during
the unloading operations so that it would be easier for them to
resume work after the rains stopped by just removing said tents or
canvass. It has also been shown that on August 20, 1974, VSI
President Vicente Angliongto wrote [NSC] calling attention to the
manner the stevedores hired by [NSC] were discharging the cargo
on rainy days and the improper closing of the hatches which allowed
continuous heavy rain water to leak through and drip to the
tinplates' covers and [Vicente Angliongto] also suggesting that due
to four (4) days continuos rains with strong winds that the hatches
be totally closed down and covered with canvas and the hatch tents
lowered. (Exh. "13"). This letter was received by [NSC] on 22
August 1974 while discharging operations were still going on
(Exhibit "13-A"). 33

The fact that NSC actually accepted and proceeded to remove the
cargo from the ship during unfavorable weather will not make VSI
liable for any damage caused thereby. In passing, it may be noted
that the NSC may seek indemnification, subject to the laws on
prescription, from the stevedoring company at fault in the discharge
operations. "A stevedore company engaged in discharging cargo . . .
has the duty to load the cargo . . . in a prudent manner, and it is
liable for injury to, or loss of, cargo caused by its negligence . . .
and where the officers and members and crew of the vessel do
nothing and have no responsibility in the discharge of cargo by
stevedores . . . the vessel is not liable for loss of, or damage to, the
cargo caused by the negligence of the
stevedores . . ." 34 as in the instant case.

Do Tinplates "Sweat"?

The trial court relied on the testimony of Vicente Angliongto in

finding that ". . . tinplates 'sweat' by themselves when packed even
without being in contact with water from outside especially when
the weather is bad or
raining . . ." 35 The Court of Appeals affirmed the trial court's
finding.

A discussion of this issue appears inconsequential and unnecessary.

As previously discussed, the damage to the tinplates was
occasioned not by airborne moisture but by contact with rain and
seawater which the stevedores negligently allowed to seep in during
the unloading.

Second Issue: Effect of NSC's Failure to

Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract
of Voyage Charter Hire is totally separate and distinct from the
contractual or statutory responsibility that may be incurred by VSI
for damage to the cargo caused by the willful negligence of the
officers and the crew of MV Vlasons I. Clearly, therefore, NSC's
failure to insure the cargo will not affect its right, as owner and real
party in interest, to file an action against VSI for damages caused
by the latter's willful negligence. We do not find anything in the
charter party that would make the liability of VSI for damage to the
cargo contingent on or affected in any manner by NSC's obtaining
an insurance over the cargo.

Third Issue: Admissibility of Certificates

Proving Seaworthiness

NSC's contention that MV Vlasons I was not seaworthy is anchored

on the alleged inadmissibility of the certificates of seaworthiness
offered in evidence by VSI. The said certificates include the
following:

1. Certificate of Inspection of the Philippines Coast Guard at Cebu

2. Certificate of Inspection from the Philippine Coast Guard

3. International Load Line Certificate from the Philippine Coast

Guard

4. Coastwise License from the Board of Transportation

5. Certificate of Approval for Conversion issued by the Bureau of

Customs 36

NSC argues that the certificates are hearsay for not having been
presented in accordance with the Rules of Court. It points out that
Exhibits 3, 4 and 11 allegedly are "not written records or acts of
public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not
"evidenced by official publications or certified true copies" as
required by Sections 25 and 26, Rule 132, of the Rules of Court. 37
After a careful examination of these exhibits, the Court rules that
Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have
not been properly offered as evidence. Exhibits 3 and 4 are
certificates issued by private parties, but they have not been proven
by one who saw the writing executed, or by evidence of the
genuineness of the handwriting of the maker, or by a subscribing
witness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies, but their
admission under the best evidence rule have not been
demonstrated.

We find, however, that Exhibit 11 is admissible under a well-settled

exception to the hearsay rule per Section 44 of Rule 130 of the
Rules of Court, which provides that "(e)ntries in official records
made in the performance of a duty by a public officer of the
Philippines, or by a person in the performance of a duty specially
enjoined by law, areprima facie evidence of the facts therein
stated." 38 Exhibit 11 is an original certificate of the Philippine Coast
Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to
the effect that "the vessel 'VLASONS I' was drydocked . . . and PCG
Inspectors were sent on board for inspection . . . After completion of
drydocking and duly inspected by PCG Inspectors, the vessel
'VLASONS I', a cargo vessel, is in seaworthy condition, meets all
requirements, fitted and equipped for trading as a cargo vessel was
cleared by the Philippine Coast Guard and sailed for Cebu Port on
July 10, 1974." (sic) NSC's claim, therefore, is obviously misleading
and erroneous.

At any rate, it should be stressed that NSC has the burden of

proving that MV Vlasons I was not seaworthy. As observed earlier,
the vessel was a private carrier and, as such, it did not have the
obligation of a common carrier to show that it was seaworthy.
Indeed, NSC glaringly failed to discharge its duty of proving the
willful negligence of VSI in making the ship seaworthy resulting in
damage to its cargo. Assailing the genuineness of the certificate of
seaworthiness is not sufficient proof that the vessel was not
seaworthy.

Fourth Issue: Demurrage and Attorney's Fees

The contract of voyage charter hire provides inter alia:

 xxx xxx xxx

2. Cargo: Full cargo of steel products of not less than 2,500 MT,
10% more or less at Master's option.

xxx xxx xxx

6. Loading/Discharging Rate: 750 tons per WWDSHINC.

7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day. 39

The Court defined demurrage in its strict sense as the compensation

provided for in the contract of affreightment for the detention of the
vessel beyond the laytime or that period of time agreed on for
loading and unloading of cargo. 40 It is given to compensate the
shipowner for the nonuse of the vessel. On the other hand, the
following is well-settled:

Laytime runs according to the particular clause of the charter party.

. . . If laytime is expressed in "running days," this means days when
the ship would be run continuously, and holidays are not excepted.
A qualification of "weather permitting" excepts only those days
when bad weather reasonably prevents the work contemplated. 41

In this case, the contract of voyage charter hire provided for a four-
day laytime; it also qualified laytime as WWDSHINC or weather
working days Sundays and holidays included. 42 The running of
laytime was thus made subject to the weather, and would cease to
run in the event unfavorable weather interfered with the unloading
of cargo. 43 Consequently, NSC may not be held liable for
demurrage as the four-day laytime allowed it did not lapse, having
been tolled by unfavorable weather condition in view of the
WWDSHINC qualification agreed upon by the parties. Clearly, it was
error for the trial court and the Court of Appeals to have found and
affirmed respectively that NSC incurred eleven days of delay in
unloading the cargo. The trial court arrived at this erroneous finding
by subtracting from the twelve days, specifically August 13, 1974 to
August 24, 1974, the only day of unloading unhampered by
unfavorable weather or rain, which was August 22, 1974. Based on
our previous discussion, such finding is a reversible error. As
mentioned, the respondent appellate court also erred in ruling that
NSC was liable to VSI for demurrage, even if it reduced the amount
by half.

Attorney's Fees

VSI assigns as error of law the Court of Appeals' deletion of the

award of attorney's fees. We disagree. While VSI was compelled to
litigate to protect its rights, such fact by itself will not justify an
award of attorney's fees under Article 2208 of the Civil Code when
". . . no sufficient showing of bad faith would be reflected in a
party's persistence in a case other than an erroneous conviction of
the righteousness of his cause . . ." 44 Moreover, attorney's fees
may not be awarded to a party for the reason alone that the
judgment rendered was favorable to the latter, as this is
tantamount to imposing a premium on one's right to litigate or seek
judicial redress of legitimate grievances. 45

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how

and who caused the damage to the cargo? Ranged against NSC are
two formidable truths. First, both lower courts found that such
damage was brought about during the unloading process when rain
and seawater seeped through the cargo due to the fault or
negligence of the stevedores employed by it. Basic is the rule that
factual findings of the trial court, when affirmed by the Court of
Appeals, are binding on the Supreme Court. Although there are
settled exceptions, NSC has not satisfactorily shown that this case is
one of them. Second, the agreement between the parties - the
Contract of Voyage Charter Hire - placed the burden of proof for
such loss or damage upon the shipper, not upon the shipowner.
Such stipulation, while disadvantageous to NSC, is valid because the
parties entered into a contract of private charter, not one of
common carriage. Basic too is the doctrine that courts cannot
relieve a parry from the effects of a private contract freely entered
into, on the ground that it is allegedly one-sided or unfair to the
plaintiff. The charter party is a normal commercial contract and its
stipulations are agreed upon in consideration of many factors, not
the least of which is the transport price which is determined not
only by the actual costs but also by the risks and burdens assumed
by the shipper in regard to possible loss or damage to the cargo. In
recognition of such factors, the parties even stipulated that the
shipper should insure the cargo to protect itself from the risks it
undertook under the charter party. That NSC failed or neglected to
protect itself with such insurance should not adversely affect VSI,
which had nothing to do with such failure or neglect.

WHEREFORE, premises considered, the instant consolidated

petitions are hereby DENIED. The questioned Decision of the Court
of Appeals is AFFIRMED with the MODIFICATION that the
demurrage awarded to VSI is deleted. No pronouncement as to
costs.

SO ORDERED.
G.R. No. 115381 December 23, 1994

KILUSANG MAYO UNO LABOR CENTER, petitioner,

vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND
REGULATORY BOARD, and the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE
PHILIPPINES, respondents.

Potenciano A. Flores for petitioner.

Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.

Jose F. Miravite for movants.

KAPUNAN, J.:

Public utilities are privately owned and operated businesses whose service are essential to the
general public. They are enterprises which specially cater to the needs of the public and conduce to
their comfort and convenience. As such, public utility services are impressed with public interest and
concern. The same is true with respect to the business of common carrier which holds such a
peculiar relation to the public interest that there is superinduced upon it the right of public regulation
when private properties are affected with public interest, hence, they cease to be juris privati only.
When, therefore, one devotes his property to a use in which the public has an interest, he, in effect
grants to the public an interest in that use, and must submit to the control by the public for the
common good, to the extent of the interest he has thus created.1

An abdication of the licensing and regulatory government agencies of their functions as the instant
petition seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is
inimical to public trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda,
circulars and/or orders of the Department of Transportation and Communications (DOTC) and the
Land Transportation Franchising and Regulatory Board LTFRB)2 which, among others, (a) authorize
provincial bus and jeepney operators to increase or decrease the prescribed transportation fares
without application therefor with the LTFRB and without hearing and approval thereof by said agency
in violation of Sec. 16(c) of Commonwealth Act No. 146, as amended, otherwise known as the
Public Service Act, and in derogation of LTFRB's duty to fix and determine just and reasonable fares
by delegating that function to bus operators, and (b) establish a presumption of public need in favor
of applicants for certificates of public convenience (CPC) and place on the oppositor the burden of
proving that there is no need for the proposed service, in patent violation not only of Sec. 16(c) of CA
146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just and
reasonable." It is, likewise, violative of the Rules of Court which places upon each party the burden
to prove his own affirmative allegations.3 The offending provisions contained in the questioned
issuances pointed out by petitioner, have resulted in the introduction into our highways and
thoroughfares thousands of old and smoke-belching buses, many of which are right-hand driven,
and have exposed our consumers to the burden of spiraling costs of public transportation without
hearing and due process.

The following memoranda, circulars and/or orders are sought to be nullified by the instant
petition, viz: (a) DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the
implementation of a fare range scheme for provincial bus services in the country; (b) DOTC
Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services;
(c) DOTC Memorandum dated October 8, 1992, laying down rules and procedures to implement
Department Order No. 92-587; (d) LTFRB Memorandum Circular No. 92-009, providing
implementing guidelines on the DOTC Department Order No. 92-587; and (e) LTFRB Order dated
March 24, 1994 in Case No. 94-3112.

The relevant antecedents are as follows:

On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-
395 to then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge
passengers rates within a range of 15% above and 15% below the LTFRB official rate for a period of
one (1) year. The text of the memorandum order reads in full:

One of the policy reforms and measures that is in line with the thrusts and the
priorities set out in the Medium-Term Philippine Development Plan (MTPDP) 1987 —
1992) is the liberalization of regulations in the transport sector. Along this line, the
Government intends to move away gradually from regulatory policies and make
progress towards greater reliance on free market forces.

Based on several surveys and observations, bus companies are already charging
passenger rates above and below the official fare declared by LTFRB on many
provincial routes. It is in this context that some form of liberalization on public
transport fares is to be tested on a pilot basis.

In view thereof, the LTFRB is hereby directed to immediately publicize a fare range
scheme for all provincial bus routes in country (except those operating within Metro
Manila). Transport Operators shall be allowed to charge passengers within a range
of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official
rate for a period of one year.
 Guidelines and procedures for the said scheme shall be prepared by LTFRB in
coordination with the DOTC Planning Service.

The implementation of the said fare range scheme shall start on 6 August 1990.

For compliance. (Emphasis ours.)

Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando
submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:

With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which
the LTFRB received on 19 July 1990, directing the Board "to immediately publicize a
fare range scheme for all provincial bus routes in the country (except those operating
within Metro Manila)" that will allow operators "to charge passengers within a range
of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB official
rate for a period of one year" the undersigned is respectfully adverting the
Secretary's attention to the following for his consideration:

1. Section 16(c) of the Public Service Act prescribes the following for
the fixing and determination of rates — (a) the rates to be approved
should be proposed by public service operators; (b) there should be a
publication and notice to concerned or affected parties in the territory
affected; (c) a public hearing should be held for the fixing of the rates;
hence, implementation of the proposed fare range scheme on August
6 without complying with the requirements of the Public Service Act
may not be legally feasible.

2. To allow bus operators in the country to charge fares fifteen (15%)

above the present LTFRB fares in the wake of the devastation, death
and suffering caused by the July 16 earthquake will not be socially
warranted and will be politically unsound; most likely public criticism
against the DOTC and the LTFRB will be triggered by the
untimely motu propioimplementation of the proposal by the mere
expedient of publicizing the fare range scheme without calling a
public hearing, which scheme many as early as during the
Secretary's predecessor know through newspaper reports and
columnists' comments to be Asian Development Bank and World
Bank inspired.

3. More than inducing a reduction in bus fares by fifteen percent

(15%) the implementation of the proposal will instead trigger an
upward adjustment in bus fares by fifteen percent (15%) at a time
when hundreds of thousands of people in Central and Northern
Luzon, particularly in Central Pangasinan, La Union, Baguio City,
Nueva Ecija, and the Cagayan Valley are suffering from the
devastation and havoc caused by the recent earthquake.

4. In lieu of the said proposal, the DOTC with its agencies involved in
public transportation can consider measures and reforms in the
industry that will be socially uplifting, especially for the people in the
areas devastated by the recent earthquake.
 In view of the foregoing considerations, the undersigned respectfully suggests that
the implementation of the proposed fare range scheme this year be further studied
and evaluated.

On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines,
Inc. (PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a
half centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare
range of fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the
said minimum-maximum fare range applying only to ordinary, first class and premium class buses
and a fifty-centavo (P0.50) minimum per kilometer fare for aircon buses, was sought.

On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-
the-board increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The
decrease was due to the drop in the expected price of diesel.

The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista
alleging that the proposed rates were exorbitant and unreasonable and that the application
contained no allegation on the rate of return of the proposed increase in rates.

On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate
increase in accordance with the following schedule of fares on a straight computation method, viz:

AUTHORIZED FARES

LUZON
MIN. OF 5 KMS. SUCCEEDING KM.

REGULAR P1.50 P0.37

STUDENT P1.15 P0.28

VISAYAS/MINDANAO

REGULAR P1.60 P0.375

STUDENT P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/
MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/
MINDANAO P0.405

AIRCON (PER KM.) P0.415.4

On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete
Nicomedes Prado issued Department Order No.
92-587 defining the policy framework on the regulation of transport services. The full text of the said
order is reproduced below in view of the importance of the provisions contained therein:
WHEREAS, Executive Order No. 125 as amended, designates the Department of
Transportation and Communications (DOTC) as the primary policy, planning,
regulating and implementing agency on transportation;

WHEREAS, to achieve the objective of a viable, efficient, and dependable

transportation system, the transportation regulatory agencies under or attached to
the DOTC have to harmonize their decisions and adopt a common philosophy and
direction;

WHEREAS, the government proposes to build on the successful liberalization

measures pursued over the last five years and bring the transport sector nearer to a
balanced longer term regulatory framework;

NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the
following policies and principles in the economic regulation of land, air, and water
transportation services are hereby adopted:

1. Entry into and exit out of the industry. Following the Constitutional dictum against
monopoly, no franchise holder shall be permitted to maintain a monopoly on any
route. A minimum of two franchise holders shall be permitted to operate on any
route.

The requirements to grant a certificate to operate, or certificate of public

convenience, shall be: proof of Filipino citizenship, financial capability, public need,
and sufficient insurance cover to protect the riding public.

In determining public need, the presumption of need for a service shall be deemed in
favor of the applicant. The burden of proving that there is no need for a proposed
service shall be with the oppositor(s).

In the interest of providing efficient public transport services, the use of the "prior
operator" and the "priority of filing" rules shall be discontinued. The route measured
capacity test or other similar tests of demand for vehicle/vessel fleet on any route
shall be used only as a guide in weighing the merits of each franchise application
and not as a limit to the services offered.

Where there are limitations in facilities, such as congested road space in urban
areas, or at airports and ports, the use of demand management measures in
conformity with market principles may be considered.

The right of an operator to leave the industry is recognized as a business decision,

subject only to the filing of appropriate notice and following a phase-out period, to
inform the public and to minimize disruption of services.

2. Rate and Fare Setting. Freight rates shall be freed gradually from government
controls. Passenger fares shall also be deregulated, except for the lowest class of
passenger service (normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of particular services may
fix their own fares within a range 15% above and below the indicative or reference
rate.
 Where there is lack of effective competition for services, or on specific routes, or for
the transport of particular commodities, maximum mandatory freight rates or
passenger fares shall be set temporarily by the government pending actions to
increase the level of competition.

For unserved or single operator routes, the government shall contract such services
in the most advantageous terms to the public and the government, following public
bids for the services. The advisability of bidding out the services or using other kinds
of incentives on such routes shall be studied by the government.

3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the
government shall not engage in special financing and incentive programs, including
direct subsidies for fleet acquisition and expansion. Only when the market situation
warrants government intervention shall programs of this type be considered. Existing
programs shall be phased out gradually.

The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics
Board, the Maritime Industry Authority are hereby directed to submit to the Office of
the Secretary, within forty-five (45) days of this Order, the detailed rules and
procedures for the Implementation of the policies herein set forth. In the formulation
of such rules, the concerned agencies shall be guided by the most recent studies on
the subjects, such as the Provincial Road Passenger Transport Study, the Civil
Aviation Master Plan, the Presidential Task Force on the Inter-island Shipping
Industry, and the Inter-island Liner Shipping Rate Rationalization Study.

For the compliance of all concerned. (Emphasis ours)

On October 8, 1992, public respondent Secretary of the Department of Transportation and

Communications Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB
suggesting swift action on the adoption of rules and procedures to implement above-quoted
Department Order No. 92-587 that laid down deregulation and other liberalization policies for the
transport sector. Attached to the said memorandum was a revised draft of the required rules and
procedures covering (i) Entry Into and Exit Out of the Industry and (ii) Rate and Fare Setting, with
comments and suggestions from the World Bank incorporated therein. Likewise, resplendent from
the said memorandum is the statement of the DOTC Secretary that the adoption of the rules and
procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank.5

On February 17, 1993, the LTFRB issued Memorandum Circular

No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-
587. The Circular provides, among others, the following challenged portions:

xxx xxx xxx

IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.

The issuance of a Certificate of Public Convenience is determined by public

need. The presumption of public need for a service shall be deemed in favor of the
applicant, while burden of proving that there is no need for the proposed service shall
be the oppositor'(s).

xxx xxx xxx

 V. Rate and Fare Setting

The control in pricing shall be liberalized to introduce price competition

complementary with the quality of service, subject to prior notice and public hearing.
Fares shall not be provisionally authorized without public hearing.

A. On the General Structure of Rates

1. The existing authorized fare range system of plus or minus 15 per cent for
provincial buses and jeepneys shall be widened to 20% and -25% limit in 1994 with
the authorized fare to be replaced by an indicative or reference rate as the basis for
the expanded fare range.

2. Fare systems for aircon buses are liberalized to cover first class and premier
services.

xxx xxx xxx

(Emphasis ours).

Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the
DOTC allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare
without first having filed a petition for the purpose and without the benefit of a public hearing,
announced a fare increase of twenty (20%) percent of the existing fares. Said increased fares were
to be made effective on March 16, 1994.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward
adjustment of bus fares.

On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of
merit. The dispositive portion reads:

PREMISES CONSIDERED, this Board after considering the arguments of the

parties, hereby DISMISSES FOR LACK OF MERIT the petition filed in the above-
entitled case. This petition in this case was resolved with dispatch at the request of
petitioner to enable it to immediately avail of the legal remedies or options it is
entitled under existing laws.

SO ORDERED.6

Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining
order.

The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and
preventing respondents from implementing the bus fare rate increase as well as the questioned
orders and memorandum circulars. This meant that provincial bus fares were rolled back to the
levels duly authorized by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced
on the issuance of franchises for the operation of buses, jeepneys, and taxicabs.

Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB
to provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased
to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized
fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second,
the establishment of a presumption of public need in favor of an applicant for a proposed transport
service without having to prove public necessity, is illegal for being violative of the Public Service Act
and the Rules of Court.

In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by
the petitioner, questions the wisdom and the manner by which the instant petition was filed. It
asserts that the petitioner has no legal standing to sue or has no real interest in the case at bench
and in obtaining the reliefs prayed for.

In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary
Jesus B. Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to
maintain the instant suit. They further claim that it is within DOTC and LTFRB's authority to set a fare
range scheme and establish a presumption of public need in applications for certificates of public
convenience.

We find the instant petition impressed with merit.

At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to
sue.

The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII
of the Constitution provides:

xxx xxx xxx

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.

In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide causes pending
between parties who have the right to sue in the courts of law and equity. Corollary to this provision
is the principle of locus standi of a party litigant. One who is directly affected by and whose interest is
immediate and substantial in the controversy has the standing to sue. The rule therefore requires
that a party must show a personal stake in the outcome of the case or an injury to himself that can
be redressed by a favorable decision so as to warrant an invocation of the court's jurisdiction and to
justify the exercise of the court's remedial powers in his behalf.8

In the case at bench, petitioner, whose members had suffered and continue to suffer grave and
irreparable injury and damage from the implementation of the questioned memoranda, circulars
and/or orders, has shown that it has a clear legal right that was violated and continues to be violated
with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who
avail of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome
cost of arbitrary increase in passenger fares. They are part of the millions of commuters who
comprise the riding public. Certainly, their rights must be protected, not neglected nor ignored.

Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to
brush aside this barren procedural infirmity and recognize the legal standing of the petitioner in view
of the transcendental importance of the issues raised. And this act of liberality is not without judicial
precedent. As early as the Emergency Powers Cases, this Court had exercised its discretion and
waived the requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto
Guingona, Jr., et al.,9 we ruled in the same lines and enumerated some of the cases where the same
policy was adopted, viz:

. . . A party's standing before this Court is a procedural technicality which it may, in

the exercise of its discretion, set aside in view of the importance of the issues raised.
In the landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan);
G.R. No. L-2756 (Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055
(Guerrero v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v.
Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this
technicality because "the transcendental importance to the public of these cases
demands that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2621)." Insofar as
taxpayers' suits are concerned, this Court had declared that it "is not devoid of
discretion as to whether or not it should be entertained," (Tan v. Macapagal, 43
SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or
not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].

xxx xxx xxx

In line with the liberal policy of this Court on locus standi, ordinary taxpayers,
members of Congress, and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before
this court to question the constitutionality or validity of laws, acts, decisions, rulings,
or orders of various government agencies or instrumentalities. Among such cases
were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows
retirement gratuity and commutation of vacation and sick leave to Senators and
Representatives and to elective officials of both Houses of Congress (Philippine
Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order
No. 284, issued by President Corazon C. Aquino on 25 July 1987, which allowed
members of the cabinet, their undersecretaries, and assistant secretaries to hold
other government offices or positions (Civil Liberties Union v. Executive Secretary,
194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the
General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A.
No. 7056 on the holding of desynchronized elections (Osmeña v. Commission on
Elections, 199 SCRA 750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is contrary to morals,
public policy, and order (Basco v. Philippine Amusement and Gaming Corp., 197
SCRA 52 [1991]); and (f) R.A. No. 6975, establishing the Philippine National Police.
(Carpio v. Executive Secretary, 206 SCRA 290 [1992]).

Other cases where we have followed a liberal policy regarding locus standi include
those attacking the validity or legality of (a) an order allowing the importation of rice
in the light of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn
Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and
1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031
insofar as it directed the COMELEC to supervise, control, hold, and conduct the
referendum-plebiscite on 16 October 1976 (Sanidad v. Commission on
Elections, supra); (c) the bidding for the sale of the 3,179 square meters of land at
Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the
approval without hearing by the Board of Investments of the amended application of
the Bataan Petrochemical Corporation to transfer the site of its plant from Bataan to
 Batangas and the validity of such transfer and the shift of feedstock from naphtha
only to naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177
SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the
decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of
Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the
Fiscal Incentives Review Board exempting the National Power Corporation from
indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of
the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the
hearings conducted on the second provisional increase in oil prices did not allow the
petitioner substantial cross-examination; (Maceda v. Energy Regulatory Board, 199
SCRA 454 [1991]); (g) Executive Order No. 478 which levied a special duty of P0.95
per liter of imported oil products (Garcia v. Executive Secretary, 211 SCRA 219
[1992]); (h) resolutions of the Commission on Elections concerning the
apportionment, by district, of the number of elective members of Sanggunians (De
Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i) memorandum
orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay Law and
Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).

In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this
Court, despite its unequivocal ruling that the petitioners therein had no personality to
file the petition, resolved nevertheless to pass upon the issues raised because of the
far-reaching implications of the petition. We did no less in De Guia v. COMELEC
(Supra) where, although we declared that De Guia "does not appear to have locus
standi, a standing in law, a personal or substantial interest," we brushed aside the
procedural infirmity "considering the importance of the issue involved, concerning as
it does the political exercise of qualified voters affected by the apportionment, and
petitioner alleging abuse of discretion and violation of the Constitution by
respondent."

Now on the merits of the case.

On the fare range scheme.

Section 16(c) of the Public Service Act, as amended, reads:

Sec. 16. Proceedings of the Commission, upon notice and hearing. — The
Commission shall have power, upon proper notice and hearing in accordance with
the rules and provisions of this Act, subject to the limitations and exceptions
mentioned and saving provisions to the contrary:

xxx xxx xxx

(c) To fix and determine individual or joint rates, tolls, charges, classifications, or
schedules thereof, as well as commutation, mileage kilometrage, and other special
rates which shall be imposed, observed, and followed thereafter by any public
service: Provided, That the Commission may, in its discretion, approve rates
proposed by public services provisionally and without necessity of any hearing; but it
shall call a hearing thereon within thirty days thereafter, upon publication and notice
to the concerns operating in the territory affected: Provided, further, That in case the
public service equipment of an operator is used principally or secondarily for the
promotion of a private business, the net profits of said private business shall be
 considered in relation with the public service of such operator for the purpose of
fixing the rates. (Emphasis ours).

xxx xxx xxx

Under the foregoing provision, the Legislature delegated to the defunct Public Service
Commission the power of fixing the rates of public services. Respondent LTFRB, the existing
regulatory body today, is likewise vested with the same under Executive Order No. 202
dated June 19, 1987. Section 5(c) of the said executive order authorizes LTFRB "to
determine, prescribe, approve and periodically review and adjust, reasonable fares, rates
and other related charges, relative to the operation of public land transportation services
provided by motorized vehicles."

Such delegation of legislative power to an administrative agency is permitted in order to adapt to the
increasing complexity of modern life. As subjects for governmental regulation multiply, so does the
difficulty of administering the laws. Hence, specialization even in legislation has become necessary.
Given the task of determining sensitive and delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted
with the power of subordinate legislation. With this authority, an administrative body and in this case,
the LTFRB, may implement broad policies laid down in a statute by "filling in" the details which the
Legislature may neither have time or competence to provide. However, nowhere under the aforesaid
provisions of law are the regulatory bodies, the PSC and LTFRB alike, authorized to delegate that
power to a common carrier, a transport operator, or other public service.

In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare
range over and above the authorized existing fare, is illegal and invalid as it is tantamount to an
undue delegation of legislative authority. Potestas delegata non delegari potest. What has been
delegated cannot be delegated. This doctrine is based on the ethical principle that such a delegated
power constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another.10 A further
delegation of such power would indeed constitute a negation of the duty in violation of the trust
reposed in the delegate mandated to discharge it directly.11 The policy of allowing the provincial bus
operators to change and increase their fares at will would result not only to a chaotic situation but to
an anarchic state of affairs. This would leave the riding public at the mercy of transport operators
who may increase fares every hour, every day, every month or every year, whenever it pleases them
or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway
Co.,12 where respondent Philippine Railway Co. was granted by the Public Service Commission the
authority to change its freight rates at will, this Court categorically declared that:

In our opinion, the Public Service Commission was not authorized by law to delegate
to the Philippine Railway Co. the power of altering its freight rates whenever it should
find it necessary to do so in order to meet the competition of road trucks and
autobuses, or to change its freight rates at will, or to regard its present rates as
maximum rates, and to fix lower rates whenever in the opinion of the Philippine
Railway Co. it would be to its advantage to do so.

The mere recital of the language of the application of the Philippine Railway Co. is
enough to show that it is untenable. The Legislature has delegated to the Public
Service Commission the power of fixing the rates of public services, but it has not
authorized the Public Service Commission to delegate that power to a common
carrier or other public service. The rates of public services like the Philippine Railway
Co. have been approved or fixed by the Public Service Commission, and any change
 in such rates must be authorized or approved by the Public Service Commission
after they have been shown to be just and reasonable. The public service may, of
course, propose new rates, as the Philippine Railway Co. did in case No. 31827, but
it cannot lawfully make said new rates effective without the approval of the Public
Service Commission, and the Public Service Commission itself cannot authorize a
public service to enforce new rates without the prior approval of said rates by the
commission. The commission must approve new rates when they are submitted to it,
if the evidence shows them to be just and reasonable, otherwise it must disapprove
them. Clearly, the commission cannot determine in advance whether or not the new
rates of the Philippine Railway Co. will be just and reasonable, because it does not
know what those rates will be.

In the present case the Philippine Railway Co. in effect asked for permission to
change its freight rates at will. It may change them every day or every hour,
whenever it deems it necessary to do so in order to meet competition or whenever in
its opinion it would be to its advantage. Such a procedure would create a most
unsatisfactory state of affairs and largely defeat the purposes of the public service
law.13(Emphasis ours).

One veritable consequence of the deregulation of transport fares is a compounded fare. If transport
operators will be authorized to impose and collect an additional amount equivalent to 20% over and
above the authorized fare over a period of time, this will unduly prejudice a commuter who will be
made to pay a fare that has been computed in a manner similar to those of compounded bank
interest rates.

Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to
collect a thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they
were allowed to impose and collect a fare range of plus or minus 15% over the authorized rate. Thus
P0.37 centavo per kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos)
is equivalent to P0.42 centavos, the allowed rate in 1990. Supposing the LTFRB grants another five
(P0.05) centavo increase per kilometer in 1994, then, the base or reference for computation would
have to be P0.47 centavos (which is P0.42 + P0.05 centavos). If bus operators will exercise their
authority to impose an additional 20% over and above the authorized fare, then the fare to be
collected shall amount to P0.56 (that is, P0.47 authorized LTFRB rate plus 20% of P0.47 which is
P0.29). In effect, commuters will be continuously subjected, not only to a double fare adjustment but
to a compounding fare as well. On their part, transport operators shall enjoy a bigger chunk of the
pie. Aside from fare increase applied for, they can still collect an additional amount by virtue of the
authorized fare range. Mathematically, the situation translates into the following:

Year** LTFRB authorized Fare Range Fare to be

rate*** collected per
kilometer

1990 P0.37 15% (P0.05) P0.42

1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94

Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government
function that requires dexterity of judgment and sound discretion with the settled goal of arriving at a
just and reasonable rate acceptable to both the public utility and the public. Several factors, in fact,
have to be taken into consideration before a balance could be achieved. A rate should not be
confiscatory as would place an operator in a situation where he will continue to operate at a loss.
Hence, the rate should enable public utilities to generate revenues sufficient to cover operational
costs and provide reasonable return on the investments. On the other hand, a rate which is too high
becomes discriminatory. It is contrary to public interest. A rate, therefore, must be reasonable and
fair and must be affordable to the end user who will utilize the services.

Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on
millions of commuters, government must not relinquish this important function in favor of those who
would benefit and profit from the industry. Neither should the requisite notice and hearing be done
away with. The people, represented by reputable oppositors, deserve to be given full opportunity to
be heard in their opposition to any fare increase.

The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory
arrangement for all parties involved. To do away with such a procedure and allow just one party, an
interested party at that, to determine what the rate should be, will undermine the right of the other
parties to due process. The purpose of a hearing is precisely to determine what a just and
reasonable rate is.15 Discarding such procedural and constitutional right is certainly inimical to our
fundamental law and to public interest.

On the presumption of public need.

A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation
of land transportation services for public use as required by law. Pursuant to Section 16(a) of the
Public Service Act, as amended, the following requirements must be met before a CPC may be
granted, to wit: (i) the applicant must be a citizen of the Philippines, or a corporation or co-
partnership, association or joint-stock company constituted and organized under the laws of the
Philippines, at least 60 per centum of its stock or paid-up capital must belong entirely to citizens of
the Philippines; (ii) the applicant must be financially capable of undertaking the proposed service and
meeting the responsibilities incident to its operation; and (iii) the applicant must prove that the
operation of the public service proposed and the authorization to do business will promote the public
interest in a proper and suitable manner. It is understood that there must be proper notice and
hearing before the PSC can exercise its power to issue a CPC.

While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum
Circular No. 92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the
issuance of a CPC. The guidelines states:

The issuance of a Certificate of Public Convenience is determined by public

need. The presumption of public need for a service shall be deemed in favor of the
applicant, while the burden of proving that there is no need for the proposed service
shall be the oppositor's. (Emphasis ours).

The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the
Public Service Act which requires that before a CPC will be issued, the applicant must prove by
proper notice and hearing that the operation of the public service proposed will promote public
interest in a proper and suitable manner. On the contrary, the policy guideline states that the
presumption of public need for a public service shall be deemed in favor of the applicant. In case of
conflict between a statute and an administrative order, the former must prevail.

By its terms, public convenience or necessity generally means something fitting or suited to the
public need.16 As one of the basic requirements for the grant of a CPC, public convenience and
necessity exists when the proposed facility or service meets a reasonable want of the public and
supply a need which the existing facilities do not adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact that must be
established by evidence, real and/or testimonial; empirical data; statistics and such other means
necessary, in a public hearing conducted for that purpose. The object and purpose of such
procedure, among other things, is to look out for, and protect, the interests of both the public and the
existing transport operators.

Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress
hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience
of the public.17 Basic convenience is the primary consideration for which a CPC is issued, and that
fact alone must be consistently borne in mind. Also, existing operators in subject routes must be
given an opportunity to offer proof and oppose the application. Therefore, an applicant must, at all
times, be required to prove his capacity and capability to furnish the service which he has
undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.

Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and
institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates
the proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending
provisions of the LTFRB memorandum circular in question would in effect amend the Rules of Court
by adding another disputable presumption in the enumeration of 37 presumptions under Rule 131,
Section 5 of the Rules of Court. Such usurpation of this Court's authority cannot be countenanced as
only this Court is mandated by law to promulgate rules concerning pleading, practice and
procedure. 19

Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given
the present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount
to an abdication by the government of its inherent right to exercise police power, that is, the right of
government to regulate public utilities for protection of the public and the utilities themselves.

While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to
regulate the transport sector, we find that they committed grave abuse of discretion in issuing DOTC
Department Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB
Memorandum Circular No. 92-009 promulgating the implementing guidelines on DOTC Department
Order No. 92-587, the said administrative issuances being amendatory and violative of the Public
Service Act and the Rules of Court. Consequently, we rule that the twenty (20%) per centum fare
increase imposed by respondent PBOAP on March 16, 1994 without the benefit of a petition and a
public hearing is null and void and of no force and effect. No grave abuse of discretion however was
committed in the issuance of DOTC Memorandum Order No. 90-395 and DOTC Memorandum
dated October 8, 1992, the same being merely internal communications between administrative
officers.

WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged
administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB
Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby
DECLARED contrary to law and invalid insofar as they affect provisions therein (a) delegating to
provincial bus and jeepney operators the authority to increase or decrease the duly prescribed
transportation fares; and (b) creating a presumption of public need for a service in favor of the
applicant for a certificate of public convenience and placing the burden of proving that there is no
need for the proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar
as it enjoined the bus fare rate increase granted under the provisions of the aforementioned
administrative circulars, memoranda and/or orders declared invalid.

No pronouncement as to costs.

SO ORDERED.

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.

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.

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).

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

(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718
passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of
award of infrastructure projects.

III

Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners,
however, countered that the action was filed by them in their capacity as Senators and as taxpayers.

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into
by the national government or government-owned or controlled corporations allegedly in
contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the
same when only municipal contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA. 240 [1989]).

For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to
follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.

IV

In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:

(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is
limited by the Constitution to Filipino citizens and domestic corporations, not foreign
corporations like private respondent;

(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the
BOT or BT Scheme under the law;

(3) the contract to construct the EDSA LRT III was awarded to private respondent not
through public bidding which is the only mode of awarding infrastructure projects
under the BOT law; and

(4) the agreements are grossly disadvantageous to the government.

1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT
III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and
existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the
EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for
the latter to operate the system and pay rentals for said use.
The question posed by petitioners is:

Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT
III; a public utility? (Rollo, p. 17).

The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail
tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility.
While a franchise is needed to operate these facilities to serve the public, they do not by themselves
constitute a public utility. What constitutes a public utility is not their ownership but their use to serve
the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557 558 [1923]).

The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a public
utility so long as it does not operate them to serve the public.

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for the operation of a

public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive character or for a longer period than fifty years . . .
(Emphasis supplied).

In law, there is a clear distinction between the "operation" of a public utility and the ownership of the
facilities and equipment used to serve the public.

Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the rights
of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45
[1992]).

The exercise of the rights encompassed in ownership is limited by law so that a property cannot be
operated and used to serve the public as a public utility unless the operator has a franchise. The
operation of a rail system as a public utility includes the transportation of passengers from one point
to another point, their loading and unloading at designated places and the movement of the trains at
pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180 P.159, 7
A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d
868, 2 A.L.R. 2d 1065 [1948]).

The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. One can own said facilities without operating them as a public utility, or conversely,
one may operate a public utility without owning the facilities used to serve the public. The devotion of
property to serve the public may be done by the owner or by the person in control thereof who may
not necessarily be the owner thereof.

This dichotomy between the operation of a public utility and the ownership of the facilities used to
serve the public can be very well appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their aircraft and vessels instead of owning
them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it
admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement, Sec.
3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on completion
date, private respondent will immediately deliver possession of the LRT system by way of lease for
25 years, during which period DOTC shall operate the same as a common carrier and private
respondent shall provide technical maintenance and repair services to DOTC (Revised and Restated
Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance consists of
providing (1) repair and maintenance facilities for the depot and rail lines, services for routine
clearing and security; and (2) producing and distributing maintenance manuals and drawings for the
entire system (Revised and Restated Agreement, Annex F).

Private respondent shall also train DOTC personnel for familiarization with the operation, use,
maintenance and repair of the rolling stock, power plant, substations, electrical, signaling,
communications and all other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under simulated operating
conditions, control of operations, dealing with emergencies, collection, counting and securing cash
from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel
of DOTC will work under the direction and control of private respondent only during training (Revised
and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be such that
upon completion of the EDSA LRT III and upon opening of normal revenue operation, DOTC shall
have in their employ personnel capable of undertaking training of all new and replacement personnel
(Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by the end of the three-year
construction period and upon commencement of normal revenue operation, DOTC shall be able to
operate the EDSA LRT III on its own and train all new personnel by itself.

Fees for private respondent' s services shall be included in the rent, which likewise includes the
project cost, cost of replacement of plant equipment and spare parts, investment and financing cost,
plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a
common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from
any losses, damages, injuries or death which may be claimed in the operation or implementation of
the system, except losses, damages, injury or death due to defects in the EDSA LRT III on account
of the defective condition of equipment or facilities or the defective maintenance of such equipment
facilities (Revised and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).

In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It
will have no dealings with the public and the public will have no right to demand any services from it.

It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case
of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between
PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint
venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the
lessor obligated itself to build, at its own expense, all the facilities necessary to operate and maintain
a nationwide on-line lottery system from whom PCSO was to lease the facilities and operate the
same. Upon due examination of the contract, the Court found that PGMC's participation was not
confined to the construction and setting up of the on-line lottery system. It spilled over to the actual
operation thereof, becoming indispensable to the pursuit, conduct, administration and control of the
highly technical and sophisticated lottery system. In effect, the PCSO leased out its franchise to
PGMC which actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
(Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v.
Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are
owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad
companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p. 2d 984,
987 [1946]).

Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate or any other form of authorization for
that purpose (People v. Quasha, 93 Phil. 333 [1953]).

2. Petitioners further assert that the BLT scheme under the Agreements in question is not
recognized in the BOT Law and its Implementing Rules and Regulations.

Section 2 of the BOT Law defines the BOT and BT schemes as follows:

(a) Build-operate-and-transfer scheme — A contractual arrangement whereby the

contractor undertakes the construction including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The contractor operates the
facility over a fixed term during which it is allowed to charge facility users appropriate
tolls, fees, rentals and charges sufficient to enable the contractor to recover its
operating and maintenance expenses and its investment in the project plus a
reasonable rate of return thereon. The contractor transfers the facility to the
government agency or local government unit concerned at the end of the fixed term
which shall not exceed fifty (50) years. For the construction stage, the contractor may
obtain financing from foreign and/or domestic sources and/or engage the services of
a foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of
the contractor of an infrastructure facility whose operation requires a public utility
franchise must be in accordance with the Constitution: Provided, however, That in
the case of corporate investors in the build-operate-and-transfer corporation, the
citizenship of each stockholder in the corporate investors shall be the basis for the
computation of Filipino equity in the said corporation: Provided, further, That, in the
case of foreign constructors [sic], Filipino labor shall be employed or hired in the
different phases of the construction where Filipino skills are available: Provided,
furthermore, that the financing of a foreign or foreign-controlled contractor from
Philippine government financing institutions shall not exceed twenty percent (20%) of
the total cost of the infrastructure facility or project: Provided, finally, That financing
from foreign sources shall not require a guarantee by the Government or by
government-owned or controlled corporations. The build-operate-and-transfer
scheme shall include a supply-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 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]).

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation to
Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects.

Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts," allows the negotiated award of government projects in
exceptional cases. Sections 4 of the said law reads as follows:

Bidding. — Construction projects shall generally be undertaken by contract after

competitive public bidding. Projects may be undertaken by administration or force
account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provision of laws and acts on the matter,
subject to the approval of the Minister of Public Works and Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be, if the project cost is less than P1 Million, and the President of the
Philippines, upon recommendation of the Minister, if the project cost is P1 Million or
more (Emphasis supplied).

xxx xxx xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general
law on government infrastructure contracts while the BOT Law governs particular arrangements or
schemes aimed at encouraging private sector participation in government infrastructure projects.
The two laws are not inconsistent with each other but are in pari materia and should be read
together accordingly.

In the instant case, if the prequalification process was actually tainted by foul play, one wonders why
none of the competing firms ever brought the matter before the PBAC, or intervened in this case
before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992];
Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).

The challenged agreements have been approved by President Ramos himself. Although then
Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a contract
from renegotiating and modifying in good faith the terms and conditions thereof so as to meet legal,
statutory and constitutional requirements. Under the circumstances, to require the parties to go back
to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red
tape" should be eschewed because it discourages private sector participation, the "main engine" for
national growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.

Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:

(e) Build-lease-and-transfer — A contractual arrangement whereby a project

proponent is authorized to finance and construct an infrastructure or development
facility and upon its completion turns it over to the government agency or local
government unit concerned on a lease arrangement for a fixed period after which
ownership of the facility is automatically transferred to the government unit
concerned.

Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:

Direct Negotiation of Contracts. — Direct negotiation shall be resorted to when there

is only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification and it
meets the prequalification requirements, after which it is required to submit a bid
proposal which is subsequently found by the agency/local government unit (LGU) to
be complying.

(b) If, after advertisement, more than one contractor applied for prequalification but
only one meets the prequalification requirements, after which it submits bid/proposal
which is found by the agency/local government unit (LGU) to be complying.

(c) If, after prequalification of more than one contractor only one submits a bid which
is found by the agency/LGU to be complying.

(d) If, after prequalification, more than one contractor submit bids but only one is
found by the agency/LGU to be complying. Provided, That, any of the disqualified
prospective bidder [sic] may appeal the decision of the implementing agency,
agency/LGUs prequalification bids and awards committee within fifteen (15) working
days to the head of the agency, in case of national projects or to the Department of
 the Interior and Local Government, in case of local projects from the date the
disqualification was made known to the disqualified bidder: Provided, furthermore,
That the implementing agency/LGUs concerned should act on the appeal within
forty-five (45) working days from receipt thereof.

Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by
the BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law
authorizes all government infrastructure agencies, government-owned and controlled corporations
and local government units to enter into contract with any duly prequalified proponent for the
financing, construction, operation and maintenance of any financially viable infrastructure or
development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-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 esoteric field which is
better left to the experts and which this Court is not eager to undertake.

That the grantee of a government contract will profit therefrom and to that extent the government is
deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In
all cases where a party enters into a contract with the government, he does so, not out of charity and
not to lose money, but to gain pecuniarily.

5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and
administrative entity of the Executive branch of government in the promotion, development and
regulation of dependable and coordinated networks of transportation and communications systems
as well as in the fast, safe, efficient and reliable postal, transportation and communications services
(Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in
particular that has the power, authority and technical expertise determine whether or not a specific
transportation or communication project is necessary, viable and beneficial to the people. The
discretion to award a contract is vested in the government agencies entrusted with that function
(Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]).

WHEREFORE, the petition is DISMISSED.

SO ORDERED

Bellosillo and Kapunan, JJ., concur.

Padilla and Regalado, JJ., concurs in the result.

Romero, J., is on leave.

Separate Opinions

MENDOZA, J., concurring:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing
to sue, I join to dismiss the petition in this case. I write only to set forth what I understand the
grounds for our decisions on the doctrine of standing are and, why in accordance with these
decisions, petitioners do not have the rights to sue, whether as legislators, taxpayers or citizens. As
members of Congress, because they allege no infringement of prerogative as legislators.1 As
taxpayers because petitioners allege neither an unconstitutional exercise of the taxing or spending
powers of Congress (Art VI, §§24-25 and 29)2 nor an illegal disbursement of public money.3 As this
Court pointed out in Bugnay Const. and Dev. Corp. v. Laron,4 a party suing as taxpayer "must
specifically prove that he has sufficient interest in preventing the illegal expenditure of money raised
by taxation and that he will sustain a direct injury as a result of the enforcement of the questioned
statute or contract. It is not sufficient that he has merely a general interest common to all members
of the public." In that case, it was held that a contract, whereby a local government leased property
to a private party with the understanding that the latter would build a market building and at the end
of the lease would transfer the building of the lessor, did not involve a disbursement of public funds
so as to give taxpayer standing to question the legality of the contract. I see no substantial
difference, as far as the standing is of taxpayers to question public contracts is concerned, between
the contract there and the build-lease-transfer (BLT) contract being questioned by petitioners in this
case.

Nor do petitioners have standing to bring this suit as citizens. In the cases5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners
by invalidating the challenged statutes or governmental actions. Thus in the Lotto case6 relied upon
by the majority for upholding petitioners standing, this Court took into account the "paramount public
interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the
people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery
system:"7 Accordingly, the Court invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive
contentions to be without merit To the extent therefore that a party's standing is affected by a
determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the
case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for
a Better Philippines v. Aquino8 and In re Bermudez 9 where we dismissed citizens' actions on the ground that petitioners
had no personality to sue and their petitions did not state a cause of action. The holding that petitioners did not have standing followed from
the finding that they did not have a cause of action.

In order that citizens' actions may be allowed a party must show that he personally has suffered
some actual or threatened injury as a result of the allegedly illegal conduct of the government; the
injury is fairly traceable to the challenged action; and the injury is likely to be redressed by a
favorable action. 10 As the U.S. Supreme Court has held:

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

complaint's allegation to ascertain whether the particular plaintiff is entitled to an
adjudication of the particular claims asserted. Is the injury too abstract, or otherwise
not appropriate, to be considered judicially cognizable? Is the line of causation
between the illegal conduct and injury too attenuated? Is the prospect of obtaining
relief from the injury as a result of a favorable ruling too speculative? These
questions and any others relevant to the standing inquiry must be answered by
reference to the Art III notion that federal courts may exercise power only "in the last
resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339,
345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent with
a system of separated powers and [the dispute is one] traditionally thought to be
capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20
L Ed 2d 947, 88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed
2d 700, 102 S Ct 752.11

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, §5 in defining the jurisdiction of this Court. The result is to convert the
Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with the
view that this case has no merit I submit with respect that petitioners, as representatives of the
public interest, have no standing.
Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J., dissenting:

After wading through the record of the vicissitudes of the challenged contract and evaluating the
issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the
well-written ponencia of Mr. Justice Camilo P. Quiason.

I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-
ultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A.
6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)
even assuming arguendo that it has, the contract was entered into without complying with the
mandatory requirement of public bidding.

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly
entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds
of contractual arrangements between the private sector and government infrastructure agencies: (a)
the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This
conclusion finds support in Section 2 thereof which defines only the BOT and BT schemes, in
Section 3 which explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — All government infrastructure agencies,

including government-owned and controlled corporations and local government units,
are hereby authorized to enter into contract with any duly prequalified private
contractor for the financing, construction, operation and maintenance of any
financially viable infrastructure facilities through the build-operate-and transfer or
build-and-transfer scheme, subject to the terms and conditions hereinafter set forth;
(Emphasis supplied).

and in Section 5 which requires public bidding of projects under both schemes.

All prior acts and negotiations leading to the perfection of the challenged contract were clearly
intended and pursued for such schemes.

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the
DOTC is without any power or authority to enter into the BLT contract in question.

The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the
BOT and the BT schemes bar any other arrangement for the payment by the government of the
project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any
variation within the context of the two schemes." This interpretation would be correct if the law itself
provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a
BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction,
and Congress has enacted several laws relating to leases. That the BLT scheme was never
intended as a permissible variation "within the context" of the BOT and BT schemes is conclusively
established by the passage of R.A. No. 7718 which amends:
 a. Section 2 by adding to the original BOT and BT schemes the following schemes:

(1) Build-own-and-operate (BOO)

(2) Build-Lease-and-transfer (BLT)
(3) Build-transfer-and-operate (BTO)
(4) Contract-add-and-operate (CAO)
(5) Develop-operate-and-transfer (DOT)
(6) Rehabilitate-operate-and-transfer (ROT)
(7) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-
operate-and-transfer or build-and-transfer scheme."

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:

Sec. 5 Public Bidding of Projects. — Upon approval of the projects mentioned in

Section 4 of this Act, the concerned head of the infrastructure agency or local
government unit shall forthwith cause to be published, once every week for three (3)
consecutive weeks, in at least two (2) newspapers of general circulation and in at
least one (1) local newspaper which is circulated in the region, province, city or
municipality in which the project is to be constructed a notice inviting all duly
prequalified infrastructure contractors to participate in the public bidding for the
projects so approved. In the case of a build-operate-and-transfer arrangement, the
contract shall be awarded to the lowest complying bidder based on the present value
of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be
constructed, operated, and maintained according to the prescribed minimum design
and performance standards plans, and specifications. For this purpose, the winning
contractor shall be automatically granted by the infrastructure agency or local
government unit the franchise to operate and maintain the facility, including the
collection of tolls, fees, rentals; and charges in accordance with Section 6 hereof.

In the case of a build-and-transfer arrangement, the contract shall be awarded to the

lowest complying bidder based on the present value of its proposed, schedule of
amortization payments for the facility to be constructed according to the prescribed
minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall
be given preference.

A copy of each build-operate-and-transfer or build-and-transfer contract shall

forthwith be submitted to Congress for its information.

The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices
are eliminated or minimized. And any Government contract entered into without the required bidding
is null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr.,
A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991],
citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).
The Office of the President, through then Executive Secretary Franklin Drilon Correctly disapproved
the contract because no public bidding is strict compliance with Section 5 of R.A. No. 6957 was
conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing Rules of
said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void because
the law itself does not recognize or allow negotiated contracts.

However the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only one
was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT
contract should be awarded "to the lowest complying bidder," which logically means that there must
at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should
be deferred and a new prequalification proceeding be scheduled. Even those who were earlier
disqualified may by then have qualified because they may have, in the meantime, exerted efforts to
meet all the qualifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or
to unholy conspiracies among prospective bidders, which would even include dishonest government
officials. They could just agree, for a certain consideration, that only one of them qualify in order that
the latter would automatically corner the contract and obtain the award.

That section 5 admits of no exception and that no bidding could be validly had with only one bidder
is likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7
thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct
negotiation contracts. This new section reads:

Sec. 5-A. Direct Negotiation Of Contracts — Direct negotiation, shall be resorted to

when there is only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for

prequalification requirements, after which it is required to submit a
bid/proposal which subsequently found by the agency/local
government unit (LGU) to be complying.

(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification requirements,
after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying,

(c) If after prequalification of more than one contractor only one

submits a bid which is found by the agency/LGU to be complying.

(d) If, after prequalification, more than one contractor, only one
submit bids but only one is found by the agency/LGU to be
complying: Provided, That, any of the disqualified prospective bidder
may appeal the decision contractor of the implementing agency/LGUs
prequalification bids an award committee within fifteen (15) working
days to the head of the agency, in case of national projects or to the
Department of the Interior and Local Government, in case of local
projects from the date the disqualification was made known to the
disqualified bidder Provided, That the implementing agency/LGUs
 concerned should act on the appeal within forty-five (45) working
days from receipt thereof.

Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not
provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says
that it "shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general
circulation." If it were the intention of Congress to give said act retroactive effect then it would have
so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive
effect, unless the contrary is provided."

The presumption is that all laws operate prospectively, unless the contrary clearly appears or is
clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the
doubt will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing
statute, Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions
added by the amendment affecting substantive rights are intended to operate
prospectively. Provisions added by the amendment that affect substantive rights will
not be construed to apply to transactions and events completed prior to its enactment
unless the legislature has expressed its intent to that effect or such intent is clearly
implied by the language of the amendment or by the circumstances surrounding its
enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).

I vote then to grant the instant petition and to declare void the challenged contract and its
supplement.

FELICIANO, J., dissenting:

After considerable study and effort, and with much reluctance, I find I must dissent in the instant
case. I agree with many of the things set out in the majority opinion written by my distinguished
brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the
result reached by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on
fairly narrow grounds. At the same time; I wish to address briefly one of the points made by Justice
Quiason in the majority opinion in his effort to meet the difficulties posed by Davide Jr., J.

I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978
entitled: "Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure
Contracts·" More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree
which reads as follows:

Sec. 4. Bidding. — Construction projects shall, generally be undertaken by contract

after competitive public bidding. Projects may be undertaken by administration or
force account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is a
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provisions of laws and acts on the matter,
subject to the approval of the Ministry of public Works, Transportation and
 Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be, if the project cost is less than P1 Million, and of the President of the
Philippines, upon the recommendation of the Minister, if the project cost is P1 Million
or more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion to be that above Section 4 and presumably
the rest of Presidential Decree No. 1594 continue to exist and to run parallel to the provisions of
Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718.

A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply
to all "government contracts for infrastructure and other construction projects." But Republic Act No.
6957 as amended by Republic Act No. 7718, relates only to "infrastructure projects" which are
financed, constructed, operated and maintained "by the private sector" "through the build/operate-
and-transfer or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other
comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and
Republic Act. No. 7718 must be held, in my view, to be special statutes applicable to a more limited
field of "infrastructure projects" than the wide-ranging scope of application of the general statute i.e.,
Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that
Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of
contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof.

It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken
"by administration or force account or by negotiated contract only"

(1) in exceptional cases where time is of the essence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy and efficiency would
be achieved through these arrangements, and in accordance with provision[s] of
laws and acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no
mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon
the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act
No. 7718, does not purport to authorize direct negotiation of contracts situations where there is a
lack of pre-qualified contractors or, complying bidders. Thus, even under the amended special
statute, entering into contracts by negotiation is not permissible in the other (2) categories of cases
referred to in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of
the essence" and "when there is conclusive evidence that greater economy and efficiency would be
achieved through these arrangements, etc."

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public
bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of
contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718, The provision of Republic Act No. 7718. The assailed contract was entered into before
Republic Act. No. 7718 was enacted.
The difficulties. of applying the provisions of Presidential Degree No. 1594 to the Edsa LRT-type of
contracts are aggravated when one considers the detailed "Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree.1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arising from natural calamities where

immediate action is necessary to prevent imminent loss of life and/or
property.

b. Failure to award the contract after competitive public bidding for

valid cause or causes [such as where the prices obtained through
public bidding are all above the AAE and the bidders refuse to reduce
their prices to the AAE].

In these cases, bidding may be undertaken through sealed canvass of at least three
(3) qualified contractors. Authority to negotiate contracts for projects under these
exceptional cases shall be subject to prior approval by heads of agencies within their
limits of approving authority.

c. Where the subject project is adjacent or contiguous to an on-going

project and it could be economically prosecuted by the same
contractor provided that he has no negative slippage and has
demonstrated a satisfactory performance. (Emphasis supplied).

Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and
Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts
as distinguished from requiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules and Regulations:

IB 1 Prequalification

The following may be become contractors for government projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of corporation duly organized under the laws of the Philippines, and at
least seventy five percent (75%) of the capital stock of which belongs to Filipino
citizens.

2. Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract,
shall for purposes of bidding/tendering comply with LOI 630, and, aside from being
currently and properly accredited by the Philippine Contractors Accreditation Board,
shall comply with the provisions of R.A. 4566, provided thatjoint ventures in which
Filipino ownership is less than seventy five percent ( 75%) may be prequalified where
 the structures to be built require the application of techniques and/or
technologies which are not adequately possessed by a Filipino entity as defined
above.

[The foregoing shall not negate any existing and future commitments with respect to
the bidding and aware of contracts financed partly or wholly with funds from
international lending institutions like the Asian Development Bank and the Worlds
Bank as well as from bilateral and other similar sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT
Corporation; there is no suggestion that this corporation is organized under Philippine law and is at
least seventy-five (75%) percent owned by Philippine citizens.

Public bidding is the normal method by which a government keeps contractors honest and is able to
assure itself that it would be getting the best possible value for its money in any construction or
similar project. It is not for nothing that multilateral financial organizations like the World Bank and
the Asian Development Bank uniformly require projects financed by them to be implemented and
carried out by public bidding. Public bidding is much too important a requirement casually to loosen
by a latitudinarian exercise in statutory construction.

The instant petition should be granted and the challenged contract and its supplement should be
nullified and set aside. A true public bidding, complete with a new prequalification proceeding,
should be required for the Edsa LRT Project.

Separate Opinions

MENDOZA, J., concurring:

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing
to sue, I join to dismiss the petition in this case. I write only to set forth what I understand the
grounds for our decisions petitioners do not have the rights to sue, whether as legislators, taxpayers
or citizens. As members of Congress, because they allege no infringement of prerogative as
legislators.1 As taxpayers because petitioners allege neither an unconstitutional exercise of the
taxing or spending powers of Congress (Art VI, §§24-25 and 29)2 nor an illegal disbursement of
public money.3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron,4 a party suing as
taxpayer "must specifically prove that he has sufficient interest in preventing the illegal expenditure
of money raised by taxation and that he will sustain a direct injury as a result of the enforcement of
the questioned statute or contract, It is not sufficient that has merely a general interest common to all
members of the public." In that case, it was held that a contract, whereby a local government leased
property to a private party with the understanding that the latter would build a market building and at
the end of the lease would transfer the building of the lessor, did not involve a disbursement of public
funds so as to give taxpayer standing to question the legality of the contract contracts I see no
substantial difference, as far as the standing is of taxpayers is concerned, between the contract
there and the build-lease-transfer (BLT) contract being questioned by petitioners in this case.

Nor do petitioners have standing to bring this suit as citizens. In the cases5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners
by invalidating the challenged statutes or governmental actions. Thus in the Lotto case6 relied upon
by the majority for upholding petitioners standing, this Court took into account the "paramount public
interest" involved which "immeasurably affect[ed] the social, economic, and moral well-being of the
people . . . and the counter-productive and retrogressive effects of the envisioned on-line lottery
system:"7 Accordingly, the Court invalidated the contract for the operation of lottery.

But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive
contentions to be without merit To the extent therefore that a party's standing is affected by a
determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in the
case at bar must be held to be without standing. This is in line with our ruling in Lawyers League for
a Better Philippines v. Aquino8 and In re Bermudez9 where we dismissed citizens' actions on the
ground that petitioners had no personality to sue and their petitions did not state a cause of action.
The holding that petitioners did not have standing followed from the finding that they did not have a
cause of action.

In order that citizens' actions may be allowed a party must show that he personally has suffered
some actual or threatened injury as a result of the allegedly illegal conduct of the government; the
injury is fairly traceable to the challenged action; and the injury is likely to be redressed by a
favorable action. 10 As the U.S. Supreme Court has held:

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

complaint's allegation to ascertain whether the particular plaintiff is entitled to an
adjudication of the particular claims asserted. Is the injury too abstract, or otherwise
not appropriate, to be considered judicially cognizable? Is the line of causation
between the illegal conduct and injury too attenuated? Is the prospect of obtaining
relief from the injury as a result of a favorable ruling too speculative? These
questions and any others relevant to the standing inquiry must be answered by
reference to the Art III notion that federal courts may exercise power only "in the last
resort, and as a necessity, Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339,
345, 36 L Ed 176,12 S Ct 400 (1892), and only when adjudication is "consistent with
a system of separated powers and [the dispute is one] traditionally thought to be
capable of resolution through the judicial process," Flast v Cohen, 392 US 83, 97, 20
L Ed 2d 947, .88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70 L Ed
2d 700, 102 S Ct 752.11

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, §5 in defining the jurisdiction of this Court. The result is to convert the
Court into an office of ombudsman for the ventilation of generalized grievances. Consistent with the
view that this case has no merit I submit with respect that petitioners, as representatives of the
public interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco, JJ., concur.

DAVIDE, JR., J., dissenting:

After wading through the record of the vicissitudes of the challenged contract and evaluating the
issues raised and the arguments adduced by the parties, I find myself unable to joint majority in the
well-written ponencia of Mr. Justice Camilo P. Quiason.

I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an-
ultra-vires act of the Department of Transportation and Communications (DOTC) since under R.A.
6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b)
even assuming arguendo that it has, the contract was entered into without complying with the
mandatory requirement of public bidding.

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly
entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2) kinds
of contractual arrangements between the private sector and government infrastructure agencies: (a)
the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This
conclusion finds support in Section 2 thereof which defines only the BOT and BT schemes, in
Section 3 which explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. — All government infrastructure agencies,

including government-owned and controlled corporations and local government units,
are hereby authorized to enter into contract with any duly prequalified private
contractor for the financing, construction, operation and maintenance of any
financially viable infrastructure facilities through the build-operate-and transfer or
build-and-transfer scheme, subject to the terms and conditions hereinafter set forth;
(Emphasis supplied).

and in Section 5 which requires public bidding of projects under both schemes.

All prior acts and negotiations leading to the perfection of the challenged contract were clearly
intended and pursued for such schemes.

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the
DOTC is without any power or authority to enter into the BLT contract in question.

The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that the
BOT and the BT schemes bar any other arrangement for the payment by the government of the
project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict any
variation within the context of the two schemes." This interpretation would be correct if the law itself
provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended to include a
BLT scheme, then it should have so stated, for contracts of lease are not unknown in our jurisdiction,
and Congress has enacted several laws relating to leases. That the BLT scheme was never
intended as a permissible variation "within the context" of the BOT and BT schemes is conclusively
established by the passage of R.A. No. 7718 which amends:

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

1) Build-own-and-operate (BOO)
2) Build-Lease-and-transfer (BLT)
3) Build-transfer-and-operate (BTO)
4) Contract-add-and-operate (CAO)
5) Develop-operate-and-transfer (DOT)
6) Rehabilitate-operate-and-transfer (ROT)
7) Rehabilitate-own-and-operate (ROO).
 b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-
operate-and-transfer or build-and-transfer scheme.

II

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:

Sec. 5 Public Bidding of Projects. — Upon approval of the projects mentioned in

Section 4 of this Act, the concerned head of the infrastructure agency or local
government unit shall forthwith cause to be published, once every week for three (3)
consecutive weeks, in at least two (2) newspapers of general circulation and in at
least one (1) local newspaper which is circulated in the region, province, city or
municipality in which the project is to be constructed a notice inviting all duly
prequalified infrastructure contractors to participate in the public bidding for the
projects so approved. In the case of a build-operate-and-transfer arrangement, the
contract shall be awarded to the lowest complying bidder based on the present value
of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be
constructed, operated, and maintained according to the prescribed minimum design
and performance standards plans, and specifications. For this purpose, the winning
contractor shall be automatically granted by the infrastructure agency or local
government unit the franchise to operate and maintain the facility, including the
collection of tolls, fees, rentals; and charges in accordance with Section 6 hereof.

In the case of a build-and-transfer arrangement, the contract shall be awarded to the

lowest complying bidder based on the present value of its proposed, schedule of
amortization payments for the facility to be constructed according to the prescribed
minimum design and performance standards, plans and specifications: Provided,
however, That a Filipino constructor who submits an equally advantageous bid shall
be given preference.

A copy of each build-operate-and-transfer or build-and-transfer contract shall

forthwith be submitted to Congress for its information.

The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a
fair and reasonable price and ensures that overpricing, favoritism, and other anomalous practices
are eliminated or minimized. And any Government contract entered into without the required bidding
is null and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr.,
A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991],
citing Caltex vs. Delgado Bros., 96 Phil. 368 [1954]).

The Office of the president secretary through then Executive Secretary Franklin Drilon Correctly
disapproved the contract because no public bidding is strict compliance with Section 5 of R.A. No.
6957 was conducted. Secretary Drilon Further bluntly stated that the provision of the Implementing
Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void
because the law itself does not recognize or allow negotiated contracts.

However the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only one
was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT
contract should be awarded "to the lowest complying bidder," which logically means that there must
at least be two (2) bidders. If this minimum requirement is not met, then the proposed bidding should
be deferred and a new prequalification proceeding be scheduled. Even those who were earlier
disqualified may by then have qualified because they may have, in the meantime, exerted efforts to
meet all the qualifications.

This view of the majority would open the floodgates to the rigging of prequalification proceedings or
to unholy conspiracies among prospective bidders, which would even include dishonest government
officials. They could just agree, for a certain consideration, that only one of them qualify in order that
the latter would automatically corner the contract and obtain the award.

That section 5 admits of no exception and that no bidding could be validly had with only one bidder
is likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section 7
thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct
negotiation contracts. This new section reads:

Sec. 5-A. Direct Negotiation Of Contracts — Direct negotiation, shall be resorted to

when there is only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for

prequalification requirements submit a bid/proposal which
subsequently found by the agency/local government unit (LGU) to be
complying.

(b) If, after advertisement, more than one contractor applied for
prequalification but only one meets the prequalification .requirements,
after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying,

(c) If after prequalification of more than one contractor only one

submits a bid which is found by the agency/LGU to be complying.

(d) If, after prequalification, more than one contractor, only one
submit bids but only one is found by the agency/LGU to be
complying: Provided, That, any of the disqualified prospective bidder
may appeal the decision contractor of the implementing agency/LGUs
prequalification bids an award committee within fifteen (15) working
days to the head of the agency of national projects or to the
Department of the Interior and Local Government, in case of local
projects from the date the disqualification was made known to the
disqualified bidder Provided, That the implementing agency/LGUs
concerned should act on the appeal within forty-five (45) working
days from receipt thereof.

Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not
provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says
that it "shall take effect fifteen (15) after its publication in at least two (2) newspapers of general
circulation." If it were the intention of Congress to give said act retroactive effect then it would have
so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive
effect, unless the contrary is provided."
The presumption is that all laws operate prospectively, unless the contrary clearly appears or is
clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the
doubt will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing
statute, Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions
added by the amendment affecting substantive rights are intended to operate
prospectively. Provisions added by the amendment that affect substantive rights will
not be construed to apply to transactions and events completed prior to its enactment
unless the legislature has expressed its intent to that effect or such intent is clearly
implied by the language of the amendment or by the circumstances surrounding its
enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).

I vote then to grant the instant petition and to declare void the challenged contract and its
supplement.

FELICIANO, J., dissenting:

After considerable study and effort, and with much reluctance, I find I must dissent in the instant
case. I agree with many of the things set out in the majority opinion written by my distinguished
brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the
result reached by the majority.

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on
fairly narrow grounds. At the same time; I wish to address briefly one of Justice Quiason in the
majority opinion in his effort to meet the difficulties posed by Davide Jr., J.

I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978
entitled: "Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure
Contracts·" More specifically, the majority opinion invokes paragraph 1 of Section 4 of this Degree
which reads as follows:

Sec. 4. Bidding. — Construction projects shall, generally be undertaken by contract

after competitive public bidding. Projects may be undertaken by administration or
force account or by negotiated contract only in exceptional cases where time is of the
essence, or where there is lack of qualified bidders or contractors, or where there is a
conclusive evidence that greater economy and efficiency would be achieved through
this arrangement, and in accordance with provisions of laws and acts on the matter,
subject to the approval of the Ministry of public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be, if the project cost is less than P1 Million, and of the president of the
Philippines, upon the recommendation of the Minister, if the project cost is P1 Million
or more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion utility and the ownership of the facilities
used to serve the public can be very w1594 continue to exist and to run parallel to the provisions of
Republic Act No. 6957, whether in its original form or as amended by Republic Act No. 7718.
A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all
"government contracts for infrastructure and other construction projects" But Republic Act No. 6957
as amended by Republic Act No. 7718, relates on to "infrastructure projects" which are financed,
constructed, operated and maintained "by the private sector" "through the build/operate-and-transfer
or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other comparable
schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and Republic Act. No:
7718 must be held, in my view, to be special statutes applicable to a more limited field of
"infrastructure projects" than the wide-ranging scope of application of the general statute i.e.,
Presidential Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that
Republic Act No. 6957 in specific connection with BCT- and BLT type and BLT type of
contracts imposed an unqualified requirement of public bidding set out in Section 5 thereof.

It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken
"by administration or force account or by negotiated contract only "

(1) in exceptional cases where time is of the essence; or

(2) where there is lack of bidders or contractors; or

(3) where there is a conclusive evidence that greater economy and efficiency would
be achieved through these arrangements, and in accordance with provision[s] of
laws and acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act- No. 6957 made
absolutely no mention of negotiated contracts being permitted to displace the requirement of public
bidding. Upon the other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending
statute Republic Act No. 7718, does not purport to authorize direct negotiation of
contracts situations where there is a lack of pre-qualified contractors or, complying bidders. Thus,
even under the amended special statute, entering into contracts by negotiation is not permissible in
the other (2) categories of cases referred to in Section 4 of Presidential Decree No. 1594, i.e., "in
exceptional cases where time is of the essence" and "when there is conclusive evidence that greater
economy and efficiency would be achieved through these arrangements, etc."

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public
bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of
contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718. The provision of Republic Act No. 7718. The assailed contract was entered into before
Republic Act. No. 7718 was enacted.

The difficulties. of applying the provisions of presidential Degree No. 1594 to the Edsa LRT-type of
contracts are aggravated when one considers the detailed" Implementing Rules and Regulations as
amended April 1988" issued under that Presidential Decree.1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arising from natural calamities where

immediate action is necessary to prevent imminent loss of life and/or
property.
 b. Failure to award the contract after competitive public bidding for
valid cause or causes [such as where the prices obtained through
public bidding are all above the AAE and the bidders refuse to reduce
their prices to the AAE].

In these cases, bidding may be undertaken through sealed canvass of at least three
(3) qualified contractors. Authority to negotiate contracts for projects under these
exceptional cases shall be subject to prior approval by heads of agencies within their
limits of approving authority.

c. Where the subject project is adjacent or contiguous to an on-going

project and it could be economically prosecuted by the same
contractor provided that he has no negative slippage and has
demonstrated a satisfactory performance. (Emphasis supplied).

Note that there is no reference at all in these presidential Decree No. 1594 Implementing Rules and
Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts
as distinguished from requiring public bidding or a second public bidding.

Note also the following provision of the same Implementing Rules and Regulations:

IB 1 Prequalification

The following may be become contractors for government projects:

1 Filipino

a. Citizens (single proprietorship)

b. Partnership of corporation duly organized under the laws of the Philippines, and at
least seventy five percent (75%) of the capital stock of which belongs to Filipino
citizens.

2. Contractors forming themselves into a joint venture, i.e., a group of two or more
contractors that intend to be jointly and severally responsible for a particular contract,
shall for purposes of bidding/tendering comply with LOI 630, and, aside from being
currently and properly accredited by the Philippine Contractors Accreditation Board,
shall comply with the provisions of R.A. 4566, provided thatjoint ventures in which
Filipino ownership is less than seventy five percent ( 75%) may be prequalified where
the structures to be built require the application of techniques and/or
technologies which are not adequately possessed by a Filipino entity as defined
above.

[The foregoing shall not negate any existing and future commitments with respect to
the bidding and aware of contracts financed partly or wholly with funds from
international lending institutions like the Asian Development Bank and the Worlds
Bank as well as from bilateral and other similar sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT
Corporation; there is no suggestion that this corporation is organized under Philippine law and is at
least seventy-five (75%) percent owned by Philippine citizens.
Public bidding is the normal method by which a government keeps contractors honest and is able to
assure itself that it would be getting the best possible value for its money in any construction or
similar project. It is not for nothing that multilateral financial organizations like the World Bank and
the Asian Development Bank uniformly require projects financed by them to be implemented and
carried out by public bidding. Public bidding is much too important a requirement casually to loosen
by a latitudinarian exercise in statutory construction.

The instant petition should be granted and the challenged contract and its supplement should be
nullified and set aside. A true public bidding, complete with a new prequalification proceeding,
should be required for the Edsa LRT Project.

G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee,

vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.: ñé+.£ª wph!1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First
Instance of Manila, finding defendants carrier and agent, liable for the value of goods never
delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the
defendants, now appellants, under the bill of lading covering the subject shipment.

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY,
INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a
vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by
its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued
to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of
Manila, the aforementioned importation was unloaded and delivered in good order and condition to
the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the port of
destination — Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of
exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to
enforce payment. Defendants-appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL
which had earlier been declared in default. Only the defendants appealed from said decision.

The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the
bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to
transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the
parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to
law, morals, good customs, public order and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire
sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is
Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port of
discharge of goods in this case, Davao, the carrier undertook to transport the goods in its vessel,
M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods
were to be transshipped by the carrier to the port of destination or "port of discharge of goods The
stipulation is plainly indicated on the face of the bill which contains the following phrase printed
below the space provided for the port of discharge from ship", thus: têñ.£îhqw â£

if goods are to be transshipped at port of discharge, show destination under the

column for "description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description of
contents": têñ.£îhqwâ£

PORT OF DISCHARGE OF GOODS: DAVAO

FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the
same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with
the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL
was part of appellants' duty to transship the goods from Manila to their port of destination-Davao.
The word "transship" means: têñ.£îhqw â£

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in
question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to
wit:têñ.£îhqwâ£

The carrier shall not be liable in any capacity whatsoever for any delay, loss or
damage occurring before the goods enter ship's tackle to be loaded or after the
goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis
supplied)

and in Section 11 of the same Bill, which provides: têñ.£îhqw â£

Whenever the carrier or m aster may deem it advisable or in any case where the
goods are placed at carrier's disposal at or consigned to a point where the ship does
not expect to load or discharge, the carrier or master may, without notice, forward the
whole or any part of the goods before or after loading at the original port of shipment,
... This carrier, in making arrangements for any transshipping or forwarding vessels
or means of transportation not operated by this carrier shall be considered solely the
forwarding agent of the shipper and without any other responsibility whatsoever even
though the freight for the whole transport has been collected by him. ... Pending or
during forwarding or transshipping the carrier may store the goods ashore or afloat
solely as agent of the shipper and at risk and expense of the goods and the carrier
shall not be liable for detention nor responsible for the acts, neglect, delay or failure
to act of anyone to whom the goods are entrusted or delivered for storage, handling
or any service incidental thereto (Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full and good
condition unto the custody of AMCYL at the port of discharge from ship — Manila, and therefore, pursuant to the aforequoted stipulation
(Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the
goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES
LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but more importantly, as to the
stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases were
destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the
subject stipulations before Us, provides: têñ.£îhqw â£

The carrier shall not be liable in any capacity whatsoever for any loss or damage to
the goods while the goods are not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection
with all transshipping or forwarding of the goods or the use of any means of
transportation or forwarding of goods not used or operated by the carrier, shall be
considered solely the agent of the shipper and consignee and without any other
responsibility whatsoever or for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their validity 13 Applying
said stipulations as the law between the parties in the aforecited case, the Court concluded that: têñ.£îhqwâ£

... The short form Bill of Lading ( ) states in no uncertain terms that the port of
discharge of the cargo is Manila, but that the same was to be transshipped beyond
the port of discharge to Davao City. Pursuant to the terms of the long form Bill of
Lading ( ), appellee's responsibility as a common carrier ceased the moment the
goods were unloaded in Manila and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements,
and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No.
18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as
they exempt the carrier from liability for loss or damage to the goods while the same are not in the
latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from
a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not
regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special
laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to
Article 1736 thereof, which reads: têñ.£îhqw â£

Article 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.

Article 1738 referred to in the foregoing provision runs thus: têñ.£îhqw â£

 Article 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and are
stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their
port of destination, and were stored in the warehouse of a third party when last seen and/or heard of.
However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved
of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same
by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual
delivery has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him to receive
the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is actual
delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a
reasonable time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly
authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE
TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to
Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment
when the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the
character of appellant's possession also changes, from possession in its own name as carrier, into possession in the name of consignee as
the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as
agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may
befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the
missing goods, It is true that the transshipment of the goods, which was the object of the agency,
was not fully performed. However, appellant had commenced said performance, the completion of
which was aborted by circumstances beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the object of the agency, 21This can be
gleaned from the following provisions of the New Civil Code on the obligations of the agent: têñ.£îhqw â£

Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one;

(2) When he was given such power but without designating the person and the
person appointed was notoriously incompetent or insolvent.
 xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting
transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with the
lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code
on common carriers, agency and contracts, they incur no liability for the loss of the goods in
question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby

DISMISSED.

No costs.

SO ORDERED. 1äw phï1.ñët

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE INSURANCE
CO., LTD., respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and
cargo.

The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe,
Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at
P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at
P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine
risk for their stated value with respondent Development Insurance and Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment
fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two
cases of surveying instruments consigned to Aman Enterprises and General Merchandise. The 128
cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for
US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US
$11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship
and cargo. The respective respondent Insurers paid the corresponding marine insurance values to
the consignees concerned and were thus subrogated unto the rights of the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed suit
against petitioner Carrier for the recovery of the amounts it had paid to the insured before the then
Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the
amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as
attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on
August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa
Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against
Petitioner Carrier for the recovery of the insured value of the cargo lost with the then Court of First
Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the ship and
non-observance of extraordinary diligence by petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the
ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act
(COGSA); and that when the loss of fire is established, the burden of proving negligence of the
vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the
amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus attorney's fees
of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984,
affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by
DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First
Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner
Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25,
1985, and the parties were required to submit their respective Memoranda, which they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution
denying the Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-
numbered case, which was then pending resolution with the First Division. The same was granted;
the Resolution of the Second Division of September 25, 1985 was set aside and the Petition was
given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but
merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or
insurance companies. The common defendant in these cases is petitioner herein,
being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a
party's pleading are deemed admissions of that party and binding upon it. 2 And an admission in one
pleading in one action may be received in evidence against the pleader or his successor-in-interest
on the trial of another action to which he is a party, in favor of a party to the latter action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions on
Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show
negligence of the carrier?

On the Law Applicable

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. 4 As the cargoes in question were
transported from Japan to the Philippines, the liability of Petitioner Carrier is governed primarily by
the Civil Code. 5 However, 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. 6 Thus, the
Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of the Civil Code. 7

On the Burden of Proof

Under 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 goods, according to all the
circumstances of each case. 8Common carriers are responsible for the loss, destruction, or
deterioration of the goods unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase
"natural disaster or calamity. " However, we are of the opinion that fire may not be considered a
natural disaster or calamity. This must be so as it arises almost invariably from some act of man or
by human means. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other natural disaster or
calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where a reduction of the
rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protection policy
towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides that all cases
than those mention in Article 1734, 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 deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused by
fire. The burden then is upon Petitioner Carrier to proved that it has exercised the extraordinary
diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made
the following Finding of fact:

The cargoes in question were, according to the witnesses defendant placed in

hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke
was coming out from hatch No. 2 and hatch No. 3; that where the smoke was
noticed, the fire was already big; that the fire must have started twenty-four 24) our
the same was noticed; that carbon dioxide was ordered released and the crew was
ordered to open the hatch covers of No, 2 tor commencement of fire fighting by sea
water: that all of these effort were not enough to control the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the
vigilance over the goods. The evidence of the defendant did not show that
extraordinary vigilance was observed by the vessel to prevent the occurrence of fire
at hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount
of diligence made by the crew, on orders, in the care of the cargoes. What appears is
that after the cargoes were stored in the hatches, no regular inspection was made as
to their condition during the voyage. Consequently, the crew could not have even
explain what could have caused the fire. The defendant, in the Court's mind, failed to
satisfactorily show that extraordinary vigilance and care had been made by the crew
to prevent the occurrence of the fire. The defendant, as a common carrier, is liable to
the consignees for said lack of deligence required of it under Article 1733 of the Civil
Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot
escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the
Civil Code, it is required under Article 1739 of the same Code that the "natural disaster" must have
been the "proximate and only cause of the loss," and that the carrier has "exercised due diligence to
prevent or minimize the loss before, during or after the occurrence of the disaster. " This Petitioner
Carrier has also failed to establish satisfactorily.

Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is
provided therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.
 xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was
"actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire
was already big; that the fire must have started twenty-four (24) hours before the same was noticed;
" and that "after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage." The foregoing suffices to show that the circumstances under which the
fire originated and spread are such as to show that Petitioner Carrier or its servants were negligent
in connection therewith. Consequently, the complete defense afforded by the COGSA when loss
results from fire is unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as provided
in section 4(5) of the COGSA, which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss
or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods
not shipped in packages, per customary freight unit, or the equivalent of that sum in
other currency, unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in bill of lading. This declaration if
embodied in the bill of lading shall be prima facie evidence, but all be conclusive on
the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In no
event shall the carrier be Liable for more than the amount of damage actually
sustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater
value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed
amount per package although the Code expressly permits a stipulation limiting such liability. Thus,
the COGSA which is suppletory to the provisions of the Civil Code, steps in and supplements the
Code by establishing a statutory provision limiting the carrier's liability in the absence of a declaration
of a higher value of the goods by the shipper in the bill of lading. The provisions of the Carriage of
Goods by.Sea Act on limited liability are as much a part of a bill of lading as though physically in it
and as much a part thereof as though placed therein by agreement of the parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss
or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed
US $500 per package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount of
damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which
was exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the
amount affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit
"C-2") Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current
exchange rate of P20.44 to US $1, would be P286,160, or "more than the amount of damage
actually sustained." Consequently, the aforestated amount of P256,039 should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75
(Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and amount was affirmed to
be paid by respondent Court. however, multiplying seven (7) cases by $500 per package at the
present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would yield P71,540 only, which is
the amount that should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court following
the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with
NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and
affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is more
than the insured value of the goods, that is $46,583, the Trial Court was correct in awarding said
amount only for the 128 cartons, which amount is less than the maximum limitation of the carrier's
liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be considered as
the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel — supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for the
plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container

supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act. Carriage of
Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be treated
as packages, the interest in securing international uniformity would suggest that they
should not be so treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating
a container as a package is inconsistent with the congressional purpose of
establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F.
Supp. at 907 (footnotes omitted):
 Although this approach has not completely escaped criticism, there
is, nonetheless, much to commend it. It gives needed recognition to
the responsibility of the courts to construe and apply the statute as
enacted, however great might be the temptation to "modernize" or
reconstitute it by artful judicial gloss. If COGSA's package limitation
scheme suffers from internal illness, Congress alone must undertake
the surgery. There is, in this regard, obvious wisdom in the Ninth
Circuit's conclusion in Hartford that technological advancements,
whether or not forseeable by the COGSA promulgators, do not
warrant a distortion or artificial construction of the statutory term
"package." A ruling that these large reusable metal pieces of
transport equipment qualify as COGSA packages — at least where,
as here, they were carrier owned and supplied — would amount to
just such a distortion.

Certainly, if the individual crates or cartons prepared by the shipper

and containing his goods can rightly be considered "packages"
standing by themselves, they do not suddenly lose that character
upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship. They
simply serve to divide the ship's overall cargo stowage space into
smaller, more serviceable loci. Shippers' packages are quite literally
"stowed" in the containers utilizing stevedoring practices and
materials analogous to those employed in traditional on board
stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other
grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases
followed Judge Beeks' reasoning in Matsushita and similarly rejected the functional
economics test. Judge Kellam held that when rolls of polyester goods are packed
into cardboard cartons which are then placed in containers, the cartons and not the
containers are the packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper into

cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as the
COGSA packages. However, Eurygenes indicated that a carrier could limit its liability
to $500 per container if the bill of lading failed to disclose the number of cartons or
units within the container, or if the parties indicated, in clear and unambiguous
language, an agreement to treat the container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package

Limitations and Third World Delivery Problems by Chester D. Hooper
& Keith L. Flicker, published in Fordham International Law Journal,
Vol. 6, 1982-83, Number 1) (Emphasis supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
 2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the
number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers should be
considered as the shipping unit subject to the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-furnished
or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were so
furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at the dorsal side of
the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that the
shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first entry would
have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the
construction of contracts that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. 20 This applies with even greater force in a contract of
adhesion where a contract is already prepared and the other party merely adheres to it, like the Bill
of Lading in this case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it failed to
do so. On this point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time
from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last time,
the defendant had more than nine months to prepare its evidence. Its belated notice
to take deposition on written interrogatories of its witnesses in Japan, served upon
the plaintiff on August 25th, just two days before the hearing set for August 27th,
knowing fully well that it was its undertaking on July 11 the that the deposition of the
witnesses would be dispensed with if by next time it had not yet been obtained, only
proves the lack of merit of the defendant's motion for postponement, for which
reason it deserves no sympathy from the Court in that regard. The defendant has
 told the Court since February 16, 1979, that it was going to take the deposition of its
witnesses in Japan. Why did it take until August 25, 1979, or more than six months,
to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now
that it was denied due process when the Trial Court rendered its Decision on the basis of the
evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed
the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in
G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R.
No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039 for the
twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare
parts, with interest at the legal rate from the date of the filing of the complaint on June 13, 1978, plus
P5,000 as attorney's fees, and the costs.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials,
and not the two (2) containers, should be considered as the shipping unit for the purpose of applying
the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation
adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American
Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd,
746. Both cases adopted the rule that carrier-furnished containers whose contents are fully disclosed
are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present
case, for the following reasons: (1) The facts in those cases differ materially from those obtaining in
the present case; and (2) the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company.
In Mitsui the Court held: "Certainly, if the individual crates or cartons prepared by the shipper and
containing his goods can rightly be considered "packages" standing by themselves, they do not
suddenly lose that character upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship." Cartons or crates placed inside carrier-
furnished containers are deemed stowed in the vessel itself, and do not lose their character as
individual units simply by being placed inside container provided by the carrier, which are merely
"detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-
supplied. This fact cannot be presumed. The facts of the case in fact show that this was the only
shipment placed in containers. The other shipment involved in the case, consisting of surveying
instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in
the bill of lading. Absent any positive evidence on this point, we cannot say that those words
constitute a mere estimate that the shipment could fit in two containers, thereby showing that when
the goods were delivered by the shipper, they were not yet placed inside the containers and that it
was the petitioner carrier which packed the goods into its own containers, as authorized under
paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption cannot be made in
view of the following words clearly stamped in red ink on the face of the bill of lading: "Shipper's
Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded
and counted the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the
number of cartons said to be contained inside them was indicated in the bill of lading, on the mere
say-so of the shipper. The freight paid to the carrier on the shipment was based on the
measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must have
saved on the freight charges by using containers for the shipment. Under the circumstances, it would
be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number of
cartons inside the containers, rather than on the containers themselves, since the freight revenue
was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the
COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have
revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by the container
revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while mindful of American
jurisprudence on the subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the parties
concerned. There is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges
based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment,
for that would have entailed higher freight charges; instead of paying higher freight charges, the
shipper protected itself by insuring the shipment. As subrogee, the insurance company can recover
from the carrier only what the shipper itself is entitled to recover, not the amount it actually paid the
shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or
"package" within the purview of COGSA. However, we realize that this may not be equitable as far
as the shipper is concerned. If the container is not regarded as a "package" within the terms of
COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit." Sec. 4
(5) of COGSA provides that in case of goods not shipped in packages, the limit of the carrier's
liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for
the shipment in question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic
meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials,
and not the two (2) containers, should be considered as the shipping unit for the purpose of applying
the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation
adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American
Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2nd,
746. Both cases adopted the rule that carrier-furnished containers whose contents are fully disclosed
are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present
case, for the following reasons: (1) The facts in those cases differ materially from those obtaining in
the present case; and (2) the rule laid down in those two cases is by no means settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company.
In Mitsui the Court held: "Certainly, if the individual crates or cartons prepared by the shipper and
containing his goods can rightly be considered "packages" standing by themselves, they do not
suddenly lose that character upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship." Cartons or crates placed inside carrier-
furnished containers are deemed stowed in the vessel itself, and do not lose their character as
individual units simply by being placed inside container provided by the carrier, which are merely
"detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-
supplied. This fact cannot be presumed. The facts of the case in fact show that this was the only
shipment placed in containers. The other shipment involved in the case, consisting of surveying
instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which appear in
the bill of lading. Absent any positive evidence on this point, we cannot say that those words
constitute a mere estimate that the shipment could fit in two containers, thereby showing that when
the goods were delivered by the shipper, they were not yet placed inside the containers and that it
was the petitioner carrier which packed the goods into its own containers, as authorized under
paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such assumption cannot be made in
view of the following words clearly stamped in red ink on the face of the bill of lading: "Shipper's
Load, Count and Seal Said to Contain." This clearly indicates that it was the shipper which loaded
and counted the goods placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and the
number of cartons said to be contained inside them was indicated in the bill of lading, on the mere
say-so of the shipper. The freight paid to the carrier on the shipment was based on the
measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must have
saved on the freight charges by using containers for the shipment. Under the circumstances, it would
be unfair to the carrier to have the limitation of its liability under COGSA fixed on the number of
cartons inside the containers, rather than on the containers themselves, since the freight revenue
was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the
COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern technological changes have
revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by the container
revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while mindful of American
jurisprudence on the subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the parties
concerned. There is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges
based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment,
for that would have entailed higher freight charges; instead of paying higher freight charges, the
shipper protected itself by insuring the shipment. As subrogee, the insurance company can recover
from the carrier only what the shipper itself is entitled to recover, not the amount it actually paid the
shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or
"package" within the purview of COGSA. However, we realize that this may not be equitable as far
as the shipper is concerned. If the container is not regarded as a "package" within the terms of
COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit." Sec. 4
(5) of COGSA provides that in case of goods not shipped in packages, the limit of the carrier's
liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's liability for
the shipment in question based on "freight unit" would be $21,950.00 for the shipment of 43.9 cubic
meters.

I concur with the rest of the decision.

Sarmiento, J., concur.