CARRIAGE BY TRAIN AND RAILROAD CROSSING CASES

55. Philippine National Railways vs. Court of Appeals. (G.R. No. L-55347. October
4, 1985);

FACTS:
The Philippine National Railways, PNR for short, instituted this petition for review on certiorari to
set aside the decision of the respondent Appellate Court which held petitioner PNR liable for
damages for the death of Winifredo Tupang, a paying passenger who fell off a train operated by
the petitioner. The facts show that on September 10, 1972, at about 9:00 o'clock in the evening,
Winifredo Tupang, husband of plaintiff Rosario Tupang, boarded Train No. 516 of appellant at
Libmanan, Camarines Sur, as a paying passenger bound for Manila. Due to some mechanical
defect, the train stopped at Sipocot, Camarines Sur, for repairs, taking some two hours before
the train could resume its trip to Manila. Unfortunately, upon passing Iyam Bridge at Lucena,
Quezon, Winifredo Tupang fell off the train resulting in his death. The train did not stop despite
the alarm raised by the other passengers that somebody fell from the train. Instead, the train
conductor, Perfecto Abrazado, called the station agent at Candelaria, Quezon, and requested
for verification of the information. Police authorities of Lucena City were dispatched to the Iyam
Bridge where they found the lifeless body of Winifredo Tupang. The autopsy report showed that
Winifredo Tupang died due to the traumatic injury he sustained. The Court of First Instance of
Rizal, after trial, held the petitioner PNR liable for damages for breach of contract of carriage
and ordered it to pay the plaintiff indemnity with damages. The Appellate Court sustained the
holding of the trial court that the PNR did not exercise the utmost diligence required by law of a
common carrier. It further increased the amount adjudicated by the lower court.

ISSUE:
W/N petitioner can be held responsible for the death of Winifredo Tupang as it invokes the
principle of state immunity from suit?

RULING:
The petition is devoid of merit. The PNR was created under Rep. Act 4156, giving it all the
powers, the characteristics and attributes of a corporation under the Corporation Law. There
can be no question then that the PNR may sue and be sued and may be subjected to court
processes just like any other corporation. The petitioner has the obligation to transport its
passengers to their destinations and to observe extraordinary diligence in doing so. Death or
any injury suffered by any of its passengers gives rise to the presumption that it was negligent in
the performance of its obligation under the contract of carriage. Thus, as correctly ruled by the
respondent court, the petitioner failed to overthrow such presumption of negligence with clear
and convincing evidence. While petitioner failed to exercise extraordinary diligence as required
by law, 8 it appears that the deceased was chargeable with contributory negligence. Since he
opted to sit on the open platform between the coaches of the train, he should have held tightly
and tenaciously on the upright metal bar found at the side of said platform to avoid falling off
from the speeding train. Such contributory negligence, while not exempting the PNR from
liability, nevertheless justified the deletion of the amount adjudicated as moral damages.
Therefore the decision of the respondent appellate court is hereby modified by eliminating
therefrom the amounts of P10,000.00 and P5,000.00 adjudicated as moral and exemplary
damages, respectively.
 56. Philippine National Railways vs. Vizcara. (G.R. No. 190022. February 15, 2012);

FACTS:
This is a petition for review on certiorari seeking to annul and set aside the decision of the Court
of Appeals (CA) which affirmed with modification the Regional Trial Court of Palayan City.
Reynaldo Vizcara (Reynaldo) was driving a passenger jeepney headed towards Bicol to deliver
onion crops, with his companions. While crossing the railroad track in Quezon, a Philippine
National Railways (PNR) train suddenly turned up and rammed their passenger jeepney. The
collision resulted in the instantaneous death of Vizcara and some companions, while others
sustained injuries. At the time of the accident, there was no level crossing installed at the
railroad crossing. Additionally, the "Stop, Look and Listen" signage was poorly maintained. the
survivors of the mishap together with the heirs of the deceased victims filed an action for
damages against PNR. They alleged that the proximate cause of the fatalities and serious
physical injuries sustained by the victims of the accident was the petitioners' gross negligence in
not providing adequate safety measures to prevent injury to persons and properties. The
petitioners claimed that they exercised due diligence in operating the train and monitoring its
roadworthiness. In fact, the train operator immediately stepped on the brakes to avoid hitting the
jeepney but due to the sheer weight of the train, it did not instantly come to a complete stop.
The RTC ruled on the matter, ordering that the petitioner pay the respondents.

ISSUE: W/N the CA erred in finding that the proximate cause of the accident was the
negligence of the petitioners.

RULING:
The Court agrees with the findings made by the lower courts identifying the petitioners' failure to
install adequate safety devices at the railroad crossing was the proximate cause of the collision.
The Court also asserted that there was no contributory negligence on the part of the
respondents as the driver of the jeepney merely followed the vehicle in front of them on the
belief that it was safe to do so. The driver was merely relying on his faculties of sight and
hearing, and had no reason to anticipate the impending danger. At this age of modern
transportation, it behooves the PNR to exert serious efforts to catch up with the trend, including
the contemporary standards in railroad safety. As an institution established to alleviate public
transportation, it is the duty of the PNR to promote the safety and security of the general riding
public and provide for their convenience, which to a considerable degree may be accomplished
by the installation of precautionary warning devices. Every railroad crossing must be installed
with barriers on each side of the track to block the full width of the road until after the train runs
past the crossing, and equipped with a device which rings a bell or turns on a signal light to
signify the danger or risk of crossing. It is similarly beneficial to mount advance warning signs at
the railroad crossing, such as a reflectorized crossbuck sign to inform motorists of the existence
of the track, and a stop, look and listen signage to prompt the public to take caution. These
warning signs must be erected in a place where they will have ample lighting and unobstructed
visibility both day and night. If only these safety devices were installed at the Tiaong railroad
crossing and the accident nevertheless occurred, we could have reached a different disposition
in the extent of the petitioner's liability. The maintenance of safety equipment and warning
signals at railroad crossings is equally important as their installation since poorly maintained
safety warning devices court as much danger as when none was installed at all. The presence
of safety warning signals at railroad crossing carries with it the presumption that they are in
good working condition and that the public may depend on them for assistance. If they happen
to be neglected and inoperative, the public may be misled into relying on the impression of
safety they normally convey and eventually bring injury to themselves in doing so.
The petition is denied, and the CA decision is affirmed.
PASSENGER’S BAGGAGE
57. Sarkies Tours vs. Court of Appeals. (G.R. No. 108897. October 2, 1997);

FACTS (Based on the synopsis):

On August 31, 1984, Fatima boarded petitioner's De Luxe Bus No. 5 in Manila on her way to
Legazpi City. Her brother helped her load three pieces of luggage containing all of her
optometry things, passport and visa, her mother's U.S. immigration card, among other important
documents and personal belongings. Her belongings were kept in the baggage compartment of
the bus, but during a stopover at Daet, it was discovered that only one bag remained in the
open compartment. Fatima's things were missing and might have dropped along the way.
Petitioner merely offered her P1,000.00 for each piece of luggage lost, which she turned down.
She then filed suit to recover the value of the lost items, as well as moral and exemplary
damages, attorney's fees and expenses of litigation. The court a quo adjudged the case in favor
of respondents, which was affirmed by the Court of Appeals, except for the award of damages
which was deleted. CTDAaE
ISSUE:
W/N the CA erred in finding the petitioner liable for the loss of the private respondent’s luggage.
RULING:
The Supreme Court held that both the trial and appellate courts resolved the issues judiciously
based on the evidence at hand. The cause of the loss was petitioner's negligence. The cause of
the loss in the case at bar was petitioner's negligence in not ensuring that the doors of the
baggage compartment of its bus were securely fastened. As a result of this lack of care, almost
all of the luggage was lost, to the prejudice of the paying passengers. The assailed decision of
the Court of Appeals and its resolution are hereby AFFIRMED with the MODIFICATION that
petitioner is ordered to pay respondents an additional moral damages and exemplary damages.
CIVIL LAW; COMMON CARRIERS; VIGILANCE OVER THE GOODS; EXTRAORDINARY
DILIGENCE, REQUIRED. — Under the Civil Code, "(c)ommon carrier, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods . . . transported by them," and this liability "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
person who has a right to receive them," unless the loss is due to any of the excepted causes
under Article 1734 thereof.
CHAPTER 3 OBLIGATIONS OF THE COMMON CARRIER

DUTY TO EXERCISE DUE DILIGENCE

58. Sps. Fabre vs. Court of Appeals. (G.R. No. 111127. July 26, 1996);
FACTS:
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. 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 at
5:00 p.m. However, as several members of the party were late, the bus did not leave until 8:00
p.m. Petitioner Porfirio Cabil drove the minibus, unfamiliar with the road, was forced to take a
detour through the town of Ba-ay 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 seriously injured and some had to go through medical procedures. A
case was brought to the Makati RTC which found that there was no convincing evidence was
showing 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.

ISSUE: WHETHER OR NOT PETITIONERS WERE LIABLE FOR THE INJURIES SUFFERED
BY PRIVATE RESPONDENTS.
RULING:

As common carriers, the Fabres were bound 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 exercised 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 wilful 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.
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. 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.

NEGLIGENCE OF AN EMPLOYEE GIVES RISE TO THE PRESUMPTION THAT HIS

EMPLOYERS ARE THEMSELVES NEGLIGENT IN THE SELECTION AND SUPERVISION
OF THEIR EMPLOYEE. — 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 supervision 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. Due
diligence in supervision, on the other hand, requires the formulation of rules and regulations for
the guidance of employees and the issuance of proper instructions as well as actual
implementation and monitoring of consistent compliance with the rules.

DUTY TO DISCLOSE – (In this case, the contents of the thing to be delivered are remains of
deceased mother of the petitioners. The airline company transporting could not further look into
the sealed casket to verify the remains. Failure of the company to verify the contents is not
negligence on their part.)
59. Saludo, Jr. vs. Court of Appeals. (G.R. No. 95536. March 23, 1992);

FACTS: Crispina Galdo Saludo, mother of the petitioners, died in Chicago, Illinois. Pomierski
and Son Funeral Home of Chicago, made the necessary preparations and arrangements for the
shipment of the remains from Chicago to the Philippines. Pomierski brought the remains to
Continental Mortuary Air Services (CMAS) at the Chicago Airport which made the necessary
arrangements such as flights, transfers, etc. CMAS booked the shipment with PAL thru the
carrier’s agent Air Care International. PAL Airway Bill Ordinary was issued wherein the
requested routing was from Chicago to San Francisco on board Trans World Airline (TWA) and
from San Francisco to Manila on board PAL.

Salvacion (one of the petitioners), upon arrival at San Francisco, went to the TWA to inquire
about her mother’s remains. But she was told they did not know anything about it. She then
called Pomierski that her mother’s remains were not at the West Coast terminal. Pomierski
immediately called CMAS which informed that the remains were on a plane to Mexico City, that
there were two bodies at the terminal, and somehow they were switched. CMAS called and told
Pomierski that they were sending the remains back to California via Texas.

Petitioners filed a complaint against TWA and PAL fir the misshipment and delay in the delay of
the cargo containing the remains of the late Crispina Saludo. Petitioners alleged that private
respondents received the casketed remains of Crispina on October 26, 1976, as evidenced by
the issuance of PAL Airway Bill by Air Care and from said date, private respondents were
charged with the responsibility to exercise extraordinary diligence so much so that the alleged
switching of the caskets on October 27, 1976, or one day after the private respondents received
the cargo, the latter must necessarily be liable.

ISSUE: Whether or not the delay in the delivery of the casketed remains of petitioners’ mother
was due to the fault of respondent airline companies

HELD:

Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the
common carrier begins from the time the goods are delivered to the carrier. This responsibility
remains in full force and effect even when they are temporarily unloaded or stored in transit,
unless the shipper or owner exercises the right of stoppage in transitu, and terminates only after
the lapse of a reasonable time for the acceptance, of the goods by the consignee or such other
person entitled to receive them. And, there is delivery to the carrier when the goods are ready
for and have been placed in the exclusive possession, custody and control of the carrier for the
purpose of their immediate transportation and the carrier has accepted them. Where such a
delivery has thus been accepted by the carrier, the liability of the common carrier
commences eo instanti.
Hence, while we agree with petitioners that the extraordinary diligence statutorily required to be
observed by the carrier instantaneously commences upon delivery of the goods thereto, for
such duty to commence there must in fact have been delivery of the cargo subject of the
contract of carriage. Only when such fact of delivery has been unequivocally established can
the liability for loss, destruction or deterioration of goods in the custody of the carrier, absent the
excepting causes under Article 1734, attach and the presumption of fault of the carrier under
Article 1735 be invoked.

As already demonstrated, the facts in the case at bar belie the averment that there was delivery
of the cargo to the carrier on October 26, 1976. Rather, as earlier explained, the body intended
to be shipped as agreed upon was really placed in the possession and control of PAL on
October 28, 1976 and it was from that date that private respondents became responsible for the
agreed cargo under their undertakings in PAL Airway Bill No. 079-01180454. Consequently, for
the switching of caskets prior thereto which was not caused by them, and subsequent events
caused thereby, private respondents cannot be held liable.

The oft-repeated rule regarding a carrier’s liability for delay is that in the absence of a special
contract, a carrier is not an insurer against delay in transportation of goods. When a common
carrier undertakes to convey goods, the law implies a contract that they shall be delivered at
destination within a reasonable time, in the absence, of any agreement as to the time of
delivery. But where a carrier has made an express contract to transport and deliver property
within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from
what cause it may have arisen. This result logically follows from the well-settled rule that where
the law creates a duty or charge, and the party is disabled from performing it without any default
in himself, and has no remedy over, then the law will excuse him, but where the party by his
own contract creates a duty or charge upon himself, he is bound to make it good
notwithstanding any accident or delay by inevitable necessity because he might have provided
against it by contract. Whether or not there has been such an undertaking on the part of the
carrier to be determined from the circumstances surrounding the case and by application of the
ordinary rules for the interpretation of contracts.

Echoing the findings of the trial court, the respondent court correctly declared that —
In a similar case of delayed delivery of air cargo under a very similar stipulation contained in the
airway bill which reads: “The carrier does not obligate itself to carry the goods by any specified
aircraft or on a specified time. Said carrier being hereby authorized to deviate from the route of
the shipment without any liability therefor”, our Supreme Court ruled that common carriers are
not obligated by law to carry and to deliver merchandise, and persons are not vested with the
right to prompt delivery, unless such common carriers previously assume the obligation. Said
rights and obligations are created by a specific contract entered into by the parties (Mendoza
vs. PAL, 90 Phil. 836).

There is no showing by plaintiffs that such a special or specific contract had been entered into
between them and the defendant airline companies.

And this special contract for prompt delivery should call the attention of the carrier to the
circumstances surrounding the case and the approximate amount of damages to be suffered in
case of delay. There was no such contract entered into in the instant case.”
A common carrier undertaking to transport property has the implicit duty to carry and deliver it
within reasonable time, absent any particular stipulation regarding time of delivery, and to guard
against delay. In case of any unreasonable delay, the carrier shall be liable for damages
immediately and proximately resulting from such neglect of duty. As found by the trial court, the
delay in the delivery of the remains of Crispina Saludo, undeniable and regrettable as it was,
cannot be attributed to the fault, negligence or malice of private respondents, a conclusion
concurred in by respondent court and which we are not inclined to disturb.

FAILURE TO VERIFY AND IDENTIFY THE CONTENTS OF THE CARGO; DOES NOT
CONSTITUTE NEGLIGENCE; CASE AT BAR. — Petitioners consider TWA's statement that it
had to rely on the information furnished by the shipper" a lame, excuse and that its failure to
prove that its personnel verified and identified the contents of the casket before loading the
same constituted negligence on the part of TWA. We uphold the favorable consideration by the
Court of Appeals of the following findings of the trial court: "It was not (to) TWA, but to C.M.A.S.
that the Pomierski & Son Funeral Home delivered the casket containing the remains of Crispina
Saludo. TWA would have no knowledge therefore that the remains of Crispina Saludo were not
the ones inside the casket that was being presented to it for shipment. TWA would have to rely
on the representations of C.M.A.S. The casket was hermetically sealed and also sealed by
the Philippine Vice Consul in Chicago. TWA or any airline for that matter would not have
opened such sealed casket just for the purpose of ascertaining whose body was inside
and to make sure that the remains inside were those of the particular person indicated to
be by C.M.A.S. TWA had to accept whatever information was being furnished by the shipper or
by the one presenting the casket for shipment. And so as a matter of fact, TWA carried to San
Francisco and transferred to defendant PAL a shipment covered by or under PAL Airway Bill
No. 079-ORD-01180454, the airway bill for the shipment of the casketed remains of Crispina
Saludo. Only, it turned out later, while the casket was already with PAL, that what was inside the
casket was not the body of Crispina Saludo so much so that it had to be withdrawn by C.M.A.S
from PAL. The body of Crispina Saludo had been shipped to Mexico. The casket containing the
remains of Crispina Saludo was transshipped from Mexico and arrived in San Francisco the
following day on board American Airlines. It was immediately loaded by PAL on its flight for
Manila. The foregoing points at C.M.A.S., not defendant TWA much less defendant PAL, as the
ONE responsible for the switching or mix-up of the two bodies at the Chicago Airport terminal,
and started a chain reaction of the misshipment of the body of Crispina Saludo and a one-day
delay in the delivery thereof to its destination. Verily, no amount of inspection by respondent
airline companies could have guarded against the switching that had already taken place. Or,
granting that they could have opened the casket to inspect its contents, private respondents had
no means of ascertaining whether the body therein contained was indeed that of Crispina
Saludo except, possibly, if the body was that of a male person and such fact was visually
apparent upon opening the casket. However, to repeat, private respondents had no authority to
unseal and open the same nor did they have any reason or justification to resort
thereto.||| (Saludo, Jr. v. Court of Appeals, G.R. No. 95536, [March 23, 1992])
PAYMENT OF FREIGHT
60. Republic vs. Manila Electric Company. (G.R. No. 141314. November 15, 2002);

SYNOPSIS

The Court here resolves the following issues: 1. Whether the income tax paid by Meralco
should be treated as part of its operating expenses and thus considered in determining the
amount of increase in the electric rates. 2. Whether it is the net average investment method of
the COA and the ERB, or the average investment method of the Meralco that should be used.
On the first issue, the Court ruled in the negative. Income tax paid by a public utility is
inconsistent with the nature of operating expenses. Operating expenses are those which are
reasonably incurred in connection with business operations to yield revenue or income. Income
tax is imposed on the entity, for the privilege of earning income and for the benefits received by
the taxpayer from the State. On the second issue, the Court ruled on the propriety of using the
net average investment method in the determination of the rate base. The ERB did not abuse its
discretion when it applied the method as its reasonableness is borne by the records of the case.
Meralco had not adequately shown that the rates prescribed by the ERB are unjust or
confiscatory as to deprive its stockholders a reasonable return on investment.

SYLLABUS

1. POLITICAL LAW; INHERENT POWERS OF THE STATE; POLICE POWER;

REGULATION OF RATES TO BE CHARGED BY PUBLIC UTILITIES FOUNDED THEREON.
— The regulation of rates to be charged by public utilities is founded upon the police powers of
the State and statutes prescribing rules for the control and regulation of public utilities are a
valid exercise thereof. When private property is used for a public purpose and is affected with
public interest, it ceases to be juris privati only and becomes subject to regulation. The
regulation is to promote the common good. Submission to regulation may be withdrawn by the
owner by discontinuing use; but as long as use of the property is continued, the same is subject
to public regulation. In regulating rates charged by public utilities, the State protects the public
against arbitrary and excessive rates while maintaining the efficiency and quality of services
rendered. However, the power to regulate rates does not give the State the right to prescribe
rates which are so low as to deprive the public utility of a reasonable return on
investment. Thus, the rates prescribed by the State must be one that yields a fair return on the
public utility upon the value of the property performing the service and one that is reasonable to
the public for the services rendered. The fixing of just and reasonable rates involves a balancing
of the investor and the consumer interests.
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF THE ENERGY REGULATORY BOARD
ON THE DETERMINATION OF PROPER ENERGY RATES; RESPECTED. — While the power
to fix rates is a legislative function, whether exercised by the legislature itself or delegated
through an administrative agency, a determination of whether the rates so fixed are reasonable
and just is a purely judicial question and is subject to the review of the courts. Settled
jurisprudence holds that factual findings of administrative bodies on technical matters within
their area of expertise should be accorded not only respect but even finality if they are
supported by substantial evidence even if not overwhelming or preponderant. In one case, we
cautioned that courts should "refrain from substituting their discretion on the weight of the
evidence for the discretion of the Public Service Commission on questions of fact and will only
reverse or modify such orders of the Public Service Commission when it really appears that the
evidence is insufficient to support their conclusions." In the cases at bar, findings and
conclusions of the ERB on the rate that can be charged by MERALCO to the public should be
respected. The function of the court, in exercising its power of judicial review, is to determine
whether under the facts and circumstances, the final order entered by the administrative agency
is unlawful or unreasonable. Thus, to the extent that the administrative agency has not been
arbitrary or capricious in the exercise of its power, the time-honored principle is that courts
should not interfere. The principle of separation of powers dictates that courts should hesitate to
review the acts of administrative officers except in clear cases of grave abuse of
discretion. DTIaCS
3. POLITICAL LAW; ADMINISTRATIVE LAW; ENERGY REGULATORY BOARD; ON
FIXING RATES TO BE CHARGED IN THE DISTRIBUTION OF ELECTRICITY; DETERMINES
WHAT IS REASONABLE AND JUST. — The ERB was created under Executive Order No. 172
to regulate, among others, the distribution of energy resources and to fix rates to be charged by
public utilities involved in the distribution of electricity. In the fixing of rates, the only
standard which the legislature is required to prescribe for the guidance of the administrative
authority is that the rate be reasonable and just. It has been held that even in the absence of an
express requirement as to reasonableness, this standard may be implied. What is a just and
reasonable rate is a question of fact calling for the exercise of discretion, good sense, and a
fair, enlightened and independent judgment. The requirement of reasonableness comprehends
such rates which must not be so low as to be confiscatory, or too high as to be oppressive: In
determining whether a rate is confiscatory, it is essential also to consider the given situation,
requirements and opportunities of the utility. In determining the just and reasonable rates to; be
charged by a public utility, three major factors are considered by the regulating agency: a) rate
of return; b) rate base; and c) the return itself or the computed revenue to be earned by the
public utility based on the rate of return and rate base. The rate of return is a judgment
percentage which, if multiplied with the rate base, provides a fair return on the public utility for
the use of its property for service to the public: The rate of return of a public utility is not
prescribed by statute but by administrative and judicial pronouncements. This Court has
consistently adopted a 12% rate of return for public utilities. The rate base, on the other hand, is
an evaluation of the property devoted by the utility to the public service or the value of invested
capital or property which the utility is entitled to a return.
4. ID.; ID.; ID.; ID.; INCOME TAX NOT INCLUDED IN THE COMPUTATION OF
OPERATING EXPENSES OF A PUBLIC UTILITY. — In determining whether or not a rate
yields a fair return to the utility, the operating expenses of the utility must be considered. The
return allowed to a public utility in accordance with the prescribed rate must be sufficient to
provide for the payment of such reasonable operating expenses incurred by the public utility in
the provision of its services to the public. Thus, the public utility is allowed a return on capital
over and above operating expenses. However, only such expenses and in such amounts as are
reasonable for the efficient operation of the utility should be allowed for determination of the
rates to be charged by a public utility. The ERB correctly ruled that income tax should not be
included in the computation of operating expenses of a public utility. Income tax paid by a public
utility is inconsistent with the nature of operating expenses. In general, operating expenses are
those which are reasonably incurred in connection with business operations to yield revenue or
income. They are items of expenses which contribute or are attributable to the production of
income or revenue. As correctly put by the ERB, operating expenses "should be a requisite of or
necessary in the operation of a utility, recurring, and that it redounds to the service or benefit of
customers." Income tax, it should be stressed, is imposed on an individual or entity as a form of
excise tax or a tax on the privilege of earning income. In exchange for the protection extended
by the State to the taxpayer, the government collects taxes as a source of revenue to finance its
activities. Clearly, by its nature, income tax payments of a public utility are not expenses which
contribute to or are incurred in connection with the production of profit of a public utility. Income
tax should be borne by the taxpayer alone as they are payments made in exchange for benefits
received by the taxpayer from the State. No benefit is derived by the customers of a public utility
for the taxes paid by such entity and no direct contribution is made by the payment of income
tax to the operation of a public utility for purposes of generating revenue or profit. Accordingly,
the burden of paying income tax should be Meralco's alone and should not be shifted to the
consumers by including the same in the computation of its operating expenses. ETDSAc
5. ID.; ID.; ID.; DETERMINATION OF THE RATE BASE ON THE PROPERTY USED IN
THE OPERATION OF THE PUBLIC UTILITY; NET AVERAGE INVESTMENT METHOD AND
AVERAGE INVESTMENT METHOD. — In the determination of the rate base, property used in
the operation of the public utility must be subject to appraisal and evaluation to determine the
fair value thereof entitled to a fair return. With respect to those properties which have not been
used by the public utility for the entire duration of the test year, i.e., the year subject to audit
examination for rate-making purposes, a valuation method must be adopted to determine the
proportionate value of the property. Under the "net average investment method," properties and
equipment used in the operation of a public utility are entitled to a return only on the actual
number of months they are in service during the period. In contrast, the "average investment
method" computes the proportionate value of the property by adding the value of the property at
the beginning and at the end of the test year with the resulting sum divided by two.
6. ID.; ID.; ID.; ID.; ID.; PROPRIETY OF THE NET AVERAGE INVESTMENT METHOD.
— The ERB did not abuse its discretion when it applied the net average investment method.
The reasonableness of net average investment method is borne by the records of the case. In
its report, the COA explained that the computation of the proportionate value of the property and
equipment in accordance with the actual number of months such property or equipment is in
service for purposes of determining the rate base is favored, as against the trending method
employed by MERALCO, "to reflect the real status of the property." By using the net average
investment method, the ERB and the COA considered for determination of the rate base the
value of properties and equipment used by MERALCO in proportion to the period that the same
were actually used during the period in question. This treatment is consistent with the settled
rule in rate regulation that the determination of the rate base of a public utility entitled to a return
must be based on properties and equipment actually being used or are useful to the operations
of the public utility.
Facts:

MERALCO filed with petitioner ERB an application for the revision of its rate schedules to reflect
an average increase in its distribution charge. ERB granted a provisional increase subject to the
condition that should the COA thru its audit report find MERALCO is entitled to a lesser
increase, all excess amounts collected from the latter’s customers shall either be refunded to
them or correspondingly credited in their favor. The COA report found that MERALCO is entitled
to a lesser increase, thus ERB ordered the refund or crediting of the excess amounts. On
appeal, the CA set aside the ERB decision. MRs were denied.
Issue:

Whether or not the regulation of ERB as to the adjustment of rates of MERALCO is valid.

Ruling: YES.

 The regulation of rates to be charged by public utilities is founded upon the police powers of the
State and statutes prescribing rules for the control and regulation of public utilities are a valid
exercise thereof. When private property is used for a public purpose and is affected with public
interest, it ceases to be juris privati only and becomes subject to regulation. The regulation is to
promote the common good. Submission to regulation may be withdrawn by the owner by
discontinuing use; but as long as use of the property is continued, the same is subject to public
regulation.

In regulating rates charged by public utilities, the State protects the public against arbitrary and
excessive rates while maintaining the efficiency and quality of services rendered. However, the
power to regulate rates does not give the State the right to prescribe rates which are so low as
to deprive the public utility of a reasonable return on investment. Thus, the rates prescribed by
the State must be one that yields a fair return on the public utility upon the value of the property
performing the service and one that is reasonable to the public for the services rendered. The
fixing of just and reasonable rates involves a balancing of the investor and the consumer
interests.

TIMELY LOADING AND UNLOADING

61. Magellan Manufacturing Marketing vs. Court of Appeals. (G.R. No. 95529.
August 22, 1991);

FACTS:
Choju Co., Ltd purchased from Magellan Manufacturers Marketing Corp. (MMMC) 136,000
anahaw fans for $23,220. MMMC contracted with F.E. Zuellig, a shipping agent of Orient
Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of lading
and that transhipment is not allowed under the letter of credit. MMMC paid F.E. Zuellig the
freight charges and secured a copy of the bill of lading which was presented to Allied Bank. The
bank then credited the amount of US$23,220 covered by the letter of credit to MMMC. When
MMMC's President James Cu, went back to the bank later, he was informed that the payment
was refused by the buying for lack of bill of lading and there was a transhipment of goods. The
anahaw fans were shipped back to Manila through OOCL who are demanding from
MMMC P246,043.43 (freight charges from Japan to Manila, demurrage incurred in Japan and
Manila from October 22, 1980 up to May 20, 1981 and charges for stripping the container van of
the Anahaw fans on May 20, 1981). MMMC abandoned the whole cargo and asked OOCL for
damages. OOCL: bill of lading clearly shows that there will be a transhipment and that petitioner
was well aware that MV (Pacific) Despatcher was only up to Hongkong where the subject cargo
will be transferred to another vessel for Japan. RTC rendered a decision which favored OOCL.
MMMC was the one who ordered the reshipment of the cargo from Japan to Manila. The Court
of Appeals affirmed the RTC with modification of excluding demurrage in Manila

ISSUE: W/N there was transshipment

HELD: Yes. It appears on the face of the bill of lading that the entry “Hong Kong” in the
blank space labeled “Transshipment” which can only mean that transshipment actually took
place. This fact is bolstered by the certification issued by private respondent F.E. Zuellig,
Inc., although it carefully used the word “transfer” instead of transshipment. No amount of
semantic juggling can mask the fact that transshipment occurred in this case.

FROM THE CASE: The Supreme Court found no fault on the part of private respondents. On
the matter of transshipment, petitioner maintains that ". . . while the goods were transferred in
Hong Kong from MV Pacific Despatcher, the feeder vessel, to MV Oriental Researcher, a
mother vessel, the same cannot be considered transshipment because both vessels belong to
the same shipping company, the private respondent Orient Overseas Container Lines,
Inc." Petitioner emphatically goes on to say: "To be sure, there was no actual transshipment of
the Anahaw fans. The private respondents have executed a certification to the effect that while
the Anahaw fans were transferred from one vessel to another in Hong Kong, since the two
vessels belong to one and the same company then there was no transshipment."
Transshipment, in maritime law, is defined as "the act of taking cargo out of one ship and
loading it in another," or "the transfer of goods from the vessel stipulated in the contract of
affreightment to another vessel before the place of destination named in the contract has been
reached," or "the transfer for further transportation from one ship or conveyance to
another." Clearly, either in its ordinary or its strictly legal acceptation, there is transshipment
whether or not the same person, firm or entity owns the vessels. In other words, the fact of
transshipment is not dependent upon the ownership of the transporting ships or conveyances or
in the change of camera, as the petitioner seems to suggest, but rather on the fact of actual
physical transfer of cargo from one vessel to another.
That there was transshipment within this contemplation is the inescapable conclusion, as there
unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space
labeled "Transshipment," which can only mean that transshipment actually took place. This fact
is further bolstered by the certification issued by private respondent F.E. Zuellig, Inc. dated July
19, 1980, although it carefully used the term "transfer" instead of transshipment. Nonetheless,
no amount of semantic juggling can mask the fact that transshipment in truth occurred in this
case.

Now, there is no dispute that private respondents expressly and on their own volition granted
petitioner an option with respect to the satisfaction of freightage and demurrage charges.
Having given such option, especially since it was accepted by petitioner, private respondents
are estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise
said option. Private respondents, in giving the option, and petitioner, in exercising that option,
are concluded by their respective actions. To allow either of them to unilaterally back out on the
offer and on the exercise of the option would be to countenance abuse of rights as an order of
the day, doing violence to the long entrenched principle of mutuality of contracts.
It will be remembered that in overland transportation, an unreasonable delay in the delivery
of transported goods is sufficient ground for the abandonment of goods. By analogy,
this can also apply to maritime transportation. Further, with much more reason can
petitioner in the instant case properly abandon the goods, not only because of the
unreasonable delay in its delivery but because of the option which was categorically
granted to and exercised by it as a means of settling its liability for the cost and
expenses of reshipment. And, said choice having been duly communicated, the same is
binding upon the parties on legal and equitable considerations of estoppel.
DISPOSITIVE: WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with
the MODIFICATION that petitioner is likewise absolved of any liability and the award of
P52,102.45 with legal interest granted by respondent court on private respondents' counterclaim
is SET ASIDE, said counterclaim being hereby DISMISSED, without pronouncement as to
costs.

DEMURRAGE IS A CLAIM FOR DAMAGES FOR FAILURE TO ACCEPT DELIVERY AND

EXISTS ONLY WHEN EXPRESSLY STIPULATED. — Demurrage, in its strict sense, is the
compensation provided for in the contract of affreightment for the detention of the vessel beyond
the time agreed on for loading and unloading. Essentially, demurrage is the claim for damages
for failure to accept delivery. In a broad sense, every improper detention of a vessel may be
considered a demurrage. Liability for demurrage, using the word in its strictly technical sense,
exists only when expressly stipulated in the contract. Using the term in its broader sense,
damages in the nature of demurrage are recoverable for a breach of the implied obligation to
load or unload the cargo with reasonable dispatch, but only by the party to whom the duty is
owed and only against one who is a party to the shipping contract. Notice of arrival of vessels or
conveyances, or of their placement for purposes of unloading is often a condition precedent to
the right to collect demurrage charges.

BILL OF LADING; CONTENTS THEREOF EVIDENCING INTENTION PREVAILS OVER

SHIPPER'S THESIS. — As between such stilted thesis of petitioner and the contents of the bill
of lading evidencing the intention of the parties, it is irremissible that the latter must prevail.
Petitioner conveniently overlooks the first paragraph of the very article that he cites which
provides that "(i)f the terms of the contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of the stipulations shall control." In addition, Article
1371 of the same Code provides that "(i)n order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally considered."||| (Magellan
Manufacturing Marketing Corp. v. Court of Appeals, G.R. No. 95529, [August 22, 1991], 278
PHIL 118-141)

CIVIL LAW; CONTRACTS; MUTUALITY OF CONTRACT IS VIOLATED IF PARTY IS

ALLOWED TO BACK OUT OF THE OFFER. — There is no dispute that private respondents
expressly and on their own volition granted petitioner an option with respect to the satisfaction of
freightage and demurrage charges. Having given such option, especially since it was accepted
by petitioner, private respondents are estopped from reneging thereon. Petitioner, on its part,
was well within its right to exercise said option. Private respondents, in giving the option, and
petitioner, in exercising that option, are concluded by their respective actions. To allow either of
them to unilaterally back out on the offer and on the exercise of the option would be to
countenance abuse of rights as an order of the day, doing violence to the long entrenched
principle of mutuality of contracts.||| (Magellan Manufacturing Marketing Corp. v. Court of
Appeals, G.R. No. 95529, [August 22, 1991], 278 PHIL 118-141)