Case No.

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.

Page 1 of 66
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.

Page 2 of 66
Case No. 2
G.R. No. 92288 February 9, 1993
BRITISH AIRWAYS, INC., petitioner,
vs.
THE HON. COURT OF APPEALS, Twelfth Division, and FIRST INTERNATIONAL TRADING AND GENERAL
SERVICES, respondents.

Quasha, Asperilla, Ancheta, Peña & Nolasco for petitioner.

Monina P. Lee for private respondent.

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision dated November 15, 1989 of the Court of Appeals1 affirming
the decision of the trial court2 in ordering petitioner British Airways, Inc. to pay private respondent First International Trading and
General Services actual damages, moral damages, corrective or exemplary damages, attorney's fees and the costs as well as the
Resolution dated February 15, 19903 denying petitioner's Motion for Reconsideration in the appealed decision.

It appears on record that on February 15, 1981, private respondent First International Trading and General Services Co., a duly
licensed domestic recruitment and placement agency, received a telex message from its principal ROLACO Engineering and
Contracting Services in Jeddah, Saudi Arabia to recruit Filipino contract workers in behalf of said principal.4

During the early part of March 1981, said principal paid to the Jeddah branch of petitioner British Airways, Inc. airfare tickets for 93
contract workers with specific instruction to transport said workers to Jeddah on or before March 30, 1981.

As soon as petitioner received a prepaid ticket advice from its Jeddah branch to transport the 93 workers, private respondent was
immediately informed by petitioner that its principal had forwarded 93 prepaid tickets. Thereafter, private respondent instructed its travel
agent, ADB Travel and Tours. Inc., to book the 93 workers with petitioner but the latter failed to fly said workers, thereby compelling
private respondent to borrow money in the amount of P304,416.00 in order to purchase airline tickets from the other airlines as
evidenced by the cash vouchers (Exhibits "B", "C" and "C-1 to C-7") for the 93 workers it had recruited who must leave immediately
since the visas of said workers are valid only for 45 days and the Bureau of Employment Services mandates that contract workers must
be sent to the job site within a period of 30 days.

Sometime in the first week of June, 1981, private respondent was again informed by the petitioner that it had received a prepaid ticket
advice from its Jeddah branch for the transportation of 27 contract workers. Immediatety, private respondent instructed its travel agent
to book the 27 contract workers with the petitioner but the latter was only able to book and confirm 16 seats on its June 9, 1981 flight.
However, on the date of the scheduled flight only 9 workers were able to board said flight while the remaining 7 workers were rebooked
to June 30, 1981 which bookings were again cancelled by the petitioner without any prior notice to either private respondent or the
workers. Thereafter, the 7 workers were rebooked to the July 4,1981 flight of petitioner with 6 more workers booked for said flight.
Unfortunately, the confirmed bookings of the 13 workers were again cancelled and rebooked to July 7, 1981.

On July 6, 1981, private respondent paid the travel tax of the said workers as required by the petitioner but when the receipt of the tax
payments was submitted, the latter informed private respondent that it can only confirm the seats of the 12 workers on its July 7, 1981
flight. However, the confirmed seats of said workers were again cancelled without any prior notice either to the private respondent or
said workers. The 12 workers were finally able to leave for Jeddah after private respondent had bought tickets from the other airlines.

As a result of these incidents, private respondent sent a letter to petitioner demanding compensation for the damages it had incurred by
the latter's repeated failure to transport its contract workers despite confirmed bookings and payment of the corresponding travel taxes.

On July 23, 1981, the counsel of private respondent sent another letter to the petitioner demanding the latter to pay the amount of
P350,000.00 representing damages and unrealized profit or income which was denied by the petitioner.

On August 8, 1981, private respondent received a telex message from its principal cancelling the hiring of the remaining recruited
workers due to the delay in transporting the workers to Jeddah.5

On January 27, 1982, private respondent filed a complaint for damages against petitioner with the Regional Trial Court of Manila,
Branch 1 in Civil Case No. 82-4653.

On the other hand, petitioner, alleged in its Answer with counterclaims that it received a telex message from Jeddah on March 20, 1981
advising that the principal of private respondent had prepaid the airfares of 100 persons to transport private respondent's contract
workers from Manila to Jeddah on or before March 30, 1981. However, due to the unavailability of space and limited time, petitioner
had to return to its sponsor in Jeddah the prepaid ticket advice consequently not even one of the alleged 93 contract workers were
booked in any of its flights.

On June 5, 1981, petitioner received another prepaid ticket advice to transport 16 contract workers of private respondent to Jeddah but
the travel agent of the private respondent booked only 10 contract workers for petitioner's June 9, 1981 flight. However, only 9 contract
workers boarded the scheduled flight with 1 passenger not showing up as evidenced by the Philippine Airlines' passenger manifest for
Flight BA-020 (Exhibit "7", "7-A", "7-B" and "7-C").6

Thereafter, private respondent's travel agent booked seats for 5 contract workers on petitioner's July 4, 1981 flight but said travel agent
cancelled the booking of 2 passengers while the other 3 passengers did not show up on said flight.

Sometime in July 1981, the travel agent of the private respondent booked 7 more contract workers in addition to the previous 5 contract
workers who were not able to board the July 4, 1981 flight with the petitioner's July 7, 1981 flight which was accepted by petitioner
subject to reconfirmation.

Page 3 of 66
However on July 6, 1981, petitioner's computer system broke down which resulted to petitioner's failure to get a reconfirmation from
Saudi Arabia Airlines causing the automatic cancellation of the bookings of private respondent's 12 contract workers. In the morning of
July 7, 1981, the computer system of the petitioner was reinstalled and immediately petitioner tried to reinstate the bookings of the 12
workers with either Gulf Air or Saudi Arabia Airlines but both airlines replied that no seat was available on that date and had to place the
12 workers on the wait list. Said information was duly relayed to the private respondent and the 12 workers before the scheduled flight.

After due trial on or on August 27, 1985, the trial court rendered its decision, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, this Court renders judgment:

1. Ordering the defendant to pay the plaintiff actual damages in the sum of P308,016.00;
2. Ordering defendant to pay moral damages to the plaintiff in the amount of P20,000.00;
3. Ordering the defendant to pay the plaintiff P10,000.00 by way of corrective or exemplary damages;
4. Ordering the defendant to pay the plaintiff 30% of its total claim for and as attorney's fees; and
5. To pay the costs.7

On March 13, 1986, petitioner appealed said decision to respondent appellate court after the trial court denied its Motion for
Reconsideration on February 28, 1986.

On November 15, 1989, respondent appellate court affirmed the decision of the trial court, the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with costs against the appellant.8

On December 9, 1989, petitioner filed a Motion for Reconsideration which was also denied.

Hence, this petition.

It is the contention of petitioner that private respondent has no cause of action against it there being no perfected contract of carriage
existing between them as no ticket was ever issued to private respondent's contract workers and, therefore, the obligation of the
petitioner to transport said contract workers did not arise. Furthermore, private respondent's failure to attach any ticket in the complaint
further proved that it was never a party to the alleged transaction.

Petitioner's contention is untenable.

Private respondent had a valid cause of action for damages against petitioner. A cause of action is an act or omission of one party in
violation of the legal right or rights of the other.9 Petitioner's repeated failures to transport private respondent's workers in its flight
despite confirmed booking of said workers clearly constitutes breach of contract and bad faith on its part. In resolving petitioner's theory
that private respondent has no cause of action in the instant case, the appellate court correctly held that:

In dealing with the contract of common carriage of passengers for purpose of accuracy, there are two (2) aspects of the same,
namely: (a) the contract "to carry (at some future time)," which contract is consensual and is necessarily perfected by mere
consent (See Article 1356, Civil Code of the Philippines), and (b) the contract "of carriage" or "of common carriage" itself which
should be considered as a real contract for not until the carrier is actually used can the carrier be said to have already assumed
the obligation of a carrier. (Paras, Civil Code Annotated, Vol. V, p. 429, Eleventh Ed.)

In the instant case, the contract "to carry" is the one involved which is consensual and is perfected by the mere consent of the
parties.

There is no dispute as to the appellee's consent to the said contract "to carry" its contract workers from Manila to Jeddah. The
appellant's consent thereto, on the other hand, was manifested by its acceptance of the PTA or prepaid ticket advice that
ROLACO Engineering has prepaid the airfares of the appellee's contract workers advising the appellant that it must transport the
contract workers on or before the end of March, 1981 and the other batch in June, 1981.

Even if a PTA is merely an advice from the sponsors that an airline is authorized to issue a ticket and thus no ticket was yet
issued, the fact remains that the passage had already been paid for by the principal of the appellee, and the appellant had
accepted such payment. The existence of this payment was never objected to nor questioned by the appellant in the lower court.
Thus, the cause or consideration which is the fare paid for the passengers exists in this case.

The third essential requisite of a contract is an object certain. In this contract "to carry", such an object is the transport of the
passengers from the place of departure to the place of destination as stated in the telex.

Accordingly, there could be no more pretensions as to the existence of an oral contract of carriage imposing reciprocal
obligations on both parties.

In the case of appellee, it has fully complied with the obligation, namely, the payment of the fare and its willingness for its
contract workers to leave for their place of destination.

On the other hand, the facts clearly show that appellant was remiss in its obligation to transport the contract workers on their
flight despite confirmation and bookings made by appellee's travelling agent.

xxx xxx xxx

Besides, appellant knew very well that time was of the essence as the prepaid ticket advice had specified the period of compliance
therewith, and with emphasis that it could only be used if the passengers fly on BA. Under the circumstances, the appellant should
have refused acceptance of the PTA from appellee's principal or to at least inform appellee that it could not accommodate the
contract workers.

Page 4 of 66
 xxx xxx xxx

While there is no dispute that ROLACO Engineering advanced the payment for the airfares of the appellee's contract workers who
were recruited for ROLACO Engineering and the said contract workers were the intended passengers in the aircraft of the
appellant, the said contract "to carry" also involved the appellee for as recruiter he had to see to it that the contract workers should
be transported to ROLACO Engineering in Jeddah thru the appellant's transportation. For that matter, the involvement of the
appellee in the said contract "to carry" was well demonstrated when
the appellant upon receiving the PTA immediately advised the appellee thereof. 10

Petitioner also contends that the appellate court erred in awarding actual damages in the amount of P308,016.00 to private respondent
since all expenses had already been subsequently reimbursed by the latter's principal.

In awarding actual damages to private respondent, the appellate court held that the amount of P308,016.00 representing actual
damages refers to private respondent's second cause of action involving the expenses incurred by the latter which were not reimbursed
by ROLACO Engineering. However, in the Complaint 11 filed by private respondent, it was alleged that private respondent suffered
actual damages in the amount of P308,016.00 representing the money it borrowed from friends and financiers which is P304,416.00 for
the 93 airline tickets and P3,600.00 for the travel tax of the 12 workers. It is clear therefore that the actual damages private respondent
seeks to recover are the airline tickets and travel taxes it spent for its workers which were already reimbursed by its principal and not for
any other expenses it had incurred in the process of recruiting said contract workers. Inasmuch as all expenses including the
processing fees incurred by private respondent had already been paid for by the latter's principal on a staggered basis as admitted in
open court by its managing director, Mrs. Bienvenida Brusellas. 12 We do not find anymore justification in the appellate court's decision
in granting actual damages to private respondent.

Thus, while it may be true that private respondent was compelled to borrow money for the airfare tickets of its contract workers when
petitioner failed to transport said workers, the reimbursements made by its principal to private respondent failed to support the latter's
claim that it suffered actual damages as a result of petitioner's failure to transport said workers. It is undisputed that private respondent
had consistently admitted that its principal had reimbursed all its expenses.

Article 2199 of the Civil Code provides that:

Except as provided by law or by stipulations, one is entitled to an adequate compensation only for such pecuniary loss suffered by
him as he has duly proved. Such compensation is referred to as actual or compensatory damages.

Furthermore, actual or compensatory damages cannot be presumed, but must be duly proved, and proved with reasonable degree of
certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but must depend upon
competent proof that they have suffered and on evidence of the actual amount thereof. 13

However, private respondent is entitled to an award of moral and exemplary damages for the injury suffered as a result of petitioner's
failure to transport the former's workers because of the latter's patent bad faith in the performance of its obligation. As correctly pointed
out by the appellate court:

As evidence had proved, there was complete failure on the part of the appellant to transport the 93 contract workers of the
appellee on or before March 30, 1981 despite receipt of the payment for their airfares, and acceptance of the same by the
appellant, with specific instructions from the appellee's principal to transport the contract workers on or before March 30, 1981. No
previous notice was ever registered by the appellant that it could not comply with the same. And then followed the detestable act of
appellant in unilaterally cancelling, booking and rebooking unreasonably the flight of appellee's contract workers in June to July,
1981 without prior notice. And all of these actuations of the appellant indeed constitute malice and evident bad faith which had
caused damage and besmirched the reputation and business image of the appellee. 14

As to the alleged damages suffered by the petitioner as stated in its counterclaims, the record shows that no claim for said damages
was ever made by the petitioner immediately after their alleged occurrence therefore said counterclaims were mere afterthoughts when
private respondent filed the present case.

WHEREFORE, the assailed decision is hereby AFFIRMED with the MODIFICATION that the award of actual damages be deleted from
said decision.

SO ORDERED.

Page 5 of 66
Case No. 3

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.

Page 6 of 66
 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. 13 Petitioner 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  16 we 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 and power 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
Page 7 of 66
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:

x x x           x x x          x x x

(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..

Page 8 of 66
Page 9 of 66
Case No. 4
G.R. No. 112287 December 12, 1997
NATIONAL STEEL CORPORATION, petitioner,
vs.
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.
G.R. No. 112350 December 12, 1997
VLASONS SHIPPING, INC., petitioner,
vs.
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

Page 10 of 66
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:

Page 11 of 66
 (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:

I 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.

V 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

Page 12 of 66
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 Resolution5 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 petition7 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."14 Consequently, 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

Page 13 of 66
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,23 only 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
I was 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?

Page 14 of 66
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.
x x x           x x x          x x x
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:

Page 15 of 66
 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

Page 16 of 66
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 Customs36

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, are  prima 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

Page 17 of 66
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.

Page 18 of 66
Case No. 5
G.R. No. 162467               May 8, 2009
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,
vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.
DECISION
TINGA, J.:
Before us is a petition for review on certiorari 1 under Rule 45 of the 1997 Rules of Civil Procedure of the 29 October 2003 2 Decision of
the Court of Appeals and the 26 February 2004 Resolution3 of the same court denying petitioner’s motion for reconsideration.
The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage Service, Inc. (Mindanao Terminal), a
stevedoring company, to load and stow a shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh
pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce) into the cargo hold of the vessel M/V Mistrau.
The vessel was docked at the port of Davao City and the goods were to be transported by it to the port of Inchon, Korea in favor of
consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an "open cargo policy" with private respondent
Phoenix Assurance Company of New York (Phoenix), a non-life insurance company, and private respondent McGee & Co. Inc.
(McGee), the underwriting manager/agent of Phoenix.4

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from the port of Davao City and arrived
at the port of Inchon, Korea. It was then discovered upon discharge that some of the cargo was in bad condition. The Marine Cargo
Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong), surveyed the
extent of the damage of the shipment. In a survey report, it was stated that 16,069 cartons of the banana shipment and 2,185 cartons of
the pineapple shipment were so damaged that they no longer had commercial value.5

Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. McGee’s Marine Claims Insurance
Adjuster evaluated the claim and recommended that payment in the amount of $210,266.43 be made. A check for the recommended
amount was sent to Del Monte Produce; the latter then issued a subrogation receipt6 to Phoenix and McGee.

Phoenix and McGee instituted an action for damages7 against Mindanao Terminal in the Regional Trial Court (RTC) of Davao City,
Branch 12. After trial, the RTC,8 in a decision dated 20 October 1999, held that the only participation of Mindanao Terminal was to load
the cargoes on board the M/V Mistrau under the direction and supervision of the ship’s officers, who would not have accepted the
cargoes on board the vessel and signed the foreman’s report unless they were properly arranged and tightly secured to withstand
voyage across the open seas. Accordingly, Mindanao Terminal cannot be held liable for whatever happened to the cargoes after it had
loaded and stowed them. Moreover, citing the survey report, it was found by the RTC that the cargoes were damaged on account of a
typhoon which M/V Mistrau had encountered during the voyage. It was further held that Phoenix and McGee had no cause of action
against Mindanao Terminal because the latter, whose services were contracted by Del Monte, a distinct corporation from Del Monte
Produce, had no contract with the assured Del Monte Produce. The RTC dismissed the complaint and awarded the counterclaim of
Mindanao Terminal in the amount of ₱83,945.80 as actual damages and ₱100,000.00 as attorney’s fees.9 The actual damages were
awarded as reimbursement for the expenses incurred by Mindanao Terminal’s lawyer in attending the hearings in the case wherein he
had to travel all the way from Metro Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set aside 10 the decision of the RTC in its 29
October 2003 decision. The same court ordered Mindanao Terminal to pay Phoenix and McGee "the total amount of $210,265.45 plus
legal interest from the filing of the complaint until fully paid and attorney’s fees of 20% of the claim."11 It sustained Phoenix’s and
McGee’s argument that the damage in the cargoes was the result of improper stowage by Mindanao Terminal. It imposed on Mindanao
Terminal, as the stevedore of the cargo, the duty to exercise extraordinary diligence in loading and stowing the cargoes. It further held
that even with the absence of a contractual relationship between Mindanao Terminal and Del Monte Produce, the cause of action of
Phoenix and McGee could be based on quasi-delict under Article 2176 of the Civil Code.12

Mindanao Terminal filed a motion for reconsideration,13 which the Court of Appeals denied in its 26 February 2004 14 resolution. Hence,
the present petition for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and negligent in the loading and stowage of
the cargoes onboard M/V Mistrau making it liable for damages; and, whether Phoenix and McGee has a cause of action against
Mindanao Terminal under Article 2176 of the Civil Code on quasi-delict. To resolve the petition, three questions have to be answered:
first, whether Phoenix and McGee have a cause of action against Mindanao Terminal; second, whether Mindanao Terminal, as a
stevedoring company, is under obligation to observe the same extraordinary degree of diligence in the conduct of its business as
required by law for common carriers15 and warehousemen;16 and third, whether Mindanao Terminal observed the degree of diligence
required by law of a stevedoring company.

We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao Terminal, from which the present
case has arisen, states a cause of action. The present action is based on quasi-delict, arising from the negligent and careless loading
and stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only been subrogated
in the rights of Del Monte Produce, who is not a party to the contract of service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the Court’s consistent ruling that the act that breaks the contract may be also a
tort.17 In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract18 . In the present case,
Phoenix and McGee are not suing for damages for injuries arising from the breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite the absence of
contractual relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part of the defendant
should be sufficient to establish a cause of action arising from quasi-delict.19

The resolution of the two remaining issues is determinative of the ultimate result of this case.

Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence which is to be observed in
the performance of an obligation then that which is expected of a good father of a family or ordinary diligence shall be required.
Mindanao Terminal, a stevedoring company which was charged with the loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no specific provision of law that imposes a higher
degree of diligence than ordinary diligence for a stevedoring company or one who is charged only with the loading and stowing of
Page 19 of 66
cargoes. It was neither alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of a family. We therefore conclude that following Article 1173,
Mindanao Terminal was required to observe ordinary diligence only in loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau.

imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the cargoes. The case of Summa Insurance
Corporation v. CA, which involved the issue of whether an arrastre operator is legally liable for the loss of a shipment in its custody and
the extent of its liability, is inapplicable to the factual circumstances of the case at bar. Therein, a vessel owned by the National Galleon
Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila, carrying a shipment consigned to the order of Caterpillar Far
East Ltd. with Semirara Coal Corporation (Semirara) as "notify party." The shipment, including a bundle of PC 8 U blades, was
discharged from the vessel to the custody of the private respondent, the exclusive arrastre operator at the South Harbor. Accordingly,
three good-order cargo receipts were issued by NGSC, duly signed by the ship's checker and a representative of private respondent.
When Semirara inspected the shipment at house, it discovered that the bundle of PC8U blades was missing. From those facts, the
Court observed:

x x x The relationship therefore between the consignee and the arrastre operator must be examined. This relationship is much akin
to that existing between the consignee or owner of shipped goods and the common carrier, or that between a depositor and a
warehouseman[22 ]. In the performance of its obligations, an arrastre operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman as enunciated under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. Being the custodian of the goods discharged from a vessel, an arrastre operator's duty
is to take good care of the goods and to turn them over to the party entitled to their possession. (Emphasis supplied)23

There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which refers to hauling of cargo, comprehends
the handling of cargo on the wharf or between the establishment of the consignee or shipper and the ship's tackle. The responsibility of
the arrastre operator lasts until the delivery of the cargo to the consignee. The service is usually performed by longshoremen. On the
other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or between the ship's tackle and the holds of the
vessel. The responsibility of the stevedore ends upon the loading and stowing of the cargo in the vessel.1avvphi1

It is not disputed that Mindanao Terminal was performing purely stevedoring function while the private respondent in the Summa case
was performing arrastre function. In the present case, Mindanao Terminal, as a stevedore, was only charged with the loading and
stowing of the cargoes from the pier to the ship’s cargo hold; it was never the custodian of the shipment of Del Monte Produce. A
stevedore is not a common carrier for it does not transport goods or passengers; it is not akin to a warehouseman for it does not store
goods for profit. The loading and stowing of cargoes would not have a far reaching public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws on contract and on quasi-delict. The public policy considerations in
legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not present in a stevedoring outfit which
mainly provides labor in loading and stowing of cargoes for its clients.

In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that Mindanao Terminal had acted negligently.
Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the evidence preponderates the party having
the burden of proof fails upon that issue. That is to say, if the evidence touching a disputed fact is equally balanced, or if it does not
produce a just, rational belief of its existence, or if it leaves the mind in a state of perplexity, the party holding the affirmative as to such
fact must fail.261avvphi1

We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court of Appeals did not make any new
findings of fact when it reversed the decision of the trial court. The only participation of Mindanao Terminal was to load the cargoes on
board M/V Mistrau.29 It was not disputed by Phoenix and McGee that the materials, such as ropes, pallets, and cardboards, used in
lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry standard.30

It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte Produce aboard the M/V Mistrau in
accordance with the stowage plan, a guide for the area assignments of the goods in the vessel’s hold, prepared by Del Monte Produce
and the officers of M/V Mistrau.31 The loading and stowing was done under the direction and supervision of the ship officers. The
vessel’s officer would order the closing of the hatches only if the loading was done correctly after a final inspection. 32 The said ship
officers would not have accepted the cargoes on board the vessel if they were not properly arranged and tightly secured to withstand
the voyage in open seas. They would order the stevedore to rectify any error in its loading and stowing. A foreman’s report, as proof of
work done on board the vessel, was prepared by the checkers of Mindanao Terminal and concurred in by the Chief Officer of M/V
Mistrau after they were satisfied that the cargoes were properly loaded.33

Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn34 and on the survey report35 of the damage to the cargoes.
Byeong, whose testimony was refreshed by the survey report,36 found that the cause of the damage was improper stowage37 due to the
manner the cargoes were arranged such that there were no spaces between cartons, the use of cardboards as support system, and the
use of small rope to tie the cartons together but not by the negligent conduct of Mindanao Terminal in loading and stowing the cargoes.
As admitted by Phoenix and McGee in their Comment38 before us, the latter is merely a stevedoring company which was tasked by Del
Monte to load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V Mistrau. How and where it
should load and stow a shipment in a vessel is wholly dependent on the shipper and the officers of the vessel. In other words, the work
of the stevedore was under the supervision of the shipper and officers of the vessel. Even the materials used for stowage, such as
ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report found that it was because of the boisterous
stormy weather due to the typhoon Seth, as encountered by M/V Mistrau during its voyage, which caused the shipments in the cargo
hold to collapse, shift and bruise in extensive extent. 39 Even the deposition of Byeong was not supported by the conclusion in the
survey report that:

CAUSE OF DAMAGE

xxx

From the above facts and our survey results, we are of the opinion that damage occurred aboard the carrying vessel during sea transit,
being caused by ship’s heavy rolling and pitching under boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs
on 12th October, 1994 as described in the sea protest.40

Page 20 of 66
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing the cargoes, which is
the ordinary diligence of a good father of a family, the grant of the petition is in order.

However, the Court finds no basis for the award of attorney’s fees in favor of petitioner.lawphil.net None of the circumstances
enumerated in Article 2208 of the Civil Code exists. The present case is clearly not an unfounded civil action against the plaintiff as
there is no showing that it was instituted for the mere purpose of vexation or injury. It is not sound public policy to set a premium to the
right to litigate where such right is exercised in good faith, even if erroneously. 41 Likewise, the RTC erred in awarding ₱83,945.80 actual
damages to Mindanao Terminal. Although actual expenses were incurred by Mindanao Terminal in relation to the trial of this case in
Davao City, the lawyer of Mindanao Terminal incurred expenses for plane fare, hotel accommodations and food, as well as other
miscellaneous expenses, as he attended the trials coming all the way from Manila. But there is no showing that Phoenix and McGee
made a false claim against Mindanao Terminal resulting in the protracted trial of the case necessitating the incurrence of
expenditures.42

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the
decision of the Regional Trial Court of Davao City, Branch 12 in Civil Case No. 25,311.97 is hereby REINSTATED MINUS the awards
of ₱100,000.00 as attorney’s fees and ₱83,945.80 as actual damages.

SO ORDERED.

Page 21 of 66
Case No. 6

G.R. No. 150255. April 22, 2005

SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,
vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA SHIPPING AND DODWELL now
INCHCAPE SHIPPING SERVICES, Respondents.

DECISION

CARPIO-MORALES, J.:

On petition for review is the June 27, 2001 Decision 1 of the Court of Appeals, as well as its Resolution 2 dated September 28, 2001
denying the motion for reconsideration, which affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No.
92-631323 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping
Corporation (Black Sea), represented by its ship agent Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily liable
for the loss of 37 hot rolled steel sheets in coil that were washed overboard a barge.

On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on board M/V "Alexander Saveliev" (a
vessel of Russian registry and owned by Black Sea) 545 hot rolled steel sheets in coil weighing 6,992,450 metric tons.

The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant Steel Pipe Corporation (Little
Giant),4 were insured against all risks with Industrial Insurance Company Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-
TIS.5

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (PPA) assigned it a place of berth at the
outside breakwater at the Manila South Harbor.6

Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to receive the cargoes from the shipside,
and to deliver them to its (the consignee’s) warehouse at Cainta, Rizal, 7 in turn engaged the services of TVI to send a barge and
tugboat at shipside.

On October 26, 1991, around 4:30 p.m., TVI’s tugboat "Lailani" towed the barge "Erika V" to shipside.8

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the vessel, left and returned to the port
terminal.9 At 9:00 p.m., arrastre operator Ocean Terminal Services Inc. commenced to unload 37 of the 545 coils from the vessel unto
the barge.

By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to an approaching storm, the
unloading unto the barge of the 37 coils was accomplished.10 No tugboat pulled the barge back to the pier, however.

At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge abandoned it and transferred to the vessel. The
barge pitched and rolled with the waves and eventually capsized, washing the 37 coils into the sea. 12 At 7:00 a.m., a tugboat finally
arrived to pull the already empty and damaged barge back to the pier.13

Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the lost cargoes proved futile.14

Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of ₱5,246,113.11. Little Giant thereupon
executed a subrogation receipt15 in favor of Industrial Insurance.

Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its representative Inchcape (the
defendants) before the RTC of Manila, for the recovery of the amount it paid to Little Giant plus adjustment fees, attorney’s fees, and
litigation expenses.16

Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typhoon signal No. 1 was raised in Metro
Manila.17

By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for unloading the cargoes outside of the
breakwater notwithstanding the storm signal.18 The dispositive portion of the decision reads:

WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering the defendants to pay plaintiff jointly
and severally the sum of ₱5,246,113.11 with interest from the date the complaint was filed until fully satisfied, as well as the sum of
₱5,000.00 representing the adjustment fee plus the sum of 20% of the amount recoverable from the defendants as attorney’s fees plus
the costs of suit. The counterclaims and cross claims of defendants are hereby DISMISSED for lack of [m]erit.19

To the trial court’s decision, the defendants Schmitz Transport and TVI filed a joint motion for reconsideration assailing the finding that
they are common carriers and the award of excessive attorney’s fees of more than ₱1,000,000. And they argued that they were not
motivated by gross or evident bad faith and that the incident was caused by a fortuitous event. 20

By resolution of February 4, 1998, the trial court denied the motion for reconsideration. 21

All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed in toto the decision of the trial
court, 22 it finding that all the defendants were common carriers — Black Sea and TVI for engaging in the transport of goods and
cargoes over the seas as a regular business and not as an isolated transaction,23 and Schmitz Transport for entering into a contract with
Little Giant to transport the cargoes from ship to port for a fee.24

Page 22 of 66
In holding all the defendants solidarily liable, the appellate court ruled that "each one was essential such that without each other’s
contributory negligence the incident would not have happened and so much so that the person principally liable cannot be distinguished
with sufficient accuracy."25

In discrediting the defense of fortuitous event, the appellate court held that "although defendants obviously had nothing to do with the
force of nature, they however had control of where to anchor the vessel, where discharge will take place and even when the
discharging will commence."26

The defendants’ respective motions for reconsideration having been denied by Resolution 27 of September 28, 2001, Schmitz Transport
(hereinafter referred to as petitioner) filed the present petition against TVI, Industrial Insurance and Black Sea.

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal, consignee Little Giant, hence, the
transportation contract was by and between Little Giant and TVI.28

By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI were required to file their respective
Comments.29

By its Comment, Black Sea argued that the cargoes were received by the consignee through petitioner in good order, hence, it cannot
be faulted, it having had no control and supervision thereover.30

For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and transferred them unto the barge upon
the instruction of petitioner.31

In issue then are:

(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of negligence on the part of petitioner Black
Sea and TVI, and

(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and TVI.

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all liability arising therefrom:

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which
though foreseen, were inevitable.

In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected occurrence, or the failure of the
debtor to comply with his obligation, must be independent of human will; (2) it must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for
the debtor to fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor.32

[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely by the violence of nature.
Human intervention is to be excluded from creating or entering into the cause of the mischief. When the effect is found to be in part the
result of the participation of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God.33

The appellate court, in affirming the finding of the trial court that human intervention in the form of contributory negligence by all the
defendants resulted to the loss of the cargoes, 34 held that unloading outside the breakwater, instead of inside the breakwater, while a
storm signal was up constitutes negligence.35 It thus concluded that the proximate cause of the loss was Black Sea’s negligence in
deciding to unload the cargoes at an unsafe place and while a typhoon was approaching.36

From a review of the records of the case, there is no indication that there was greater risk in loading the cargoes outside the
breakwater. As the defendants proffered, the weather on October 26, 1991 remained normal with moderate sea condition such that port
operations continued and proceeded normally.37

The weather data report,38 furnished and verified by the Chief of the Climate Data Section of PAG-ASA and marked as a common
exhibit of the parties, states that while typhoon signal No. 1 was hoisted over Metro Manila on October 23-31, 1991, the sea condition at
the port of Manila at 5:00 p.m. - 11:00 p.m. of October 26, 1991 was moderate. It cannot, therefore, be said that the defendants were
negligent in not unloading the cargoes upon the barge on October 26, 1991 inside the breakwater.

That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in the morning 39 is, however, a
material fact which the appellate court failed to properly consider and appreciate 40 — the proximate cause of the loss of the cargoes.
Had the barge been towed back promptly to the pier, the deteriorating sea conditions notwithstanding, the loss could have been
avoided. But the barge was left floating in open sea until big waves set in at 5:30 a.m., causing it to sink along with the cargoes.41 The
loss thus falls outside the "act of God doctrine."

The proximate cause of the loss having been determined, who among the parties is/are responsible therefor?

Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that petitioner is a common carrier. For it undertook to
transport the cargoes from the shipside of "M/V Alexander Saveliev" to the consignee’s warehouse at Cainta, Rizal. As the appellate
court put it, "as long as a person or corporation holds [itself] to the public for the purpose of transporting goods as [a] business, [it] is
already considered a common carrier regardless if [it] owns the vehicle to be used or has to hire one."42 That petitioner is a common
carrier, the testimony of its own Vice-President and General Manager Noel Aro that part of the services it offers to its clients as a
brokerage firm includes the transportation of cargoes reflects so.

Page 23 of 66
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and General Manager of said Company?

Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the company. I also handle the various division
heads of the company for operation matters, and all other related functions that the President may assign to me from time to time, Sir.

Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the Honorable Court if you came to know the company by the name Little Giant
Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you perform in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also in-charged of the delivery of the goods to their warehouses. We also handled
the clearances of their shipment at the Bureau of Customs, Sir.
xxx
Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with regards to this shipment? What work did you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the] cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to perform, what equipment do (sic) you require or did you use in order to effect this
unloading, transfer and delivery to the warehouse?
A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter, and on this we hired or we sub-contracted with [T]ransport Ventures, Inc.
which [was] in-charged (sic) of the barges. Also, in BASECO compound we are leasing cranes to have the cargo unloaded from the barge to trucks, [and] then we used trucks
to deliver [the cargoes] to the consignee’s warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignee’s warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.

xxx

ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to contract for the barges of Transport Ventures
Incorporated in this particular operation?

A: Firstly, we don’t own any barges. That is why we hired the services of another firm whom we know [al]ready for quite sometime,
which is Transport Ventures, Inc. (Emphasis supplied)43

It is settled that under a given set of facts, a customs broker may be regarded as a common carrier. Thus, this Court, in A.F. Sanchez
Brokerage, Inc. v. The Honorable Court of Appeals,44 held:

The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as defined under Article 1732 of the
Civil Code, to wit,

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.

xxx

Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who does such
carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not a common carrier but a customs broker whose
principal function is to prepare the correct customs declaration and proper shipping documents as required by law is bereft of merit. It
suffices that petitioner undertakes to deliver the goods for pecuniary consideration.45

And in Calvo v. UCPB General Insurance Co. Inc.,46 this Court held that as the transportation of goods is an integral part of a customs
broker, the customs broker is also a common carrier. For to declare otherwise "would be to deprive those with whom [it] contracts the
protection which the law affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is part and parcel of
petitioner’s business."47

As for petitioner’s argument that being the agent of Little Giant, any negligence it committed was deemed the negligence of its principal,
it does not persuade.

True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In effecting the transportation of the cargoes
from the shipside and into Little Giant’s warehouse, however, petitioner was discharging its own personal obligation under a contact of
carriage.

Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler48 to provide the barge and the tugboat. In
their Service Contract,49 while Little Giant was named as the consignee, petitioner did not disclose that it was acting on commission and
was chartering the vessel for Little Giant.50 Little Giant did not thus automatically become a party to the Service Contract and was not,
therefore, bound by the terms and conditions therein.

Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can maintain a cause of action for
negligence.51

In the case of TVI, while it acted as a private carrier for which it was under no duty to observe extraordinary diligence, it was still
required to observe ordinary diligence to ensure the proper and careful handling, care and discharge of the carried goods.

Thus, Articles 1170 and 1173 of the Civil Code provide:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.

ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2202, paragraph 2, shall apply.

Page 24 of 66
If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of
a family shall be required.

Was the reasonable care and caution which an ordinarily prudent person would have used in the same situation exercised by TVI?52

This Court holds not.

TVI’s failure to promptly provide a tugboat did not only increase the risk that might have been reasonably anticipated during the
shipside operation, but was the proximate cause of the loss. A man of ordinary prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a precarious time, and in the open sea, knowing that the barge does not have any
power of its own and is totally defenseless from the ravages of the sea. That it was nighttime and, therefore, the members of the crew
of a tugboat would be charging overtime pay did not excuse TVI from calling for one such tugboat.

As for petitioner, for it to be relieved of liability, it should, following Article 1739 53 of the Civil Code, prove that it exercised due diligence
to prevent or minimize the loss, before, during and after the occurrence of the storm in order that it may be exempted from liability for
the loss of the goods.

While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check the operations of TVI, it failed to take all
available and reasonable precautions to avoid the loss. After noting that TVI failed to arrange for the prompt towage of the barge
despite the deteriorating sea conditions, it should have summoned the same or another tugboat to extend help, but it did not.

This Court holds then that petitioner and TVI are solidarily liable 56 for the loss of the cargoes. The following pronouncement of the
Supreme Court is instructive:

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 2176 and related
provisions, in conjunction with Article 2180 of the Civil Code. x x x [O]ne might ask further, how then must the liability of the common
carrier, on 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 2194 of the Civil Code can well apply. In fine, a liability for tort may arise even under a contract, where tort is that
which breaches the contract. 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.57

As for Black Sea, its duty as a common carrier extended only from the time the goods were surrendered or unconditionally placed in its
possession and received for transportation until they were delivered actually or constructively to consignee Little Giant.58

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the services rendered by the carrier. In
the case at bar, Bill of Lading No. 2 covering the shipment provides that delivery be made "to the port of discharge or so near thereto as
she may safely get, always afloat."59 The delivery of the goods to the consignee was not from "pier to pier" but from the shipside of "M/V
Alexander Saveliev" and into barges, for which reason the consignee contracted the services of petitioner. Since Black Sea had
constructively delivered the cargoes to Little Giant, through petitioner, it had discharged its duty.60

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorney’s fees in an amount over ₱1,000,000.00 to Industrial Insurance, for lack of factual and legal basis, this
Court sets it aside. While Industrial Insurance was compelled to litigate its rights, such fact by itself does not justify the award of
attorney’s fees under Article 2208 of the Civil Code. For 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. 61 To award attorney’s fees to a party just because the
judgment is rendered in its favor would be tantamount to imposing a premium on one’s right to litigate or seek judicial redress of
legitimate grievances.62

On the award of adjustment fees: The adjustment fees and expense of divers were incurred by Industrial Insurance in its voluntary but
unsuccessful efforts to locate and retrieve the lost cargo. They do not constitute actual damages.63

As for the court a quo’s award of interest on the amount claimed, the same calls for modification following the ruling in Eastern Shipping
Lines, Inc. v. Court of Appeals64 that when the demand cannot be reasonably established at the time the demand is made, the interest
shall begin to run not from the time the claim is made judicially or extrajudicially but from the date the judgment of the court is made (at
which the time the quantification of damages may be deemed to have been reasonably ascertained).65

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage Corporation, and Transport Venture
Incorporation jointly and severally liable for the amount of ₱5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per
annum of the amount due should be computed from the promulgation on November 24, 1997 of the decision of the trial court.

Costs against petitioner.

SO ORDERED.

Page 25 of 66
Page 26 of 66
Case No. 7
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.1âwphi1.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:

Page 27 of 66
 (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 to force 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:

Page 28 of 66
 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. 22 In 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.

Page 29 of 66
Page 30 of 66
Case No. 8
G.R. No. 144274             September 20, 2004
NOSTRADAMUS VILLANUEVA, petitioner,
vs.
PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents.
DECISION

CORONA, J.:

This is a petition to review the decision 1 of the Court of Appeals in CA-G.R. CV No. 52203 affirming in turn the decision of the trial court
finding petitioner liable to respondent for damages. The dispositive portion read:

WHEREFORE, the appealed decision is hereby AFFIRMED except the award of attorney’s fees including appearance fees
which is DELETED.

SO ORDERED.2

The facts of the case, as summarized by the Court of Appeals, are as follows:

[Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi Lancer Car model 1980 bearing plate No.
NDW 781 ’91 with [co-respondent] Leandro Luis R. Domingo as authorized driver. [Petitioner] Nostradamus Villanueva was
then the registered "owner" of a green Mitsubishi Lancer bearing Plate No. PHK 201 ’91.

On 22 October 1991 at about 9:45 in the evening, following a green traffic light, [respondent] Priscilla Domingo’s silver Lancer
car with Plate No. NDW 781 ’91 then driven by [co-respondent] Leandro Luis R. Domingo was cruising along the middle lane
of South Superhighway at moderate speed from north to south. Suddenly, a green Mitsubishi Lancer with plate No. PHK 201
’91 driven by Renato Dela Cruz Ocfemia darted from Vito Cruz Street towards the South Superhighway directly into the path of
NDW 781 ’91 thereby hitting and bumping its left front portion. As a result of the impact, NDW 781 ’91 hit two (2) parked
vehicles at the roadside, the second hitting another parked car in front of it.

Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio N. Acido, Renato dela Cruz Ocfemia was driving
with expired license and positive for alcoholic breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua recommended
the filing of information for reckless imprudence resulting to (sic) damage to property and physical injuries.

The original complaint was amended twice: first, impleading Auto Palace Car Exchange as commercial agent and/or buyer-
seller and second, impleading Albert Jaucian as principal defendant doing business under the name and style of Auto Palace
Car Exchange.

Except for Ocfemia, all the defendants filed separate answers to the complaint. [Petitioner] Nostradamus Villanueva claimed
that he was no longer the owner of the car at the time of the mishap because it was swapped with a Pajero owned by Albert
Jaucian/Auto Palace Car Exchange. For her part, Linda Gonzales declared that her presence at the scene of the accident was
upon the request of the actual owner of the Mitsubishi Lancer (PHK 201 ’91) [Albert Jaucian] for whom she had been working
as agent/seller. On the other hand, Auto Palace Car Exchange represented by Albert Jaucian claimed that he was not the
registered owner of the car. Moreover, it could not be held subsidiary liable as employer of Ocfemia because the latter was off-
duty as utility employee at the time of the incident. Neither was Ocfemia performing a duty related to his employment.3

After trial, the trial court found petitioner liable and ordered him to pay respondent actual, moral and exemplary damages plus
appearance and attorney’s fees:

WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus Villanueva to pay the amount of ₱99,580
as actual damages, ₱25,000.00 as moral damages, ₱25,000.00 as exemplary damages and attorney’s fees in the amount of
₱10,000.00 plus appearance fees of ₱500.00 per hearing with legal interest counted from the date of judgment. In conformity
with the law on equity and in accordance with the ruling in First Malayan Lending and Finance Corporation vs. Court of
Appeals (supra), Albert Jaucian is hereby ordered to indemnify Nostradamus Villanueva for whatever amount the latter is
hereby ordered to pay under the judgment.

SO ORDERED.4

The CA upheld the trial court’s decision but deleted the award for appearance and attorney’s fees because the justification for the grant
was not stated in the body of the decision. Thus, this petition for review which raises a singular issue:

MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE FOR DAMAGES ARISING FROM A
VEHICULAR ACCIDENT INVOLVING HIS MOTOR VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS
BUYER WITHOUT THE LATTER’S CONSENT AND KNOWLEDGE?5

Yes.

We have consistently ruled that the registered owner of any vehicle is directly and primarily responsible to the public and third persons
while it is being operated.6 The rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte7:

The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has
the right to assume or presume that the registered owner is the actual owner thereof, for it would be difficult for the public to enforce the
actions that they may have for injuries caused to them by the vehicles being negligently operated if the public should be required to
prove who the actual owner is. How would the public or third persons know against whom to enforce their rights in case of subsequent
transfers of the vehicles? We do not imply by his doctrine, however, that the registered owner may not recover whatever amount he had
paid by virtue of his liability to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle.

Page 31 of 66
 Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily be
responsible to the public or to third persons for injuries caused the latter while the vehicle is being driven on the highways or
streets. The members of the Court are in agreement that the defendant-appellant should be held liable to plaintiff-appellee for
the injuries occasioned to the latter because of the negligence of the driver, even if the defendant-appellant was no longer the
owner of the vehicle at the time of the damage because he had previously sold it to another. What is the legal basis for his
(defendant-appellant’s) liability?

There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the Motor
Vehicles Office. Should he not be allowed to prove the truth, that he had sold it to another and thus shift the responsibility for the injury
to the real and actual owner? The defendant holds the affirmative of this proposition; the trial court held the negative.

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or operated upon any public
highway unless the same is property registered. It has been stated that the system of licensing and the requirement that each machine
must carry a registration number, conspicuously displayed, is one of the precautions taken to reduce the danger of injury to pedestrians
and other travelers from the careless management of automobiles. And to furnish a means of ascertaining the identity of persons
violating the laws and ordinances, regulating the speed and operation of machines upon the highways (2 R.C.L. 1176). Not only are
vehicles to be registered and that no motor vehicles are to be used or operated without being properly registered for the current year,
but that dealers in motor vehicles shall furnish thee Motor Vehicles Office a report showing the name and address of each purchaser of
motor vehicle during the previous month and the manufacturer’s serial number and motor number. (Section 5(c), Act No. 3992, as
amended.)

Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land
registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale
between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any
public highway (section 5 [a], Act No. 3992, as amended). The main aim of motor vehicle registration is to identify the owner so that if
any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefore can be
fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused
accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is
primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways:

One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and
another is that the knowledge that means of detection are always available may act as a deterrent from lax observance of the law and
of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the
primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to
discover him. The purpose of the statute is thwarted, and the displayed number becomes a "share and delusion," if courts would
entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the
most outrageous acts of negligence, if they should be allowed to pace a "middleman" between them and the public, and escape liability
by the manner in which they recompense servants. (King vs. Brenham Automobile Co., Inc. 145 S.W. 278, 279.)

With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to
prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility by and lay the same on the
person actually owning the vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its aim and policy
in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence of
registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be
easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one
who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public
highways is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than
by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend
to him would

become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the policy of the law is
to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person injured,
that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the
injured person.

The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it
is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action
brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the
suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that
the law demands and requires.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the
vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that
he may be required to pay as damage for the injury caused to the plaintiff-appellant.8

Petitioner insists that he is not liable for damages since the driver of the vehicle at the time of the accident was not an authorized driver
of the new (actual) owner of the vehicle. He claims that the ruling in First Malayan Leasing and Finance Corporation vs. CA9 implies that
to hold the registered owner liable for damages, the driver of the vehicle must have been authorized, allowed and permitted by its
actual owner to operate and drive it. Thus, if the vehicle is driven without the knowledge and consent of the actual owner, then the
registered owner cannot be held liable for damages.

He further argues that this was the underlying theory behind Duavit vs. CA10 wherein the court absolved the registered owner from
liability after finding that the vehicle was virtually stolen from the owner’s garage by a person who was neither authorized nor employed
by the owner. Petitioner concludes that the ruling in Duavit and not the one in First Malayan should be applicable to him.

Petitioner’s argument lacks merit. Whether the driver is authorized or not by the actual owner is irrelevant to determining the liability of
the registered owner who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of

Page 32 of 66
the vehicle in the streets and highways. To require the driver of the vehicle to be authorized by the actual owner before
the registered owner can be held accountable is to defeat the very purpose why motor vehicle legislations are enacted in the first place.

Furthermore, there is nothing in First Malayan which even remotely suggests that the driver must be authorized before the registered
owner can be held accountable. In First Malayan, the registered owner, First Malayan Corporation, was held liable for damages arising
from the accident even if the vehicle involved was already owned by another party:

This Court has consistently ruled that regardless of who the actual owner is of a motor vehicle might be, the registered owner
is the operator of the same with respect to the public and third persons, and as such, directly and primarily responsible for the
consequences of its operation. In contemplation of law, the owner/operator of record is the employer of the driver, the actual
operator and employer being considered merely as his agent (MYC-Agro-Industrial Corporation vs. Vda. de Caldo, 132 SCRA
10, citing Vargas vs. Langcay, 6 SCRA 174; Tamayo vs. Aquino, 105 Phil. 949).

‘We believe that it is immaterial whether or not the driver was actually employed by the operator of record. It is even
not necessary to prove who the actual owner of the vehicle and the employer of the driver is. Granting that, in this
case, the father of the driver is the actual owner and that he is the actual employer, following the well-settled principle
that the operator of record continues to be the operator of the vehicle in contemplation of law, as regards the public
and third person, and as such is responsible for the consequences incident to its operation, we must hold and
consider such owner-operator of record as the employer, in contemplation of law, of the driver. And, to give effect to
this policy of law as enunciated in the above cited decisions of this Court, we must now extend the same and
consider the actual operator and employer as the agent of the operator of record.’11

Contrary to petitioner’s position, the First Malayan ruling is applicable to him since the case involves the same set of facts ― the
registered owner had previously sold the vehicle to someone else and was being driven by an employee of the new (actual)
owner. Duavit is inapplicable since the vehicle there was not transferred to another; the registered and the actual owner was one and
the same person. Besides, in Duavit, the defense of the registered owner, Gilberto Duavit, was that the vehicle was practically stolen
from his garage by Oscar Sabiano, as affirmed by the latter:

Defendant Sabiano, in his testimony, categorically admitted that he took the jeep from the garage of defendant Duavit without
the consent and authority of the latter. He testified further that Duavit even filed charges against him for the theft of the jeep
but which Duavit did not push through as his (Sabiano’s) parents apologized to Duavit on his behalf.12

As correctly pointed out by the CA, the Duavit ruling is not applicable to petitioner’s case since the circumstance of unauthorized use
was not present. He in fact voluntarily delivered his car to Albert Jaucian as part of the downpayment for a vehicle he purchased from
Jaucian. Thus, he could not claim that the vehicle was stolen from him since he voluntarily ceded possession thereof to Jaucian. It was
the latter, as the new (actual) owner, who could have raised the defense of theft to prove that he was not liable for the acts of his
employee Ocfemia. Thus, there is no reason to apply the Duavit  ruling to this case.

The ruling in First Malayan has been reiterated in BA Finance Corporation vs. CA13  and more recently in Aguilar, Sr. vs. Commercial
Savings Bank.14 In BA Finance, we held the registered owner liable even if, at the time of the accident, the vehicle was leased by
another party and was driven by the lessee’s employee. In Aguilar, the registered owner-bank answered for damages for the accident
even if the vehicle was being driven by the Vice-President of the Bank in his private capacity and not as an officer of the Bank, as
claimed by the Bank. We find no reason to deviate from these decisions.

The main purpose of vehicle registration is the easy identification of the owner who can be held responsible for any accident, damage
or injury caused by the vehicle. Easy identification prevents inconvenience and prejudice to a third party injured by one who is unknown
or unidentified. To allow a registered owner to escape liability by claiming that the driver was not authorized by the new (actual) owner
results in the public detriment the law seeks to avoid.

Finally, the issue of whether or not the driver of the vehicle during the accident was authorized is not at all relevant to determining the
liability of the registered owner. This must be so if we are to comply with the rationale and principle behind the registration requirement
under the motor vehicle law.

WHEREFORE, the petition is hereby DENIED. The January 26, 2000 decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Page 33 of 66
Case No. 9
G.R. No. 143360. September 5, 2002.]
EQUITABLE LEASING CORPORATION, Petitioner, v. LUCITA SUYOM, MARISSA ENANO, MYRNA TAMAYO and FELIX
OLEDAN, Respondents.

DECISION

PANGANIBAN, J.:

In an action based on quasi delict, the registered owner of a motor vehicle is solidarily liable for the injuries and damages caused by the
negligence of the driver, in spite of the fact that the vehicle may have already been the subject of an unregistered Deed of Sale in favor
of another person. Unless registered with the Land Transportation Office, the sale — while valid and binding between the parties —
does not affect third parties, especially the victims of accidents involving the said transport equipment. Thus, in the present
case, Petitioner, which is the registered owner, is liable for the acts of the driver employed by its former lessee who has become the
owner of that vehicle by virtue of an unregistered Deed of Sale.chanrob1es virtua1 1aw 1ibrary
Statement of the Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the May 12, 2000 Decision 1 of the Court of Appeals 2
(CA) in CA-G.R. CV No. 55474. The decretal portion of the Decision reads as follows:jgc:chanrobles.com.ph

"WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. The assailed decision, dated May 5,
1997, of the Regional Trial Court of Manila, Branch 14, in Civil Case No. 95-73522, is hereby AFFIRMED with MODIFICATION that the
award of attorney’s fees is DELETED." 3

On the other hand, in Civil Case No. 95-73522, the Regional Trial Court (RTC) of Manila (Branch 14) had earlier disposed in this
wise:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant Equitable Leasing Corporation ordering
said defendant to pay to the plaintiffs the following:chanrob1es virtual 1aw library

A. TO MYRNA TAMAYO
1. the sum of P50,000.00 for the death of Reniel Tamayo;
2. P50,000.00 as moral damages; and
3. P56,000.00 for the damage to the store and its contents, and funeral expenses.

B. TO FELIX OLEDAN

1. the sum of P50,000.00 for the death of Felmarie Oledan;

2. P50,000.00 as moral damages; and
3. P30,000.00 for medical expenses, and funeral expenses.

C. TO MARISSA ENANO
1. P7,000.00 as actual damages

D. TO LUCITA SUYOM
1. The sum of P5,000.00 for the medical treatment of her two sons.

The sum of P120,000.00 as and for attorney’s fees." 4

The Facts

On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into the house cum store of Myrna Tamayo located at Pier 18,
Vitas, Tondo, Manila. A portion of the house was destroyed. Pinned to death under the engine of the tractor were Respondent Myrna
Tamayo’s son, Reniel Tamayo, and Respondent Felix Oledan’s daughter, Felmarie Oledan. Injured were Respondent Oledan himself,
Respondent Marissa Enano, and two sons of Respondent Lucita Suyom.chanrob1es virtua1 1aw 1ibrary

Tutor was charged with and later convicted of reckless imprudence resulting in multiple homicide and multiple physical injuries in
Criminal Case No. 296094-SA, Metropolitan Trial Court of Manila, Branch 12. 5

Upon verification with the Land Transportation Office, respondents were furnished a copy of Official Receipt No. 62204139 6 and
Certificate of Registration No. 08262797, 7 showing that the registered owner of the tractor was "Equitable Leasing Corporation/leased
to Edwin Lim." On April 15, 1995, respondents filed against Raul Tutor, Ecatine Corporation ("Ecatine") and Equitable Leasing
Corporation ("Equitable") a Complaint 8 for damages docketed as Civil Case No. 95-73522 in the RTC of Manila, Branch 14.

The trial court, upon motion of plaintiffs’ counsel, issued an Order dropping Raul Tutor, Ecatine and Edwin Lim from the Complaint,
because they could not be located and served with summonses. 9 On the other hand, in its Answer with Counterclaim, 10 petitioner
alleged that the vehicle had already been sold to Ecatine and that the former was no longer in possession and control thereof at the
time of the incident. It also claimed that Tutor was an employee, not of Equitable, but of Ecatine.

After trial on the merits, the RTC rendered its Decision ordering petitioner to pay actual and moral damages and attorney’s fees to
respondents. It held that since the Deed of Sale between petitioner and Ecatine had not been registered with the Land Transportation
Office, (LTO), the legal owner was still Equitable. 11 Thus, petitioner was liable to respondents. 12

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioner was still to be legally deemed the owner/operator of the tractor, even if that vehicle had
been the subject of a Deed of Sale in favor of Ecatine on December 9, 1992. The reason cited by the CA was that the Certificate of
Registration on file with the LTO still remained in petitioner’s name. 13 In order that a transfer of ownership of a motor vehicle can bind
third persons, it must be duly recorded in the LTO. 14

The CA likewise upheld respondents’ claim for moral damages against petitioner because the appellate court considered Tutor, the
driver of the tractor, to be an agent of the registered owner/operator. 15

Page 34 of 66
Hence, this Petition. 16chanrob1es virtua1 1aw 1ibrary

Issues

In its Memorandum, petitioner raises the following issues for the Court’s consideration:chanrob1es virtual 1aw library

I "Whether or not the Court of Appeals and the trial court gravely erred when they decided and held that petitioner [was] liable for
damages suffered by private respondents in an action based on quasi delict for the negligent acts of a driver who [was] not the
employee of the petitioner.
II"Whether or not the Court of Appeals and the trial court gravely erred when they awarded moral damages to private respondents
despite their failure to prove that the injuries they suffered were brought by petitioner’s wrongful act." 17

This Court’s Ruling

The Petition has no merit.

First Issue:chanrob1es virtual 1aw library

Liability for Wrongful Acts

Petitioner contends that it should not be held liable for the damages sustained by respondents and that arose from the negligence of
the driver of the Fuso Road Tractor, which it had already sold to Ecatine at the time of the accident. Not having employed Raul Tutor,
the driver of the vehicle, it could not have controlled or supervised him. 18

We are not persuaded. In negligence cases, the aggrieved party may sue the negligent party under (1) Article 100 19 of the Revised
Penal Code, for civil liability ex delicto; or (2) under Article 2176 20 of the Civil Code, for civil liability ex quasi delicto. 21chanrob1es
virtua1 1aw 1ibrary

Furthermore, under Article 103 of the Revised Penal Code, employers may be held subsidiarily liable for felonies committed by their
employees in the discharge of the latter’s duties. 22 This liability attaches when the employees who are convicted of crimes committed
in the performance of their work are found to be insolvent and are thus unable to satisfy the civil liability adjudged. 23

On the other hand, under Article 2176 in relation to Article 2180 24 of the Civil Code, an action predicated on quasi delict may be
instituted against the employer for an employee’s act or omission. The liability for the negligent conduct of the subordinate is direct and
primary, but is subject to the defense of due diligence in the selection and supervision of the employee. 25 The enforcement of the
judgment against the employer for an action based on Article 2176 does not require the employee to be insolvent, since the liability of
the former is solidary — the latter being statutorily considered a joint tortfeasor. 26 To sustain a claim based on quasi delict, the
following requisites must be proven: (a) damage suffered by the plaintiff, (b) fault or negligence of the defendant, and (c) connection of
cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff. 27

These two causes of action (ex delicto or ex quasi delicto) may be availed of, subject to the caveat 28 that the offended party cannot
"recover damages twice for the same act or omission" or under both causes. 29 Since these two civil liabilities are distinct and
independent of each other, the failure to recover in one will not necessarily preclude recovery in the other. 30chanrob1es virtua1 1aw
1ibrary

In the instant case, respondents — having failed to recover anything in the criminal case — elected to file a separate civil action for
damages, based on quasi delict under Article 2176 of the Civil Code. 31 The evidence is clear that the deaths and the injuries suffered
by respondents and their kins were due to the fault of the driver of the Fuso tractor.

Dated June 4, 1991, the Lease Agreement 32 between petitioner and Edwin Lim stipulated that "it is the intention of the parties to enter
into a FINANCE LEASE AGREEMENT." 33 Under such scheme, ownership of the subject tractor was to be registered in the name of
petitioner, until the value of the vehicle has been fully paid by Edwin Lim. 34 Further, in the "Lease Schedule," 35 the monthly rental for
the tractor was stipulated, and the term of the Lease was scheduled to expire on December 4, 1992. After a few months, Lim completed
the payments to cover the full price of the tractor. 36 Thus, on December 9, 1992, a Deed of Sale 37 over the tractor was executed by
petitioner in favor of Ecatine represented by Edwin Lim. However, the Deed was not registered with the LTO.cralaw : red

We hold petitioner liable for the deaths and the injuries complained of, because it was the registered owner of the tractor at the time of
the accident on July 17, 1994. 38 The Court has consistently ruled that, regardless of sales made of a motor vehicle, the registered
owner is the lawful operator insofar as the public and third persons are concerned; consequently, it is directly and primarily responsible
for the consequences of its operation 39 In contemplation of law, the owner/operator of record is the employer of the driver, the actual
operator and employer being considered as merely its agent. 40 The same principle applies even if the registered owner of any vehicle
does not use it for public service 41

Since Equitable remained the registered owner of the tractor, it could not escape primary liability for the deaths and the injuries arising
from the negligence of the driver. 42

The finance-lease agreement between Equitable on the one hand and Lim or Ecatine on the other has already been superseded by the
sale. In any event, it does not bind third persons. The rationale for this rule has been aptly explained in Erezo v. Jepte, 43 which we
quote hereunder:jgc:chanrobles.com.ph

". . . .The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is
caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner.
Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles
without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so
inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of
persons responsible for damages or injuries caused on public highways." 44chanrobles virtuallawlibrary

Further, petitioner’s insistence on FGU Insurance Corp. v. Court of Appeals 45 is misplaced. First, in FGU Insurance, the registered
vehicle owner, which was engaged in a rent-a-car business, rented out the car. In this case, the registered owner of the truck, which is
engaged in the business of financing motor vehicle acquisitions, has actually sold the truck to Ecatine, which in turn employed Tutor.
Second, in FGU Insurance, the registered owner of the vehicle was not held responsible for the negligent acts of the person who rented

Page 35 of 66
one of its cars, because Article 2180 of the Civil Code was not applicable. We held that no vinculum juris as employer and employee
existed between the owner and the driver. 46 In this case, the registered owner of the tractor is considered under the law to be the
employer of the driver, while the actual operator is deemed to be its agent. 47 Thus, Equitable, the registered owner of the tractor, is —
for purposes of the law on quasi delict — the employer of Raul Tutor, the driver of the tractor. Ecatine, Tutor’s actual employer, is
deemed as merely an agent of Equitable. 48

True, the LTO Certificate of Registration, dated "5/31/91," qualifies the name of the registered owner as "EQUITABLE LEASING
CORPORATION/Leased to Edwin Lim." But the lease agreement between Equitable and Lim has been overtaken by the Deed of Sale
on December 9, 1992, between petitioner and Ecatine. While this Deed does not affect respondents in this quasi delict suit, it definitely
binds petitioner because, unlike them, it is a party to it.chanrob1es virtua1 1aw 1ibrary

We must stress that the failure of Equitable and/or Ecatine to register the sale with the LTO should not prejudice respondents, who
have the legal right to rely on the legal principle that the registered vehicle owner is liable for the damages caused by the negligence of
the driver. Petitioner cannot hide behind its allegation that Tutor was the employee of Ecatine. This will effectively prevent respondents
from recovering their losses on the basis of the inaction or fault of petitioner in failing to register the sale. The non-registration is the
fault of petitioner, which should thus face the legal consequences thereof.

Second Issue:chanrob1es virtual 1aw library

Moral Damages

Petitioner further claims that it is not liable for moral damages, because respondents failed to establish or show the causal connection
or relation between the factual basis of their claim and their wrongful act or omission, if any. 49

Moral damages are not punitive in nature, but are designed to compensate 50 and alleviate in some way the physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury unjustly
caused a person. 51 Although incapable of pecuniary computation, moral damages must nevertheless be somehow proportional to and
in approximation of the suffering inflicted. 52 This is so because moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered, not to impose a penalty on the wrongdoer. 53chanrob1es virtua1 1aw 1ibrary

Viewed as an action for quasi delict, the present case falls squarely within the purview of Article 2219 (2), 54 which provides for the
payment of moral damages in cases of quasi delict. 55 Having established the liability of petitioner as the registered owner of the
vehicle, 56 respondents have satisfactorily shown the existence of the factual basis for the award 57 and its causal connection to the
acts of Raul Tutor, who is deemed as petitioner’s employee. 58 Indeed, the damages and injuries suffered by respondents were the
proximate result of petitioner’s tortious act or omission. 59

Further, no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the
discretion of the court. 60 The evidence gives no ground for doubt that such discretion was properly and judiciously exercised by the
trial court. 61 The award is in fact consistent with the rule that moral damages are not intended to enrich the injured party, but to
alleviate the moral suffering undergone by that party by reason of the defendant’s culpable action. 62chanrob1es virtua1 1aw 1ibrary

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

Page 36 of 66
Case No. 10
G.R. No. 170141             April 22, 2008
JAPAN AIRLINES, petitioner,
vs.
JESUS SIMANGAN, respondent.

DECISION

REYES R.T., J.:

WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a certain date, a contract of carriage arises, and the
passenger has every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit
for breach of contract of carriage.1

The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by Japan Airlines (JAL).2

In this petition for review on certiorari,3 petitioner JAL appeals the: (1) Decision4 dated May 31, 2005 of the Court of Appeals (CA)
ordering it to pay respondent Jesus Simangan moral and exemplary damages; and (2) Resolution5 of the same court dated September
28, 2005 denying JAL's motion for reconsideration.

The Facts

In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, Loreto Simangan, in UCLA School of Medicine in
Los Angeles, California, U.S.A. Upon request of UCLA, respondent undertook a series of laboratory tests at the National Kidney
Institute in Quezon City to verify whether his blood and tissue type are compatible with Loreto's.6 Fortunately, said tests proved that
respondent's blood and tissue type were well-matched with Loreto's.7

Respondent needed to go to the United States to complete his preliminary work-up and donation surgery. Hence, to facilitate
respondent's travel to the United States, UCLA wrote a letter to the American Consulate in Manila to arrange for his visa. In due time,
respondent was issued an emergency U.S. visa by the American Embassy in Manila.8

Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from petitioner JAL for US$1,485.00 and was
issued the corresponding boarding pass.9 He was scheduled to a particular flight bound for Los Angeles, California, U.S.A. via Narita,
Japan.10

On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Airport in the company of several relatives and
friends.11 He was allowed to check-in at JAL's counter.12 His plane ticket, boarding pass, travel authority and personal articles were
subjected to rigid immigration and security routines.13 After passing through said immigration and security procedures, respondent was
allowed by JAL to enter its airplane.14

While inside the airplane, JAL's airline crew suspected respondent of carrying a falsified travel document and imputed that he would
only use the trip to the United States as a pretext to stay and work in Japan.15 The stewardess asked respondent to show his travel
documents. Shortly after, the stewardess along with a Japanese and a Filipino haughtily ordered him to stand up and leave the
plane.16 Respondent protested, explaining that he was issued a U.S. visa. Just to allow him to board the plane, he pleaded with JAL to
closely monitor his movements when the aircraft stops over in Narita.17 His pleas were ignored. He was then constrained to go out of
the plane.18 In a nutshell, respondent was bumped off the flight.

Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the plane took off and he was left
behind.19 Afterwards, he was informed that his travel documents were, indeed, in order.20 Respondent was refunded the cost of his
plane ticket less the sum of US$500.00 which was deducted by JAL.21 Subsequently, respondent's U.S. visa was cancelled.22

Displeased by the turn of events, respondent filed an action for damages against JAL with the Regional Trial Court (RTC) in Valenzuela
City, docketed as Civil Case No. 4195-V-93. He claimed he was not able to donate his kidney to Loreto; and that he suffered terrible
embarrassment and mental anguish.23 He prayed that he be awarded P3 million as moral damages, P1.5 million as exemplary
damages and P500,000.00 as attorney's fees.24

JAL denied the material allegations of the complaint. It argued, among others, that its failure to allow respondent to fly on his scheduled
departure was due to "a need for his travel documents to be authenticated by the United States Embassy"25 because no one from JAL's
airport staff had encountered a parole visa before.26 It posited that the authentication required additional time; that respondent was
advised to take the flight the following day, July 30, 1992. JAL alleged that respondent agreed to be rebooked on July 30, 1992.27

JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution of the complaint. It prayed for litigation expenses,
exemplary damages and attorney's fees.28

On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision in favor of respondent (plaintiff), disposing as
follows:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the amount of P1,000,000.00 as moral
damages, the amount of P500,000.00 as exemplary damages and the amount of P250,000.00 as attorney's fees, plus the cost
of suit.29

The RTC explained:

In summarily and insolently ordering the plaintiff to disembark while the latter was already settled in his assigned seat, the
defendant violated the contract of carriage; that when the plaintiff was ordered out of the plane under the pretext that the
genuineness of his travel documents would be verified it had caused him embarrassment and besmirched reputation; and that
Page 37 of 66
 when the plaintiff was finally not allowed to take the flight, he suffered more wounded feelings and social humiliation for which
the plaintiff was asking to be awarded moral and exemplary damages as well as attorney's fees.

The reason given by the defendant that what prompted them to investigate the genuineness of the travel documents of the
plaintiff was that the plaintiff was not then carrying a regular visa but just a letter does not appear satisfactory. The defendant
is engaged in transporting passengers by plane from country to country and is therefore conversant with the travel documents.
The defendant should not be allowed to pretend, to the prejudice of the plaintiff not to know that the travel documents of the
plaintiff are valid documents to allow him entry in the United States.

The foregoing act of the defendant in ordering the plaintiff to deplane while already settled in his assigned seat clearly
demonstrated that the defendant breached its contract of carriage with the plaintiff as passenger in bad faith and as such the
plaintiff is entitled to moral and exemplary damages as well as to an award of attorney's fees.30

Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not guilty of breach of contract of carriage, hence, not
liable for damages.31 It posited that it is the one entitled to recover on its counterclaim.32

CA Ruling

In a Decision33 dated May 31, 2005, the CA affirmed the decision of the RTC with modification in that it lowered the amount of moral
and exemplary damages and deleted the award of attorney's fees. The fallo of the CA decision reads:

WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant JAPAN AIR LINES is ordered to pay
appellee JESUS SIMANGAN the reduced sums, as follows: Five Hundred Thousand Pesos (P500,000.00) as moral damages,
and Two Hundred Fifty Thousand Pesos (P250,000.00) as exemplary damages. The award of attorney's fees is hereby
DELETED.34

The CA elucidated that since JAL issued to respondent a round trip plane ticket for a lawful consideration, "there arose a perfected
contract between them."35 It found that respondent was "haughtily ejected"36 by JAL and that "he was certainly embarrassed and
humiliated"37 when, in the presence of other passengers, JAL's airline staff "shouted at him to stand up and arrogantly asked him to
produce his travel papers, without the least courtesy every human being is entitled to";38 and that "he was compelled to deplane on the
grounds that his papers were fake."39

The CA ratiocinated:

While the protection of passengers must take precedence over convenience, the implementation of security measures must be
attended by basic courtesies.

In fact, breach of the contract of carriage creates against the carrier a presumption of liability, by a simple proof of injury,
relieving the injured passenger of the duty to establish the fault of the carrier or of his employees; and placing on the carrier
the burden to prove that it was due to an unforeseen event or to force majeure.

That appellee possessed bogus travel documents and that he might stay illegally in Japan are allegations without
substantiation. Also, appellant's attempt to rebook appellee the following day was too late and did not relieve it from liability.
The damage had been done. Besides, its belated theory of novation, i.e., that appellant's original obligation to carry appellee
to Narita and Los Angeles on July 29, 1992 was extinguished by novation when appellant and appellant agreed that appellee
will instead take appellant's flight to Narita on the following day, July 30, 1992, deserves little attention. It is inappropriate at
bar. Questions not taken up during the trial cannot be raised for the first time on appeal.40 (Underscoring ours and citations
were omitted)

Citing  Ortigas, Jr. v. Lufthansa German Airlines,41 the CA declared that "(i)n contracts of common carriage, inattention and lack of care
on the part of the carrier resulting in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith
or fraud which entitles the passengers to the award of moral damages in accordance with Article 2220 of the Civil Code."42

Nevertheless, the CA modified the damages awarded by the RTC. It explained:

Fundamental in the law on damages is that one injured by a breach of a contract, or by a wrongful or negligent act or omission
shall have a fair and just compensation commensurate to the loss sustained as consequence of the defendant's act. Being
discretionary on the court, the amount, however, should not be palpably and scandalously excessive.
Here, the trial court's award of P1,000,000.00 as moral damages appears to be overblown. No other proof of appellee's social
standing, profession, financial capabilities was presented except that he was single and a businessman. To Us, the sum of
500,000.00 is just and fair. For, moral damages are emphatically not intended to enrich a complainant at the expense of the
defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to
alleviate the moral suffering he has undergone, by reason of the defendant's culpable action.
Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced to a reasonable level. The award of
exemplary damages is designed to permit the courts to mould behavior that has socially deleterious consequences and its
imposition is required by public policy to suppress the wanton acts of the offender. Hence, the sum of P250,000.00 is
adequate under the circumstances.
The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was definitely compelled to litigate in protecting his
rights and in seeking relief from appellant's misdeeds. Yet, the record is devoid of evidence to show the cost of the services of
his counsel and/or the actual expenses incurred in prosecuting his action.43 (Citations were omitted)

When JAL's motion for reconsideration was denied, it resorted to the petition at bar.

Issues

JAL poses the following issues -

Page 38 of 66
 I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS ENTITLED TO MORAL DAMAGES,
CONSIDERING THAT:
A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.
B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT CASES ONLY WHEN THE BREACH IS ATTENDED BY
FRAUD OR BAD FAITH. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACT FRAUDULENTLY
OR IN BAD FAITH AS TO ENTITLE RESPONDENT TO MORAL DAMAGES.
C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN GOOD FAITH FROM ONE ATTENDED BY BAD
FAITH.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS ENTITLED TO EXEMPLARY
DAMAGES CONSIDERING THAT:
A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF CONTRACT OF CARRIAGE UNLESS THE CARRIER IS
GUILTY OF WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT CONDUCT.
B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACT IN A WANTON FRAUDULENT,
RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER AS TO ENTITLE RESPONDENT TO EXEMPLARY DAMAGES.
III.
ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD OF DAMAGES, WHETHER OR NOT THE COURT OF
APPEALS AWARD OF P750,000 IN DAMAGES WAS EXCESSIVE AND UNPRECEDENTED.
IV.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR JAL ON ITS COUNTERCLAIM.44 (Underscoring Ours)

Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of contract of carriage; (2) whether or not
respondent is entitled to moral and exemplary damages; and (3) whether or not JAL is entitled to its counterclaim for damages.

Our Ruling

This Court is not a trier of facts.

Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The CA also gave its nod to the reasoning of the
RTC except as to the awards of damages, which were reduced, and that of attorney's fees, which was deleted.

We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on this matter of the lower courts, which are
better equipped and have better opportunity to assess the evidence first-hand, including the testimony of the witnesses.45

We have repeatedly held that the findings of fact of the CA are final and conclusive and cannot be reviewed on appeal to the Supreme
Court provided they are based on substantial evidence.46 We have no jurisdiction, as a rule, to reverse their findings.47 Among the
exceptions to this rule are: (a) when the conclusion is a finding grounded entirely on speculations, surmises or conjectures; (b) when
the inference made is manifestly mistaken, absurd or impossible; (c) where there is grave abuse of discretion; (d) when the judgment is
based on a misapprehension of facts; (e) when the findings of facts are conflicting; (f) when the CA, in making its findings, went beyond
the issues of the case and the same is contrary to the admissions of both appellant and appellee.48

The said exceptions, which are being invoked by JAL, are not found here. There is no indication that the findings of the CA are contrary
to the evidence on record or that vital testimonies of JAL's witnesses were disregarded. Neither did the CA commit misapprehension of
facts nor did it fail to consider relevant facts. Likewise, there was no grave abuse of discretion in the appreciation of facts or mistaken
and absurd inferences.

We thus sustain the coherent facts as established by the courts below, there being no sufficient showing that the said courts committed
reversible error in reaching their conclusions.

JAL is guilty of breach of

contract of carriage.

That respondent purchased a round trip plane ticket from JAL and was issued the corresponding boarding pass is uncontroverted.49 His
plane ticket, boarding pass, travel authority and personal articles were subjected to rigid immigration and security procedure.50 After
passing through said immigration and security procedure, he was allowed by JAL to enter its airplane to fly to Los Angeles, California,
U.S.A. via Narita, Japan.51 Concisely, there was a contract of carriage between JAL and respondent.

Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29, 1992. He was not allowed by JAL to fly.
JAL thus failed to comply with its obligation under the contract of carriage.

JAL justifies its action by arguing that there was "a need to verify the authenticity of respondent's travel document."52 It alleged that no
one from its airport staff had encountered a parole visa before.53 It further contended that respondent agreed to fly the next day so that
it could first verify his travel document, hence, there was novation.54 It maintained that it was not guilty of breach of contract of carriage
as respondent was not able to travel to the United States due to his own voluntary desistance.55

We cannot agree. JAL did not allow respondent to fly. It informed respondent that there was a need to first check the authenticity of his
travel documents with the U.S. Embassy.56 As admitted by JAL, "the flight could not wait for Mr. Simangan because it was ready to
depart."57

Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice but to be left behind. The latter
was unceremoniously bumped off despite his protestations and valid travel documents and notwithstanding his contract of carriage with
JAL. Damage had already been done when respondent was offered to fly the next day on July 30, 1992. Said offer did not cure JAL's
default.

Considering that respondent was forced to get out of the plane and left behind against his will, he could not have freely consented to be
rebooked the next day. In short, he did not agree to the alleged novation. Since novation implies a waiver of the right the creditor had
before the novation, such waiver must be express.58 It cannot be supposed, without clear proof, that respondent had willingly done
away with his right to fly on July 29, 1992.

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Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that JAL personnel imputed that respondent
would only use the trip to the United States as a pretext to stay and work in Japan.59

Apart from the fact that respondent's plane ticket, boarding pass, travel authority and personal articles already passed the rigid
immigration and security routines,60 JAL, as a common carrier, ought to know the kind of valid travel documents respondent carried. As
provided in Article 1755 of the New Civil Code: "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."61 Thus, We find
untenable JAL's defense of "verification of respondent's documents" in its breach of contract of carriage.

It bears repeating that the power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by
JAL.62

In an action for breach of contract of carriage, all that is required of plaintiff is to prove the existence of such contract and its non-
performance by the carrier through the latter's failure to carry the passenger safely to his destination.63 Respondent has complied with
these twin requisites.

Respondent is entitled to moral and exemplary damages and attorney's fees plus legal interest.

With reference to moral damages, JAL alleged that they are not recoverable in actions ex contractu except only when the breach is
attended by fraud or bad faith. It is contended that it did not act fraudulently or in bad faith towards respondent, hence, it may not be
held liable for moral damages.

As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the
items enumerated under Article 2219 of the Civil Code.64 As an exception, such damages are recoverable: (1) in cases in which the
mishap results in the death of a passenger, as provided in Article 1764, in relation to Article 2206(3) of the Civil Code; and (2) in the
cases in which the carrier is guilty of fraud or bad faith, as provided in Article 2220.65

The acts committed by JAL against respondent amounts to bad faith. As found by the RTC, JAL breached its contract of carriage with
respondent in bad faith. JAL personnel summarily and insolently ordered respondent to disembark while the latter was already settled
in his assigned seat. He was ordered out of the plane under the alleged reason that the genuineness of his travel documents should be
verified.

These findings of facts were upheld by the CA, to wit:

x x x he was haughtily ejected by appellant. He was certainly embarrassed and humiliated when, in the presence of other
passengers, the appellant's airline staff shouted at him to stand up and arrogantly asked him to produce his travel papers,
without the least courtesy every human being is entitled to. Then, he was compelled to deplane on the grounds that his papers
were fake. His protestation of having been issued a U.S. visa coupled with his plea to appellant to closely monitor his
movements when the aircraft stops over in Narita, were ignored. Worse, he was made to wait for many hours at the office of
appellant only to be told later that he has valid travel documents.66 (Underscoring ours)

Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are recoverable in suits predicated on breach of a
contract of carriage where it is proved that the carrier was guilty of fraud or bad faith, as in this case. Inattention to and lack of care for
the interests of its passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to bad faith
which entitles the passenger to an award of moral damages. What the law considers as bad faith which may furnish the ground for an
award of moral damages would be bad faith in securing the contract and in the execution thereof, as well as in the enforcement of its
terms, or any other kind of deceit.67

JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton, oppressive and malevolent acts against
respondent. Exemplary damages, which are awarded by way of example or correction for the public good, may be recovered in
contractual obligations, as in this case, if defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.68

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in its
consequence by creating negative incentives or deterrents against such behaviour. In requiring compliance with the standard of
extraordinary diligence, a standard which is, in fact, that of the highest possible degree of diligence, from common carriers and in
creating a presumption of negligence against them, the law seeks to compel them to control their employees, to tame their reckless
instincts and to force them to take adequate care of human beings and their property.69

Neglect or malfeasance of the carrier's employees could give ground for an action for damages. Passengers have a right to be treated
by the carrier's employees with kindness, respect, courtesy and due consideration and are entitled to be protected against personal
misconduct, injurious language, indignities and abuses from such employees.70

The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary damages in respondent's favor is, in Our view,
reasonable and realistic. This award is reasonably sufficient to indemnify him for the humiliation and embarrassment he suffered. This
also serves as an example to discourage the repetition of similar oppressive acts.

With respect to attorney's fees, they may be awarded when defendant's act or omission has compelled plaintiff to litigate with third
persons or to incur expenses to protect his interest.71 The Court, in Construction Development Corporation of the Philippines v.
Estrella,72 citing Traders Royal Bank Employees Union-Independent v. National Labor Relations Commission,73 elucidated thus:

There are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In its ordinary
concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the legal services he has rendered
to the latter. The basis of this compensation is the fact of his employment by and his agreement with the client.

In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to be paid by the
losing party in a litigation. The basis of this is any of the cases provided by law where such award can be made, such as

Page 40 of 66
 those authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the client, unless they have agreed
that the award shall pertain to the lawyer as additional compensation or as part thereof.74

It was therefore erroneous for the CA to delete the award of attorney's fees on the ground that the record is devoid of evidence to show
the cost of the services of respondent's counsel. The amount is actually discretionary upon the Court so long as it passes the test of
reasonableness. They may be recovered as actual or compensatory damages when exemplary damages are awarded and whenever
the court deems it just and equitable,75 as in this case.

Considering the factual backdrop of this case, attorney's fees in the amount of P200,000.00 is reasonably modest.

The above liabilities of JAL in the total amount of P800,000.00 earn legal interest pursuant to the Court's ruling in Construction
Development Corporation of the Philippines v. Estrella,76 citing Eastern Shipping Lines, Inc. v. Court of Appeals,77 to wit:

Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held in Eastern
Shipping Lines, Inc. v. Court of Appeals, that when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in the concept of actual and
compensatory damages, subject to the following rules, to wit -

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6%  per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.78 (Emphasis supplied and citations omitted)

Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay respondent legal interest. Pursuant to the above
ruling of the Court, the legal interest is 6% and it shall be reckoned from September 21, 2000 when the RTC rendered its judgment.
From the time this Decision becomes final and executory, the interest rate shall be 12% until its satisfaction.

JAL is not entitled to its counterclaim for damages.

The counterclaim of JAL in its Answer79 is a compulsory counterclaim for damages and attorney's fees arising from the filing of the
complaint. There is no mention of any other counter claims.

This compulsory counterclaim of JAL arising from the filing of the complaint may not be granted inasmuch as the complaint against it is
obviously not malicious or unfounded. It was filed by respondent precisely to claim his right to damages against JAL. Well-settled is the
rule that the commencement of an action does not per se make the action wrongful and subject the action to damages, for the law
could not have meant to impose a penalty on the right to litigate.80

We reiterate case law that if damages result from a party's exercise of a right, it is damnum absque injuria.81 Lawful acts give rise to no
injury. Walang perhuwisyong maaring idulot ang paggamit sa sariling karapatan.

During the trial, however, JAL presented a witness who testified that JAL suffered further damages. Allegedly, respondent caused the
publications of his subject complaint against JAL in the newspaper for which JAL suffered damages.82

Although these additional damages allegedly suffered by JAL were not incorporated in its Answer as they arose subsequent to its filing,
JAL's witness was able to testify on the same before the RTC.83 Hence, although these issues were not raised by the pleadings, they
shall be treated in all respects as if they had been raised in the pleadings.

As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by the pleadings are tried with the express or implied
consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings."

Nevertheless, JAL's counterclaim cannot be granted.

JAL is a common carrier. JAL's business is mainly with the traveling public. It invites people to avail themselves of the comforts and
advantages it offers.84 Since JAL deals with the public, its bumping off of respondent without a valid reason naturally drew public
attention and generated a public issue.

The publications involved matters about which the public has the right to be informed because they relate to a public issue. This public
issue or concern is a legitimate topic of a public comment that may be validly published.

Page 41 of 66
Assuming that respondent, indeed, caused the publication of his complaint, he may not be held liable for damages for it. The
constitutional guarantee of freedom of the speech and of the press includes fair commentaries on matters of public interest. This is
explained by the Court in Borjal v. Court of Appeals,85 to wit:

To reiterate, fair commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel
or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed
false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed
malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not
necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a
false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from
the facts.86 (Citations omitted and underscoring ours)

Even though JAL is not a public official, the rule on privileged commentaries on matters of public interest applies to it. The privilege
applies not only to public officials but extends to a great variety of subjects, and includes matters of public concern, public men, and
candidates for office.87

Hence, pursuant to the Borjal case, there must be an actual malice in order that a discreditable imputation to a public person in his
public capacity or to a public official may be actionable. To be considered malicious, the libelous statements must be shown to have
been written or published with the knowledge that they are false or in reckless disregard of whether they are false or not.88

Considering that the published articles involve matters of public interest and that its expressed opinion is not malicious but based on
established facts, the imputations against JAL are not actionable. Therefore, JAL may not claim damages for them.

WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is AFFIRMED WITH MODIFICATION. As
modified, petitioner Japan Airlines is ordered to pay respondent Jesus Simangan the following: (1) P500,000.00 as moral damages;
(2) P100,000.00 as exemplary damages; and (3) P200,000.00 as attorney's fees.

The total amount adjudged shall earn legal interest at the rate of 6% per annum from the date of judgment of the Regional Trial Court
on September 21, 2000 until the finality of this Decision. From the time this Decision becomes final and executory, the unpaid amount, if
any, shall earn legal interest at the rate of 12% per annum until its satisfaction.SO ORDERED.

Page 42 of 66
Case No. 11

G.R. No. 159636             November 25, 2004

VICTORY LINER, INC., petitioner,
vs.
ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and DIANA FRANCES P.
GAMMAD, respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition for review on certiorari is the April 11, 2003 decision1 of the Court of Appeals in CA-G.R. CV No. 63290 which
affirmed with modification the November 6, 1998 decision2 of the Regional Trial Court of Tuguegarao, Cagayan, Branch 5 finding
petitioner Victory Liner, Inc. liable for breach of contract of carriage in Civil Case No. 5023.

The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie Grace Pagulayan-Gammad,3 was
on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while running
at a high speed fell on a ravine somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie Grace
and physical injuries to other passengers.4

On May 14, 1996, respondent heirs of the deceased filed a complaint5 for damages arising from culpa contractual against petitioner. In
its answer,6 the petitioner claimed that the incident was purely accidental and that it has always exercised extraordinary diligence in its
50 years of operation.

After several re-settings,7 pre-trial was set on April 10, 1997.8 For failure to appear on the said date, petitioner was declared as in
default.9 However, on petitioner’s motion10 to lift the order of default, the same was granted by the trial court.11

At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the deceased was a passenger of the
Victory Liner Bus which fell on the ravine and that she was issued Passenger Ticket No. 977785. Respondents, for their part, did not
accept petitioner’s proposal to pay P50,000.00.12

After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled for November 17, 199713 but
moved to December 8, 1997,14 because the parties and the counsel failed to appear. On December 8, 1997, counsel of petitioner was
absent despite due notice and was deemed to have waived right to cross-examine respondent Rosalito.15

Petitioner’s motion to reset the presentation of its evidence to March 25, 199816 was granted. However, on March 24, 1998, the counsel
of petitioner sent the court a telegram17 requesting postponement but the telegram was received by the trial court on March 25, 1998,
after it had issued an order considering the case submitted for decision for failure of petitioner and counsel to appear.18

On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive portion of which reads:

WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor of the plaintiffs and
against the defendant Victory Liner, Incorporated, ordering the latter to pay the following:

1. Actual Damages -------------------- P 122,000.00

2. Death Indemnity --------------------- 50,000.00
3. Exemplary and Moral Damages----- 400,000.00
4. Compensatory Damages ---------- 1,500,000.00
5. Attorney’s Fees --------------------- 10% of the total amount granted
6. Cost of the Suit.

SO ORDERED.19

On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with modification as follows:

[T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby adjudged in favor of
plaintiffs-appellees:

1. Actual Damages in the amount of P88,270.00;

2. Compensatory Damages in the amount of P1,135,536,10;
3. Moral and Exemplary Damages in the amount of P400,000.00; and
4. Attorney’s fees equivalent to 10% of the sum of the actual, compensatory, moral, and exemplary damages herein
adjudged.

The court a quo’s judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED.

SO ORDERED.20

Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration praying that the case be remanded to the
trial court for cross- examination of respondents’ witness and for the presentation of its evidence; or in the alternative, dismiss the
respondents’ complaint.21 Invoking APEX Mining, Inc. v. Court of Appeals,22 petitioner argues, inter alia, that the decision of the trial
court should be set aside because the negligence of its former counsel, Atty. Antonio B. Paguirigan, in failing to appear at the

Page 43 of 66
scheduled hearings and move for reconsideration of the orders declaring petitioner to have waived the right to cross-examine
respondents’ witness and right to present evidence, deprived petitioner of its day in court.

On August 21, 2003, the Court of Appeals denied petitioner’s motion for reconsideration.23

Hence, this petition for review principally based on the fact that the mistake or gross negligence of its counsel deprived petitioner of due
process of law. Petitioner also argues that the trial court’s award of damages were without basis and should be deleted.

The issues for resolution are: (1) whether petitioner’s counsel was guilty of gross negligence; (2) whether petitioner should be held
liable for breach of contract of carriage; and (3) whether the award of damages was proper.

It is settled that the negligence of counsel binds the client. This is based on the rule that any act performed by a counsel within the
scope of his general or implied authority is regarded as an act of his client. Consequently, the mistake or negligence of counsel may
result in the rendition of an unfavorable judgment against the client. However, the application of the general rule to a given case should
be looked into and adopted according to the surrounding circumstances obtaining. Thus, exceptions to the foregoing have been
recognized by the court in cases where reckless or gross negligence of counsel deprives the client of due process of law, or when its
application will result in outright deprivation of the client’s liberty or property or where the interests of justice so require, and accord relief
to the client who suffered by reason of the lawyer’s gross or palpable mistake or negligence.24

The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed an Answer and Pre-trial Brief for
petitioner. Although initially declared as in default, Atty. Paguirigan successfully moved for the setting aside of the order of default. In
fact, petitioner was represented by Atty. Paguirigan at the pre-trial who proposed settlement for P50,000.00. Although Atty. Paguirigan
failed to file motions for reconsideration of the orders declaring petitioner to have waived the right to cross-examine respondents’
witness and to present evidence, he nevertheless, filed a timely appeal with the Court of Appeals assailing the decision of the trial court.
Hence, petitioner’s claim that it was denied due process lacks basis.

Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default for not appearing at the pre-trial, three
notices (dated October 23, 1996,25 January 30, 1997,26 and March 26, 1997,27 ) requiring attendance at the pre-trial were sent and duly
received by petitioner. However, it was only on April 27, 1997, after the issuance of the April 10, 1997 order of default for failure to
appear at the pre-trial when petitioner, through its finance and administrative manager, executed a special power of
attorney28 authorizing Atty. Paguirigan or any member of his law firm to represent petitioner at the pre-trial. Petitioner is guilty, at the
least, of contributory negligence and fault cannot be imputed solely on previous counsel.

The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar. In APEX, the negligent counsel not only
allowed the adverse decision against his client to become final and executory, but deliberately misrepresented in the progress report
that the case was still pending with the Court of Appeals when the same was dismissed 16 months ago.29 These circumstances are
absent in this case because Atty. Paguirigan timely filed an appeal from the decision of the trial court with the Court of Appeals.

In Gold Line Transit, Inc. v. Ramos,30 the Court was similarly confronted with the issue of whether or not the client should bear the
adverse consequences of its counsel’s negligence. In that case, Gold Line Transit, Inc. (Gold Line) and its lawyer failed to appear at the
pre-trial despite notice and was declared as in default. After the plaintiff’s presentation of evidence ex parte, the trial court rendered
decision ordering Gold Line to pay damages to the heirs of its deceased passenger. The decision became final and executory because
counsel of Gold Line did not file any appeal. Finding that Goldline was not denied due process of law and is thus bound by the
negligence of its lawyer, the Court held as follows –

This leads us to the question of whether the negligence of counsel was so gross and reckless that petitioner was deprived of
its right to due process of law. We do not believe so. It cannot be denied that the requirements of due process were observed
in the instant case. Petitioner was never deprived of its day in court, as in fact it was afforded every opportunity to be heard.
Thus, it is of record that notices were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint,
an answer to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its opportunity to participate
in the trial of the case and to adduce evidence in its behalf because of negligence.

In the application of the principle of due process, what is sought to be safeguarded against is not the lack of previous notice
but the denial of the opportunity to be heard. The question is not whether petitioner succeeded in defending its rights and
interests, but simply, whether it had the opportunity to present its side of the controversy. Verily, as petitioner retained the
services of counsel of its choice, it should, as far as this suit is concerned, bear the consequences of its choice of a faulty
option. Its plea that it was deprived of due process echoes on hollow ground and certainly cannot elicit approval nor sympathy.

To cater to petitioner’s arguments and reinstate its petition for relief from judgment would put a premium on the negligence of
its former counsel and encourage the non-termination of this case by reason thereof. This is one case where petitioner has to
bear the adverse consequences of its counsel’s act, for a client is bound by the action of his counsel in the conduct of a case
and he cannot thereafter be heard to complain that the result might have been different had his counsel proceeded differently.
The rationale for the rule is easily discernible. If the negligence of counsel be admitted as a reason for opening cases, there
would never be an end to a suit so long as a new counsel could be hired every time it is shown that the prior counsel had not
been sufficiently diligent, experienced or learned.31

Similarly, in Macalalag v. Ombudsman,32 a Philippine Postal Corporation employee charged with dishonesty was not able to file an
answer and position paper. He was found guilty solely on the basis of complainant’s evidence and was dismissed with forfeiture of all
benefits and disqualification from government service. Challenging the decision of the Ombudsman, the employee contended that the
gross negligence of his counsel deprived him of due process of law. In debunking his contention, the Court said –

Neither can he claim that he is not bound by his lawyer’s actions; it is only in case of gross or palpable negligence of counsel
when the courts can step in and accord relief to a client who would have suffered thereby. If every perceived mistake, failure of
diligence, lack of experience or insufficient legal knowledge of the lawyer would be admitted as a reason for the reopening of a
case, there would be no end to controversy. Fundamental to our judicial system is the principle that every litigation must come
to an end. It would be a clear mockery if it were otherwise. Access to the courts is guaranteed, but there must be a limit to it.

Page 44 of 66
Viewed vis-à-vis the foregoing jurisprudence, to sustain petitioner’s argument that it was denied due process of law due to negligence
of its counsel would set a dangerous precedent. It would enable every party to render inutile any adverse order or decision through the
simple expedient of alleging gross negligence on the part of its counsel. The Court will not countenance such a farce which contradicts
long-settled doctrines of trial and procedure.33

Anent the second issue, petitioner was correctly found liable for breach of contract of carriage. A common carrier is bound to carry its
passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard
to all the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a
passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an express finding of fault or
negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence.34

In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of Marie Grace’s death was the
negligence of petitioner. Hence, the courts below correctly ruled that petitioner was guilty of breach of contract of carriage.

Nevertheless, the award of damages should be modified.

Article 176435 in relation to Article 220636 of the Civil Code, holds the common carrier in breach of its contract of carriage that results in
the death of a passenger liable to pay the following: (1) indemnity for death, (2) indemnity for loss of earning capacity, and (3) moral
damages.

In the present case, respondent heirs of the deceased are entitled to indemnity for the death of Marie Grace which under current
jurisprudence is fixed at P50,000.00.37

The award of compensatory damages for the loss of the deceased’s earning capacity should be deleted for lack of basis. As a rule,
documentary evidence should be presented to substantiate the claim for damages for loss of earning capacity. By way of exception,
damages for loss of earning capacity may be awarded despite the absence of documentary evidence when (1) the deceased is self-
employed earning less than the minimum wage under current labor laws, and judicial notice may be taken of the fact that in the
deceased’s line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less
than the minimum wage under current labor laws.38

In People v. Oco,39 the evidence presented by the prosecution to recover damages for loss of earning capacity was the bare testimony
of the deceased’s wife that her husband was earning P8,000.00 monthly as a legal researcher of a private corporation. Finding that the
deceased was neither self-employed nor employed as a daily-wage worker earning less than the minimum wage under the labor laws
existing at the time of his death, the Court held that testimonial evidence alone is insufficient to justify an award for loss of earning
capacity.

Likewise, in People v. Caraig,40 damages for loss of earning capacity was not awarded because the circumstances of the 3 deceased
did not fall within the recognized exceptions, and except for the testimony of their wives, no documentary proof about their income was
presented by the prosecution. Thus –

The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were not self-employed or
employed as daily-wage workers earning less than the minimum wage under the labor laws existing at the time of their death.
Placido Agustin was a Social Security System employee who received a monthly salary of P5,000. Roberto Raagas was the
President of Sinclair Security and Allied Services, a family owned corporation, with a monthly compensation of P30,000.
Melencio Castro Jr. was a taxi driver of New Rocalex with an average daily earning of P500 or a monthly earning of P7,500.
Clearly, these cases do not fall under the exceptions where indemnity for loss of earning capacity can be given despite lack of
documentary evidence. Therefore, for lack of documentary proof, no indemnity for loss of earning capacity can be given in
these cases. (Emphasis supplied)

Here, the trial court and the Court of Appeals computed the award of compensatory damages for loss of earning capacity only on the
basis of the testimony of respondent Rosalito that the deceased was 39 years of age and a Section Chief of the Bureau of Internal
Revenue, Tuguergarao District Office with a salary of P83,088.00 per annum when she died.41 No other evidence was presented. The
award is clearly erroneous because the deceased’s earnings does not fall within the exceptions.

However, the fact of loss having been established, temperate damages in the amount of P500,000.00 should be awarded to
respondents. Under Article 2224 of the Civil Code, temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not,
from the nature of the case, be proved with certainty.

In Pleno v. Court of Appeals,42 the Court sustained the trial court’s award of P200,000.00 as temperate damages in lieu of actual
damages for loss of earning capacity because the income of the victim was not sufficiently proven, thus –

The trial court based the amounts of damages awarded to the petitioner on the following circumstances:

...

"As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur and the founder of his own
corporation, the Mayon Ceramics Corporation. It appears also that he is an industrious and resourceful person with several
projects in line, and were it not for the incident, might have pushed them through. On the day of the incident, Pleno was driving
homeward with geologist Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual income
however has not been sufficiently established so that this Court cannot award actual damages, but, an award of temperate or
moderate damages may still be made on loss or impairment of earning capacity. That Pleno sustained a permanent deformity
due to a shortened left leg and that he also suffers from double vision in his left eye is also established. Because of this, he
suffers from some inferiority complex and is no longer active in business as well as in social life. In similar cases as in
Borromeo v. Manila Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and in
Araneta, et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were given."

Page 45 of 66
 ...

We rule that the lower court’s awards of damages are more consonant with the factual circumstances of the instant case. The
trial court’s findings of facts are clear and well-developed. Each item of damages is adequately supported by evidence on
record.

Article 2224 of the Civil Code was likewise applied in the recent cases of People v. Singh43 and People v. Almedilla,44 to justify the award
of temperate damages in lieu of damages for loss of earning capacity which was not substantiated by the required documentary proof.

Anent the award of moral damages, the same cannot be lumped with exemplary damages because they are based on different jural
foundations.45 These damages are different in nature and require separate determination.46 In culpa contractual or breach of contract,
moral damages may be recovered when the defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or
in wanton disregard of contractual obligations and, as in this case, when the act of breach of contract itself constitutes the tort that
results in physical injuries. By special rule in Article 1764 in relation to Article 2206 of the Civil Code, moral damages may also be
awarded in case the death of a passenger results from a breach of carriage.47 On the other hand, exemplary damages, which are
awarded by way of example or correction for the public good may be recovered in contractual obligations if the defendant acted in
wanton, fraudulent, reckless, oppressive, or malevolent manner.48

Respondents in the instant case should be awarded moral damages to compensate for the grief caused by the death of the deceased
resulting from the petitioner’s breach of contract of carriage. Furthermore, the petitioner failed to prove that it exercised the
extraordinary diligence required for common carriers, it is presumed to have acted recklessly.49 Thus, the award of exemplary damages
is proper. Under the circumstances, we find it reasonable to award respondents the amount of P100,000.00 as moral damages and
P100,000.00 as exemplary damages. These amounts are not excessive.50

The actual damages awarded by the trial court reduced by the Court of Appeals should be further reduced. In People v. Duban,51 it was
held that only substantiated and proven expenses or those that appear to have been genuinely incurred in connection with the death,
wake or burial of the victim will be recognized. A list of expenses (Exhibit "J"),52 and the contract/receipt for the construction of the tomb
(Exhibit "F")53 in this case, cannot be considered competent proof and cannot replace the official receipts necessary to justify the award.
Hence, actual damages should be further reduced to P78,160.00,54 which was the amount supported by official receipts.

Pursuant to Article 220855 of the Civil Code, attorney’s fees may also be recovered in the case at bar where exemplary damages are
awarded. The Court finds the award of attorney’s fees equivalent to 10% of the total amount adjudged against petitioner reasonable.

Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,56 it was held that when an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in the concept
of actual and compensatory damages, subject to the following rules, to wit –

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit. (Emphasis supplied).

In the instant case, petitioner should be held liable for payment of interest as damages for breach of contract of carriage. Considering
that the amounts payable by petitioner has been determined with certainty only in the instant petition, the interest due shall be
computed upon the finality of this decision at the rate of 12% per annum until satisfaction, per paragraph 3 of the aforecited rule.57

WHEREFORE, in view of all the foregoing, the petition is partially granted. The April 11, 2003 decision of the Court of Appeals in CA-
G.R. CV No. 63290, which modified the decision of the Regional Trial Court of Tuguegarao, Cagayan in Civil Case No. 5023, is
AFFIRMED with MODIFICATION. As modified, petitioner Victory Liner, Inc., is ordered to pay respondents the following: (1) P50,000.00
as indemnity for the death of Marie Grace Pagulayan-Gammad; (2) P100,000.00 as moral damages; (3) P100,000.00 as exemplary
damages; (4) P78,160.00 as actual damages; (5) P500,000.00 as temperate damages; (6) 10% of the total amount as attorneys fees;
and the costs of suit.

Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12% per annum computed from the finality of
this decision until fully paid.

SO ORDERED.

Page 46 of 66
Case No. 12
G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC., Petitioners,
vs.
MALAYAN INSURANCE CO., INC.,* Respondent.

DECISION

PANGANIBAN, J.:

ommon carriers are bound to observe extraordinary diligence in their vigilance over the goods entrusted to them, as required by the
nature of their business and for reasons of public policy. Consequently, the law presumes that common carriers are at fault or negligent
for any loss or damage to the goods that they transport. In the present case, the evidence submitted by petitioner to overcome this
presumption was sorely insufficient.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002 Decision2 and the December 29,
2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 66028. The challenged Decision disposed as follows:

"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the Regional Trial Court of Manila, Branch 42 in Civil
Case No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein respondent] the value of the lost
cargo in the amount of ₱565,000.00. Costs against the [herein petitioner]."4

The assailed Resolution denied reconsideration.

The Facts

Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of 900 metric tons of silica sand
valued at ₱565,000.5 Consigned to Vulcan Industrial and Mining Corporation, the cargo was to be transported from Palawan to Manila.
On October 25, 1991, the silica sand was placed on board Judy VII, a barge leased by Lea Mer.6 During the voyage, the vessel sank,
resulting in the loss of the cargo.7

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To recover the amount paid and in the exercise of its
right of subrogation, Malayan demanded reimbursement from Lea Mer, which refused to comply. Consequently, Malayan instituted a
Complaint with the Regional Trial Court (RTC) of Manila on September 4, 1992, for the collection of ₱565,000 representing the amount
that respondent had paid Vulcan.9

On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the loss was a fortuitous event.10 The RTC
noted that the vessel had sunk because of the bad weather condition brought about by Typhoon Trining. The court ruled that petitioner
had no advance knowledge of the incoming typhoon, and that the vessel had been cleared by the Philippine Coast Guard to travel from
Palawan to Manila.11

Ruling of the Court of Appeals

Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila. Thus, the loss of the cargo was
occasioned by petitioner’s fault, not by a fortuitous event.12

Hence, this recourse.13

The Issues

Petitioner states the issues in this wise:

"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been presented as a witness of the said report
during the trial of this case before the lower court can be admitted in evidence to prove the alleged facts cited in the said report.

"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of fact of the Regional Trial Court which
clearly and unequivocally held that the loss of the cargo subject of this case was caused by fortuitous event for which herein petitioner
could not be held liable.

"C. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse of discretion in disregarding the
testimony of the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to the effect that the vessel ‘Judy VII’ was seaworthy at the
time of incident and further in disregarding the testimony of the PAG-ASA weather specialist, Ms. Rosa Barba y Saliente, to the effect
that typhoon ‘Trining’ did not hit Metro Manila or Palawan."14

In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2) whether the survey report of
Jesus Cortez is admissible in evidence.

The Court’s Ruling

The Petition has no merit.

First Issue:

Page 47 of 66
Liability for Loss of Cargo

Question of Fact

The resolution of the present case hinges on whether the loss of the cargo was due to a fortuitous event. This issue involves primarily a
question of fact, notwithstanding petitioner’s claim that it pertains only to a question of law. As a general rule, questions of fact may not
be raised in a petition for review.15 The present case serves as an exception to this rule, because the factual findings of the appellate
and the trial courts vary.16 This Court meticulously reviewed the records, but found no reason to reverse the CA.

Rule on Common Carriers

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 -- when this service is offered to the public for compensation.17 Petitioner is clearly a common
carrier, because it offers to the public its business of transporting goods through its vessels.18

Thus, the Court corrects the trial court’s finding that petitioner became a private carrier when Vulcan chartered it.19 Charter parties are
classified as contracts of demise (or bareboat) and affreightment, which are distinguished as follows:

"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or service
stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice,  subject to liability to
others for damages caused by negligence. To create a demise, the owner of a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the charterer; anything short of such a complete transfer is a contract of affreightment
(time or voyage charter party) or not a charter party at all."20

The distinction is significant, because a demise or bareboat charter indicates a business undertaking that is private in
character. 21 Consequently, the rights and obligations of the parties to a contract of private carriage are governed principally by their
stipulations, not by the law on common carriers.22

The Contract in the present case was one of affreightment, as shown by the fact that it was petitioner’s crew that manned the
tugboat M/V Ayalit and controlled the barge Judy VII.23 Necessarily, petitioner was a common carrier, and the pertinent law governs the
present factual circumstances.

Extraordinary Diligence Required

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the safety of the passengers they
transport, as required by the nature of their business and for reasons of public policy.24 Extraordinary diligence requires rendering
service with the greatest skill and foresight to avoid damage and destruction to the goods entrusted for carriage and delivery.25

Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to the goods that they have
transported.26 This presumption can be rebutted only by proof that they observed extraordinary diligence, or that the loss or damage
was occasioned by any of the following causes:27

"(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;

"(5) Order or act of competent public authority."28

Rule on Fortuitous Events

Article 1174 of the Civil Code provides that "no person shall be responsible for a fortuitous event which could not be foreseen, or which,
though foreseen, was inevitable." Thus, if the loss or damage was due to such an event, a common carrier is exempted from liability.

Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and unexpected occurrence, or
the failure of the debtors to comply with their obligations, must have been independent of human will; (b) the event that constituted
the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such
as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the obligor must have been free from any
participation in the aggravation of the resulting injury to the creditor.29

To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate and only cause of the
loss.30 Moreover, it should have exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event.31

Loss in the Instant Case

There is no controversy regarding the loss of the cargo in the present case. As the common carrier, petitioner bore the burden of
proving that it had exercised extraordinary diligence to avoid the loss, or that the loss had been occasioned by a fortuitous event -- an
exempting circumstance.

Page 48 of 66
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that the loss of the cargo was due to the bad
weather condition brought about by Typhoon Trining.32 Evidence was presented to show that petitioner had not been informed of the
incoming typhoon, and that the Philippine Coast Guard had given it clearance to begin the voyage.33 On October 25, 1991, the date on
which the voyage commenced and the barge sank, Typhoon Trining was allegedly far from Palawan, where the storm warning was only
"Signal No. 1."34

The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient. As required by the pertinent
law, it was not enough for the common carrier to show that there was an unforeseen or unexpected occurrence. It had to show that it
was free from any fault -- a fact it miserably failed to prove.

First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before, during or after the alleged fortuitous
event.35 Its witness, Joey A. Draper, testified that he could no longer remember whether anything had been done to minimize loss when
water started entering the barge.36 This fact was confirmed during his cross-examination, as shown by the following brief exchange:

"Atty. Baldovino, Jr.:

Other than be[a]ching the barge Judy VII, were there other precautionary measure[s] exercised by you and the crew of Judy VII so as to
prevent the los[s] or sinking of barge Judy VII?
xxxxxxxxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers and crew of tugboat Ayalit and barge Judy VII x x x to prevent
the sinking of barge Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago."37

Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a preponderance of evidence that the
barge was not seaworthy when it sailed for Manila.38 Respondent was able to prove that, in the hull of the barge, there were holes that
might have caused or aggravated the sinking.39 Because the presumption of negligence or fault applied to petitioner, it was incumbent
upon it to show that there were no holes; or, if there were, that they did not aggravate the sinking.

Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna, testified that the barge was in "tip-top"
or excellent condition,40 but that he had not personally inspected it when it left Palawan.41

The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII, dated July 31, 1991, did not conclusively prove
that the barge was seaworthy.42 The regularity of the issuance of the Certificate is disputably presumed.43 It could be contradicted by
competent evidence, which respondent offered. Moreover, this evidence did not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.44

Second Issue:

Admissibility of the Survey Report

Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo surveyor, should not have been admitted in evidence.
The Court partly agrees. Because he did not testify during the trial,46 then the Report that he had prepared was hearsay and therefore
inadmissible for the purpose of proving the truth of its contents.

The Survey Report Not the Sole Evidence

The facts reveal that Cortez’s Survey Report was used in the testimonies of respondent’s witnesses -- Charlie M. Soriano; and Federico
S. Manlapig, a cargo marine surveyor and the vice-president of Toplis and Harding Company.47 Soriano testified that the Survey Report
had been used in preparing the final Adjustment Report conducted by their company.48 The final Report showed that the barge was not
seaworthy because of the existence of the holes. Manlapig testified that he had prepared that Report after taking into account the
findings of the surveyor, as well as the pictures and the sketches of the place where the sinking occurred.49 Evidently, the existence of
the holes was proved by the testimonies of the witnesses, not merely by Cortez’ Survey Report.

Rule on Independently

Relevant Statement

That witnesses must be examined and presented during the trial,50 and that their testimonies must be confined to personal knowledge is
required by the rules on evidence, from which we quote:

"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. –A witness can testify only to those facts which
he knows of his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in these rules."51

On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit, which respondent had offered as evidence.52 Well-
settled is the rule that, unless the affiant is presented as a witness, an affidavit is considered hearsay.53

An exception to the foregoing rule is that on "independently relevant statements."  A report made by a person is admissible if it is
intended to prove the tenor, not the truth, of the statements.54 Independent of the truth or the falsity of the statement given in the report,
the fact that it has been made is relevant. Here, the hearsay rule does not apply.55

In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the testimonies of respondent’s
witnesses. The referral to Cortez’s Report was in relation to Manlapig’s final Adjustment Report. Evidently, it was the existence of the

Page 49 of 66
Survey Report that was testified to. The admissibility of that Report as part of the testimonies of the witnesses was correctly ruled upon
by the trial court.

At any rate, even without the Survey Report, petitioner has already failed to overcome the presumption of fault that applies to common
carriers.

WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against petitioner.

SO ORDERED.

Page 50 of 66
Case No. 13
G.R. No. 125817            January 16, 2002
ABELARDO LIM and ESMADITO GUNNABAN, petitioners,
vs.
COURT OF APPEALS and DONATO H. GONZALES, respondents.

BELLOSILLO, J.:

When a passenger jeepney covered by a certificate of public convenience is sold to another who continues to operate it under the
same certificate of public convenience under the so-called kabit system, and in the course thereof the vehicle meets an accident
through the fault of another vehicle, may the new owner sue for damages against the erring vehicle? Otherwise stated, does the new
owner have any legal personality to bring the action, or is he the real party in interest in the suit, despite the fact that he is not the
registered owner under the certificate of public convenience?

Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino Vallarta, holder of a
certificate of public convenience for the operation of public utility vehicles plying the Monumento-Bulacan route. While private
respondent Gonzales continued offering the jeepney for public transport services he did not have the registration of the vehicle
transferred in his name nor did he secure for himself a certificate of public convenience for its operation. Thus Vallarta remained on
record as its registered owner and operator.1âwphi1.nêt

On 22 July 1990, while the jeepney was running northbound along the North Diversion Road somewhere in Meycauayan, Bulacan, it
collided with a ten-wheeler-truck owned by petitioner Abelardo Lim and driven by his co-petitioner Esmadito Gunnaban. Gunnaban
owned responsibility for the accident, explaining that while he was traveling towards Manila the truck suddenly lost its brakes. To avoid
colliding with another vehicle, he swerved to the left until he reached the center island. However, as the center island eventually came
to an end, he veered farther to the left until he smashed into a Ferroza automobile, and later, into private respondent's passenger
jeepney driven by one Virgilio Gonzales. The impact caused severe damage to both the Ferroza and the passenger jeepney and left
one (1) passenger dead and many others wounded.

Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated the heirs of the deceased passenger, and had the
Ferroza restored to good condition. He also negotiated with private respondent and offered to have the passenger jeepney repaired at
his shop. Private respondent however did not accept the offer so Lim offered him ₱20,000.00, the assessment of the damage as
estimated by his chief mechanic. Again, petitioner Lim's proposition was rejected; instead, private respondent demanded a brand-new
jeep or the amount of ₱236,000.00. Lim increased his bid to ₱40,000.00 but private respondent was unyielding. Under the
circumstances, negotiations had to be abandoned; hence, the filing of the complaint for damages by private respondent against
petitioners.

In his answer Lim denied liability by contending that he exercised due diligence in the selection and supervision of his employees. He
further asserted that as the jeepney was registered in Vallarta’s name, it was Vallarta and not private respondent who was the real party
in interest.1 For his part, petitioner Gunnaban averred that the accident was a fortuitous event which was beyond his control.2

Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private respondent explained that although
he wanted to take his jeepney home he had no capability, financial or otherwise, to tow the damaged vehicle.3

The main point of contention between the parties related to the amount of damages due private respondent. Private respondent
Gonzales averred that per estimate made by an automobile repair shop he would have to spend ₱236,000.00 to restore his jeepney to
its original condition.4 On the other hand, petitioners insisted that they could have the vehicle repaired for ₱20,000.00.5

On 1 October 1993 the trial court upheld private respondent's claim and awarded him ₱236,000.00 with legal interest from 22 July 1990
as compensatory damages and ₱30,000.00 as attorney's fees. In support of its decision, the trial court ratiocinated that as vendee and
current owner of the passenger jeepney private respondent stood for all intents and purposes as the real party in interest. Even Vallarta
himself supported private respondent's assertion of interest over the jeepney for, when he was called to testify, he dispossessed
himself of any claim or pretension on the property. Gunnaban was found by the trial court to have caused the accident since he
panicked in the face of an emergency which was rather palpable from his act of directing his vehicle to a perilous streak down the fast
lane of the superhighway then across the island and ultimately to the opposite lane where it collided with the jeepney.

On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of diligence in supervising his
employees. It was admitted during trial that Gunnaban doubled as mechanic of the ill-fated truck despite the fact that he was neither
tutored nor trained to handle such task.6

Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the decision of the trial court. In upholding the
decision of the court a quo the appeals court concluded that while an operator under the kabit system could not sue without joining the
registered owner of the vehicle as his principal, equity demanded that the present case be made an exception.7 Hence this petition.

It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court despite their opposition to the well-
established doctrine that an operator of a vehicle continues to be its operator as long as he remains the operator of record. According
to petitioners, to recognize an operator under the kabit system as the real party in interest and to countenance his claim for damages is
utterly subversive of public policy. Petitioners further contend that inasmuch as the passenger jeepney was purchased by private
respondent for only ₱30,000.00, an award of ₱236,000.00 is inconceivably large and would amount to unjust enrichment.8

Petitioners' attempt to illustrate that an affirmance of the appealed decision could be supportive of the pernicious kabit system does not
persuade. Their labored efforts to demonstrate how the questioned rulings of the courts a quo are diametrically opposed to the policy of
the law requiring operators of public utility vehicles to secure a certificate of public convenience for their operation is quite unavailing.

The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows other persons
who own motor vehicles to operate them under his license, sometimes for a fee or percentage of the earnings.9 Although the parties to
such an agreement are not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public policy and
therefore void and inexistent under Art. 1409 of the Civil Code.

Page 51 of 66
In the early case of Dizon v. Octavio10 the Court explained that one of the primary factors considered in the granting of a certificate of
public convenience for the business of public transportation is the financial capacity of the holder of the license, so that liabilities arising
from accidents may be duly compensated. The kabit system renders illusory such purpose and, worse, may still be availed of by the
grantee to escape civil liability caused by a negligent use of a vehicle owned by another and operated under his license. If a registered
owner is allowed to escape liability by proving who the supposed owner of the vehicle is, it would be easy for him to transfer the subject
vehicle to another who possesses no property with which to respond financially for the damage done. Thus, for the safety of
passengers and the public who may have been wronged and deceived through the baneful kabit system, the registered owner of the
vehicle is not allowed to prove that another person has become the owner so that he may be thereby relieved of responsibility.
Subsequent cases affirm such basic doctrine.11

It would seem then that the thrust of the law in enjoining the kabit  system is not so much as to penalize the parties but to identify the
person upon whom responsibility may be fixed in case of an accident with the end view of protecting the riding public. The policy
therefore loses its force if the public at large is not deceived, much less involved.

In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit  system does not exist. First, neither
of the parties to the pernicious kabit  system is being held liable for damages. Second, the case arose from the negligence of another
vehicle in using the public road to whom no representation, or misrepresentation, as regards the ownership and operation of the
passenger jeepney was made and to whom no such representation, or misrepresentation, was necessary. Thus it cannot be said that
private respondent Gonzales and the registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney
belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at the very least by the illegal
arrangement. On the contrary, it was private respondent himself who had been wronged and was seeking compensation for the
damage done to him. Certainly, it would be the height of inequity to deny him his right.

In light of the foregoing, it is evident that private respondent has the right to proceed against petitioners for the damage caused on his
passenger jeepney as well as on his business. Any effort then to frustrate his claim of damages by the ingenuity with which petitioners
framed the issue should be discouraged, if not repelled.

In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for adequate compensation by putting the
plaintiff in the same financial position he was in prior to the tort. It is a fundamental principle in the law on damages that a defendant
cannot be held liable in damages for more than the actual loss which he has inflicted and that a plaintiff is entitled to no more than the
just and adequate compensation for the injury suffered. His recovery is, in the absence of circumstances giving rise to an allowance of
punitive damages, limited to a fair compensation for the harm done. The law will not put him in a position better than where he should
be in had not the wrong happened.12

In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only ₱30,000.00 to award damages
considerably greater than this amount would be improper and unjustified. Petitioners are at best reminded that indemnification for
damages comprehends not only the value of the loss suffered but also that of the profits which the obligee failed to obtain. In other
words, indemnification for damages is not limited to damnum emergens  or actual loss but extends to lucrum cessans or the amount of
profit lost.13

Had private respondent's jeepney not met an accident it could reasonably be expected that it would have continued earning from the
business in which it was engaged. Private respondent avers that he derives an average income of ₱300.00 per day from his passenger
jeepney and this earning was included in the award of damages made by the trial court and upheld by the appeals court. The award
therefore of ₱236,000.00 as compensatory damages is not beyond reason nor speculative as it is based on a reasonable estimate of
the total damage suffered by private respondent, i.e. damage wrought upon his jeepney and the income lost from his transportation
business. Petitioners for their part did not offer any substantive evidence to refute the estimate made by the courts a quo.

However, we are constrained to depart from the conclusion of the lower courts that upon the award of compensatory damages legal
interest should be imposed beginning 22 July 1990, i.e. the date of the accident. Upon the provisions of Art. 2213 of the Civil Code,
interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable
certainty." It is axiomatic that if the suit were for damages, unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof, interest at the rate of six percent (6%) per annum should be from the date the judgment of the
court is made (at which time the quantification of damages may be deemed to be reasonably ascertained).14

In this case, the matter was not a liquidated obligation as the assessment of the damage on the vehicle was heavily debated upon by
the parties with private respondent's demand for ₱236,000.00 being refuted by petitioners who argue that they could have the vehicle
repaired easily for ₱20,000.00. In fine, the amount due private respondent was not a liquidated account that was already demandable
and payable.

One last word. We have observed that private respondent left his passenger jeepney by the roadside at the mercy of the elements.
Article 2203 of the Civil Code exhorts parties suffering from loss or injury to exercise the diligence of a good father of a family to
minimize the damages resulting from the act or omission in question. One who is injured then by the wrongful or negligent act of
another should exercise reasonable care and diligence to minimize the resulting damage. Anyway, he can recover from the wrongdoer
money lost in reasonable efforts to preserve the property injured and for injuries incurred in attempting to prevent damage to it.15

However we sadly note that in the present case petitioners failed to offer in evidence the estimated amount of the damage caused by
private respondent's unconcern towards the damaged vehicle. It is the burden of petitioners to show satisfactorily not only that the
injured party could have mitigated his damages but also the amount thereof; failing in this regard, the amount of damages awarded
cannot be proportionately reduced.

WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales ₱236,000.00 with legal interest from 22 July
1990 as compensatory damages and ₱30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six percent (6%) per annum
shall be computed from the time the judgment of the lower court is made until the finality of this Decision. If the adjudged principal and
interest remain unpaid thereafter, the interest shall be twelve percent (12%) per annum computed from the time judgment becomes
final and executory until it is fully satisfied.1âwphi1.nêt

Costs against petitioners.

Page 52 of 66
SO ORDERED.

Page 53 of 66
Case No. 14
G.R. No. L-9605             September 30, 1957
GAUDIOSO EREZO, ET AL., plaintiff-appellee,
vs.
AGUEDO JEPTE, defendant-appellant.

Gesolgon, Matti and Custodio for appellees.

Aguedo Y. Jepte in his own behalf.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila ordering defendant to pay plaintiff Gaudioso Erezo P3,000 on the death
of Ernesto Erezo, son of plaintiff Gaudioso Erezo.

Defendant-appellant is the registered owner of a six by six truck bearing plate No. TC-1253. On August, 9, 1949, while the same was
being driven by Rodolfo Espino y Garcia, it collided with a taxicab at the intersection of San Andres and Dakota Streets, Manila. As the
truck went off the street, it hit Ernesto Erezo and another, and the former suffered injuries, as a result of which he died. The driver was
prosecuted for homicide through reckless negligence in criminal case No. 10663 of the Court of First Instance of Manila. The accused
pleaded guilty and was sentenced to suffer imprisonment and to pay the heirs of Ernesto Erezo the sum of P3,000. As the amount of
the judgment could not be enforced against him, plaintiff brought this action against the registered owner of the truck, the defendant-
appellant. The circumstances material to the case are stated by the court in its decision.

The defendant does not deny at the time of the fatal accident the cargo truck driven by Rodolfo Espino y Garcia was registered
in his name. He, however, claims that the vehicle belonged to the Port Brokerage, of which he was the broker at the time of
the accident. He explained, and his explanation was corroborated by Policarpio Franco, the manager of the corporation, that
the trucks of the corporation were registered in his name as a convenient arrangement so as to enable the corporation to pay
the registration fee with his backpay as a pre-war government employee. Franco, however, admitted that the arrangement was
not known to the Motor Vehicle Office.

The trial court held that as the defendant-appellant represented himself to be the owner of the truck and the Motor Vehicle Office,
relying on his representation, registered the vehicles in his name, the Government and all persons affected by the representation had
the right to rely on his declaration of ownership and registration. It, therefore, held that the defendant-appellant is liable because he
cannot be permitted to repudiate his own declaration. (Section 68 [a], Rule 123, and Art. 1431, New Civil Code.).

Against the judgment, the defendant has prosecuted this appeal claiming that at the time of the accident the relation of employer and
employee between the driver and defendant-appellant was not established, it having been proved at the trial that the owner of the truck
was the Port Brokerage, of which defendant-appellant was merely a broker. We find no merit or justice in the above contention. In
previous decisions, We already have held that the registered owner of a certificate of public convenience is liable to the public for the
injuries or damages suffered by passengers or third persons caused by the operation of said vehicle, even though the same had been
transferred to a third person. (Montoya vs. Ignacio, 94 Phil., 182, 50 Off. Gaz., 108; Roque vs. Malibay Transit Inc.,1 G. R. No. L- 8561,
November 18,1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10], 4606.)The principle upon which this doctrine is
based is that in dealing with vehicles registered under the Public Service Law, the public has the right to assume or presume that the
registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that they may have for injuries
caused to them by the vehicles being negligently operated if the public should be required to prove who the actual owner is. How would
the public or third persons know against whom to enforce their rights in case of subsequent transfers of the vehicles? We do not imply
by this doctrine, however, that the registered owner may not recover whatever amount he had paid by virtue of his liability to third
persons from the person to whom he had actually sold, assigned or conveyed the vehicle.

Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily be responsible to
the public or to third persons for injuries caused the latter while the vehicle is being driven on the highways or streets. The members of
the Court are in agreement that the defendant-appellant should be held liable to plaintiff-appellee for the injuries occasioned to the latter
because of the negligence of the driver even if the defendant-appellant was no longer the owner of the vehicle at the time of the
damage because he had previously sold it to another. What is the legal basis for his (defendant-appellant's) liability?.

There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the Motor Vehicle
Office. Should he not be allowed to prove the truth, that he had sold it to another and thus shift the responsibility for the injury to the real
and actual owner? The defendant holds the affirmative of this proposition; the trial court held the negative.

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or operated upon any public
highway unless the same is properly registered. It has been stated that the system of licensing and the requirement that each machine
must carry a registration number, conspicuously displayed, is one of the precautions taken to reduce the danger of injury to pedestrians
and other travelers from the careless management of automobiles, and to furnish a means of ascertaining the identity of persons
violating the laws and ordinances, regulating the speed and operation of machines upon the highways (2 R. C. L. 1176). Not only are
vehicles to be registered and that no motor vehicles are to be used or operated without being properly registered for the current year,
but that dealers in motor vehicles shall furnish the Motor Vehicles Office a report showing the name and address of each purchaser of
motor vehicle during the previous month and the manufacturer's serial number and motor number. (Section 5 [c], Act. No. 3992, as
amended.).

Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land
registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale
between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any
public highway (section 5 [a], Act No. 3992, as amended).The main aim of motor vehicle registration is to identify the owner so that if
any accident happens, or that any damage or injury is caused by the vehicles on the public highways, responsibility therefore can be
fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused
accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall those circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is
primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways.

Page 54 of 66
 One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of
accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax
observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it
is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall
not escape because of lack of means to discover him." The purpose of the statute is thwarted, and the displayed number
becomes a "snare and delusion," if courts will entertain such defenses as that put forward by appellee in this case. No
responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to
place a "middleman" between them and the public, and escape liability by the manner in which they recompense their
servants. (King vs. Brenham Automobile Co., 145 S. W. 278,279.)

With the above policy in mind, the question that defendant-appellant poses is: should not be registered owner be allowed at the trial to
prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility and lay the same on the
person actually owning the vehicle? We hold with the trial court that the laws does not allow him to do so; the law, with its aim and
policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence
of registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be
easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one
who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public
highways is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than
by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend
to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the
policy of the law is to be enforced and carried out, the registered owner should be allowed to prove the contrary to the prejudice of the
person injured that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the
responsibility to the injured person.1âwphïl.nêt

The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it
is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action
brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the
suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that
the law demands and requires.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the
vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that
he may be required to pay as damage for the injury caused to the plaintiff-appellant.1âwphïl.nêt

Bengzon, Paras, C.J., Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur.
Montemayor, J., concurs in the result.

Page 55 of 66
Case No. 15
G.R. No. L-65510 March 9, 1987
TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.

Cirilo A. Diaz, Jr. for petitioner.

Henry V. Briguera for private respondent.

PARAS, J.:

"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied to the parties in
the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences
of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)

The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed decision, as
follows:

On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total
consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total purchase price the defendant gave a
downpayment of P1,700.00 with a promise that he would pay plaintiff the balance within sixty days. The defendant, however, failed
to comply with his promise and so upon his own request, the period of paying the balance was extended to one year in monthly
installments until January 1976 when he stopped paying anymore. The plaintiff made demands but just the same the defendant
failed to comply with the same thus forcing the plaintiff to consult a lawyer and file this action for his damage in the amount of
P546.21 for attorney's fees and P100.00 for expenses of litigation. The plaintiff also claims that as of February 20, 1978, the total
account of the defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount includes not only
the balance of P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976 to February 27,
1978; a 2% service charge; and P 546.21 representing attorney's fees.

In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment of the balance of the
purchase price. It has been the practice of financing firms that whenever there is a balance of the purchase price the registration
papers of the motor vehicle subject of the sale are not given to the buyer. The records of the LTC show that the motorcycle sold to
the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one
and the same, because it was made to appear that way only as the defendant had no franchise of his own and he attached the unit
to the plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the
motorcycle with the Land Transportation Commission. Pursuant to this agreement the defendant on February 22, 1976 gave the
plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the registration fee of the motorcycle. The plaintiff,
however failed to register the motorcycle on that year on the ground that the defendant failed to comply with some requirements
such as the payment of the insurance premiums and the bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that
the defendant was hiding the motorcycle from him. Lastly, the plaintiff explained also that though the ownership of the motorcycle
was already transferred to the defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of
Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted with the bank.

On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable to the plaintiff. The
defendant was persuaded to buy from the plaintiff the motorcycle with the side car because of the condition that the plaintiff would
be the one to register every year the motorcycle with the Land Transportation Commission. In 1976, however, the plaintfff failed to
register both the chattel mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00 for
mortgage fee and registration fee and had the motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also
by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to comply with his obligation to register the motorcycle
the defendant suffered damages when he failed to claim any insurance indemnity which would amount to no less than P15,000.00
for the more than two times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as boundary
fee beginning October 1976 when the motorcycle was impounded by the LTC for not being registered.

The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle resulting in its not being
registered. The truth being that the motorcycle was being used for transporting passengers and it kept on travelling from one place
to another. The motor vehicle sold to him was mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and
knowledge and the defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that the
motorcycle was mortgaged because of re-discounting for rediscounting is only true with Rural Banks and the Central Bank. The
defendant puts the blame on the plaintiff for not registering the motorcycle with the LTC and for not giving him the registration
papers inspite of demands made. Finally, the evidence of the defendant shows that because of the filing of this case he was forced
to retain the services of a lawyer for a fee on not less than P1,000.00.

xxx xxx xxx

... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly for the purpose of
engaging and using the same in the transportation business and for this purpose said trimobile unit was attached to the plaintiffs
transportation line who had the franchise, so much so that in the registration certificate, the plaintiff appears to be the owner of the
unit. Furthermore, it appears to have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the
yearly registration of the unit in question with the LTC. Thus, for the registration of the unit for the year 1976, per agreement, the
defendant gave to the plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of the unit.

Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against private respondent
Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner, the dispositive portion of which
reads:

Page 56 of 66
 WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to pay plaintiff the sum of
P1,700.00 representing the unpaid balance of the purchase price with legal rate of interest from the date of the filing of the
complaint until the same is fully paid; to pay plaintiff the sum of P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as
expenses of litigation; and to pay the costs.

SO ORDERED.

On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a petition for
review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the pertinent portion of
which reads —

However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private respondent Jaucian,
pursuant to what is commonly known as the "kabit system", without the prior approval of the Board of Transportation (formerly the
Public Service Commission) was an illegal transaction involving the fictitious registration of the motor vehicle in the name of the
private respondent so that he may traffic with the privileges of his franchise, or certificate of public convenience, to operate a tricycle
service, the parties being in pari delicto, neither of them may bring an action against the other to enforce their illegal contract [Art.
1412 (a), Civil Code].

xxx xxx xxx

WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketing and/or Angel Jaucian,
as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Court of First Instance of Camarines Sur (formerly
Civil Case No. 5856 of the City Court of Naga City) are dismissed. No pronouncement as to costs.

SO ORDERED.

The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a lone assignment of
error — whether or not respondent court erred in applying the doctrine of "pari delicto."

We find the petition devoid of merit.

Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a person who has
been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a
fee. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees
thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and
corruption in the government transportation offices.

Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and,
therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either party to
enforce an illegal contract, but will leave both where it finds then. Upon this premise it would be error to accord the parties relief from
their predicament. Article 1412 of the Civil Code denies them such aid. It provides:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:

1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue of the
contract, or demand, the performance of the other's undertaking.

The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse of time
cannot give efficacy to contracts that are null and void.

WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court (now the
Court of Appeals) is AFFIRMED. No costs.

SO ORDERED.

Page 57 of 66
Case No. 16
G.R. No. L-64693 April 27, 1984
LITA ENTERPRISES, INC., petitioner,
vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P.
GARCIA, respondents.

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.:ñé+.£ªwph!1

"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be applied to the parties
in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the
consequences of his acts.

The factual background of this case is undisputed.

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from
the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate
taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's
certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To
effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however,
remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name.

About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle
whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the
driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita
Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila,
petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's fees.

This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No. 2R-
914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No.
2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of
petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a
complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for
reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the
merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of which reads: têñ.£îhqwâ£

WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez, Visayan
Surety & Insurance Company and the Sheriff of Manila are concerned.

Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied
upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of
conveyance in favor of the plaintiff.

Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of convenience from
March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars. (Annex A, Record on Appeal, p.
102-103, Rollo)

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on October 27,
1975. (p. 121, Ibid.)

On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including as part
of its dispositive portion another paragraph, to wit: têñ.£îhqwâ£

In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyance
because of their deterioration, or because they are no longer serviceable, or because they are no longer available,
then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975. (Annex "D", p.
167, Rollo.)

Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: têñ.£îhqwâ£

1. ...

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending the
decision of public respondent so that:

(a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) be deleted;

Page 58 of 66
 (b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or was declared
liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of
the victim Florante Galvez, who died as a result ot the gross negligence of private respondents' driver while driving
one private respondents' taxicabs. (p. 39, Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a person who has
been granted a certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A
certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege by the grantees thereof
cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in
the government transportation offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too
severely condemned. It constitutes an imposition upon the goo faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy
and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of
both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them
such aid. It provides:têñ.£îhqwâ£

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed;

(1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other's undertaking.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this Court
said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void."

The principle of in pari delicto  is well known not only in this jurisdiction but also in the United States where common law prevails. Under
American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or damages
for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was
equally universal, that where the parties are in pari delicto,  no affirmative relief of any kind will be given to one against the
other." 3 Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not
be applied in the instant case.

WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs, versus Lita
Enterprises, Inc., et al., Defendants"  of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and
Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate Court, as
well as the decisions rendered therein are hereby annuleled and set aside. No costs.

SO ORDERED.

Page 59 of 66
Case No. 17
G.R. No. L-26815 May 26, 19810
ADOLFO L. SANTOS, petitioner,
vs.
ABRAHAM SIBUG and COURT OF APPEALS, respondents.

MELENCIO-HERRERA, J.:1äwphï1.ñët

The controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26, 1963 (the ACCIDENT
DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator. Also prior to the ACCIDENT DATE,
petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger jeep, but he had no certificate of public convenience for
the operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of VIDAD so that it could be
operated under the latter's certificate of public convenience. ln other words, SANTOS became what is known in ordinary parlance as
a kabit operator. For the protection of SANTOS, VIDAD executed a re-transfer document to the former, which was to be a private
document presumably to be registered if and where it was decided that the passenger jeep of SANTOS was to be withdrawn from
the kabit  arrangement.

On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney operated by
VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against VIDAD and Gragas with the
Court of First Instance of Manila, Branch XVII, then presided by Hon. Arsenic Solidum. That Civil Case will hereinafter be referred to as
the BRANCH XVII CASE.

On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally, to pay SIBUG
the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and costs. 1

On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name of VIDAD, and
scheduled the public auction sale thereof on May 8,1964.

On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon,
and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of VIDAD'S Certificate of Public
Convenience. After the third-party complaint was filed, SIBUG submitted to the Sheriff a bond issued by the Philippine Surety Insurance
Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if he were to proceed with the sale and if SANTOS'
third-party claim should be ultimately upheld.

On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and injunction with a
prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No. 56842 of Branch X, of the same
Court of First Instance of Manila (hereinafter referred to as the BRANCH X CASE). The complaint was later amended to include the
BONDING COMPANY as a party defendant although its bond had not become effective. ln the Complaint, SANTOS alleged essentially
that he was the actual owner of the motor vehicle subject of levy: that a fictitious Deed of Sale of said motor vehicle was executed by
him in VIDAD'S favor for purposes of operating said vehicle as a passenger jeepney under the latter's franchise; that SANTOS did not
receive any payment from VIDAD in consideration of said sale; that to protect SANTOS' proprietary interest over the vehicle in
question, VIDAD in turn had executed a Deed of Sale in favor of SANTOS on June 27, 1962; that SANTOS was not a party in the
BRANCH XVII CASE and was not in any manner liable to the registered owner VIDAD and the driver Gragas; that SANTOS derived a
daily income of P30.00 from the operation of said motor vehicle as a passenger jeepney and stood to suffer irreparable damage will
possession of said motor vehicle were not restored to him. SANTOS then prayed that 1,) pending trial, a Writ of Preliminary Mandatory
injunction be issued ex-parte commanding the Sheriff of Manila to restore the motor vehicle to him and that the Sheriff be enjoined from
proceeding with its sale; 2) that, after trial, the Deed of Sale in favor of VIDAD be declared absolutely fictitious and, therefore, null and
void, and adjudging SANTOS to be the absolute owner of the vehicle in questioned and 3) that damages be awarded to SANTOS as
proven during the trial plus attorney's fees in the amount of P450.00 and costs. 2

No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X  issued a Restraining Order enjoining the Sheriff from
conducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued wrongfully. Under the
provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by another Court or by another Branch of the
same Court. The Sheriff has the right to continue with the public sale on his own responsibility, or he can desist from conducting the
public sale unless the attaching creditor files a bond securing him against the third-party-claim. But the decision to proceed or not with
the public sale lies with him. As said in Uy Piaoco vs. Osmeña 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional
power and personal liability." The mentioned discretional power and personal liability have been further elucidated in Planes
and Verdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held. 1äwphï1.ñët

The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is governed by Rule
39 of the Rules of Court. Section 15 thereof provides for the procedure to be. followed where the property levied on
execution 'is claimed by a by person. lf the third-party claim is sufficient, the sheriff, upon receiving it, is not bound to
proceed with the levy of the property, unless he is given by the judgment creditor an indemnity bond against the claim
(Mangaoang vs. Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceed with the levy even without the
Indemnity bond, but in such case he will answer for any damages with his own personal funds (Waits vs. Peterson, et
al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308; Consults No. 341 de los abogados de Smith, Bell & Co., 48
Phil., 565). And the rule also provides that nothing therein contained shall prevent a third person from vindicating his
claim to the property by any proper action (Sec. 15 of Rule 39.).

It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed with the public
auction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist from proceeding, with the public
auction. lf he decides to proceed, he will incur personal liability in favor of the successful third-party claimant.

On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the evidence adduced, and
decreed: 1äwphï1.ñët

Page 60 of 66
 WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding with the sale of the vehicle in
question ordering its return to the plaintiff and furthermore sentencing the defendant Abraham Sibug to pay the
plaintiff the sum of P15.00 a day from April 10, 1964 until the vehicle is returned to him, and P500.00 as attorney's
fee's as well as the costs. 4

This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include the BONDING
COMPANY as jointly slid severally liable with SIBUG. 51äwphï1.ñët

... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed P6,500.00.
Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co., Inc. the same sums it is
ordered to pay under this decision.

The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking furnished to the
Sheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not sold, the public sale thereof having
been restrained, there was no reason for promulgating judgment against the BONDING COMPANY. lt has also been noted that the
Complaint against VIDAD was dismissed.

Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the vehicle in question,
SANTOS candidly admitted his participation in the illegal and pernicious practice in the transportation business known as
the kabit  system. Sec.. 20 (g) of the Public Service Act, then the applicable law, specifically provided: 1äwphï1.ñët

... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and
authorization of the Commission previously had – ... (g) to sell, alienate, mortgage, encumber or lease its property,
franchise, certificates, privileges, or rights, or any part thereof.

In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of record at the
time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was not registered. Although SANTOS,
as the kabit was the true owner as against VIDAD, the latter, as the registered owner/operator and grantee of the franchise, is directly
and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a consequence of the negligent or careless
operation of the vehicle. 6 This ruling is based on the principle that the operator of record is considered the operator of the vehicle in
contemplation of law as regards the public and third persons 7 even if the vehicle involved in the accident had been sold to another
where such sale had not been approved by the then Public Service Commission. 8 For the same basic reason, as the vehicle here in
question was registered in VIDAD'S name, the levy on execution against said vehicle should be enforced so that the judgment in the
BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to another. SANTOS,
as the kabit should not be allowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabit owner for he had led the
public to believe that the vehicle belonged to VIDAD. This is one way of curbing the pernicious kabit system that facilitates the
commission of fraud against the travelling public.

As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the actual operator
who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by reason of the execution. In fact, if
SANTOS, as the kabit had been impleaded as a party defendant in the BRANCH XVII CASE, he should be held jointly and severally
liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for exemplary damages. 10

From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution. SIBUG opposed
it on the ground that Branch X had no jurisdiction over the BRANCH XVII CASE, and that Branch X  had no power to interfere by
injunction with the judgment of Branch XVII a Court of concurrent or coordinate jurisdiction. 11

On November 13, 1965, Branch X released an order authorizing immediate execution on the theory that the BRANCH X CASE is
"principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public auction property not belonging to
the judgment creditor (sic) and there being no attempt in this case to interfere with the Judgment or decree of another court of
concurrent jurisdiction." 12

Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate Court in a Petition
for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals enjoined the enforcement of the Branch
X  Decision and the Order of execution issued by said Branch. 13 On September 28, 1966, respondent Count of Appeals rendered the
herein challenged Decision nullifying the judgment renderred in the Branch X Case and permanently restraining V from taking
cognizance of the BRANCH X CASE SANTOS. It ruled that: 1äwphï1.ñët

... the respondent Court Branch X, indeed, encroached and interfered with the judgment of Branch XVII when it
issued a restraining order and finally a decision permanently enjoining the other court from excuting the decision
rendered in Civil Case No. 54335. This to our mind constitutes an interference with the powers and authority of the
other court having co-equal and coordinate jurisdiction. To rule otherwise, would indubitably lead to confusion which
might hamper or hinder the proper administration of justice. ... 14

Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle being levied upon
but registered in another's name in a separated action, observing that: 1äwphï1.ñët

As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any person affected by
the representation that said vehicle is registered under the name of a particular person had the right to rely on his
declaration of ownership and registration: and the registered owner or any other person for that matter cannot be
permitted to repudiate said declaration with the objective of proving that said registered vehicle is owned by another
person and not by the registered owner (sec. 68, (a), Rule 123, and art. 1431, New Civil Code)

xxx xxx xxx

Were we to allow a third person to prove that he is the real owner of a particular vehicle and not the registered owner
it would in effect be tantamount to sanctioning the attempt of the registered owner of the particular vehicle in evading

Page 61 of 66
 responsibility for it cannot be dispelled that the door would be opened to collusion between a person and a registered
owner for the latter to escape said responsibility to the public or to any person. ...

SANTOS now seeks a review of respondent Court's Decision contending that: 1äwphï1.ñët

1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of Manila has no
jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor vehicle to satisfy the judgment
indebtedness of another person:

2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that was levied upon
pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of Manila in Civil Case No. 54335
cannot be allowed to prove in a separate suit filed in Branch X of the same court (Civil Case No. 56842) that he is the
true owner of the said motor vehicle and not its registered owner;

3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First Instance of
Manila (Branch X ) in Civil Case No. 56482.

We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case submitted for decision on
July 20, 1967.

One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue, at the instance of a
third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied upon by a judgment creditor in another
Court of First Instance. The corollary issue is whether or not the third-party claimant has a right to vindicate his claim to the vehicle
levied upon through a separate action.

Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin Salvador, 15 speaking through Mr.
Justice Ramon Aquino, succinctly held: 1äwphï1.ñët

It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with the judgments or
decrees of a concurrent or coordinate jurisdiction having equal power to grant the injunctive relief, is applied in cases,
where no third-party claimant is involved, in order to prevent one court from nullifying the judgment or process of
another court of the same rank or category, a power which devolves upon the proper appellate court.

xxx xxx xxx

When the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of injunction, which
is issued to stop the auction sale of that property, is not an interference with the writ of execution issued by another
court because the writ of execution was improperly implemented by the sheriff. Under that writ, he could attach the
property of the judgment debtor. He is not authorized to levy upon the property of the third-party claimant (Polaris
Marketing Corporation vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; Manila Herald Publishing Co., Inc. vs.
Ramos, 88 Phil. 94, 102).

An earlier case, Abiera vs. Hon. Court of Appeals, et al., 16 explained the doctrine more extensively: 1äwphï1.ñët

Courts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a court of concurrent
jurisdiction. – No court has power to interfere by injunction with the judgments or decrees of a court of concurrent or
coordinate jurisdiction having equal power to grant the relief sought by injunction.

Same, Same; Same; When applicable. – For this doctrine to apply, the injunction issued by one court must interfere
with the judgment or decree issued by another court of equal or coordinate jurisdiction and the relief sought by such
injunction must be one which could be granted by the court which rendered the judgment or issued the decree.

Same, Same Same; Exception Judgment rendered by another court in favor of a third person who claims property
levied upon on execution. – Under section 17 of Rule 39 a third person who claims property levied upon on execution
may vindicate such claim by action. A judgment rendered in his favor - declaring him to be the owner of the property -
would not constitute interference with the powers or processes of the court which rendered the judgment to enforce
which the execution was levied. lf that be so - and it is so because the property, being that of a stranger, is not
subject to levy - then an interlocutory order, such as injunction, upon a claim and prima facie showing of ownership by
the claimant, cannot be considered as such interference either.

Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the Rules of Court,
interpreted – The right of a person who claims to be the owner of property levied upon on execution to file a third-
party claim with the sheriff is not exclusive, and he may file an action to vindicate his claim even if the judgment
creditor files an indemnity bond in favor of the sheriff to answer for any damages that may be suffered by the third
party claimant. By "action", as stated in the Rule, what is meant is a separate and independent action.

Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it was appropriate,
as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of ownership in a separate action
under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X, declaring him to be the owner of the property, did not
as a basic proposition, constitute interference with the powers or processes of Branch XVII  which rendered the judgment, to enforce
which the was levied upon. And this is so because property belonging to a stranger is not ordinarily subject to levy. While it is true that
the vehicle in question was in custodia legis, and should not be interfered with without the permission of the proper Court, the property
must be one in which the defendant has proprietary interest. Where the Sheriff seizes a stranger's property, the rule does not apply and
interference with his custody is not interference with another Court's Order of attachment. 17

Page 62 of 66
However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the Decision of Branch
X  permanently enjoining the auction sale, should be upheld. Legally speaking, it was not a "stranger's property" that was levied upon by
the Sheriff pursuant to the judgment rendered by Branch XVII. The vehicle was, in fact, registered in the name of VIDAD, one of the
judgment debtors. And what is more, the aspect of public service, with its effects on the riding public, is involved. Whatever legal
technicalities may be invoked, we find the judgment of respondent Court of Appeals to be in consonance with justice.

WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by Adolfo L. Santos is
dismissed with costs against the petitioner.

SO ORDERED.

Case No. 18
G.R. No. 160286             July 30, 2004
SPOUSES FRANCISCO M. HERNANDEZ and ANICETA ABEL-HERNANDEZ and JUAN GONZALES, petitioners,
vs.
SPOUSES LORENZO DOLOR and MARGARITA DOLOR, FRED PANOPIO, JOSEPH SANDOVAL, RENE CASTILLO, SPOUSES
FRANCISCO VALMOCINA and VIRGINIA VALMOCINA, SPOUSES VICTOR PANOPIO and MARTINA PANOPIO, and HON.
COURT OF APPEALS, respondents.
DECISION

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision1 of the Court of Appeals, dated April
29, 2003, in CA-G.R. CV No. 60357, which affirmed with modification the amount of damages awarded in the November 24, 1997
decision2 of the Regional Trial Court of Batangas City, Branch IV.

The undisputed facts are as follows:

At about 3:00 p.m. of December 19, 1986, Lorenzo Menard "Boyet" Dolor, Jr. was driving an owner-type jeepney with plate no. DEB
804 owned by her mother, Margarita, towards Anilao, Batangas. As he was traversing the road at Barangay Anilao East, Mabini,
Batangas, his vehicle collided with a passenger jeepney bearing plate no. DEG 648, driven by petitioner Juan Gonzales and owned by
his co-petitioner Francisco Hernandez, which was travelling towards Batangas City.

Boyet Dolor and his passenger, Oscar Valmocina, died as a result of the collision. Fred Panopio, Rene Castillo and Joseph Sandoval,
who were also on board the owner-type jeep, which was totally wrecked, suffered physical injuries. The collision also damaged the
passenger jeepney of Francisco Hernandez and caused physical injuries to its passengers, namely, Virgie Cadavida, Fiscal Artemio
Reyes and Francisca Corona.3

Consequently, respondents commenced an action4 for damages against petitioners before the Regional Trial Court of Batangas City,
alleging that driver Juan Gonzales was guilty of negligence and lack of care and that the Hernandez spouses were guilty of negligence
in the selection and supervision of their employees.5

Petitioners countered that the proximate cause of the death and injuries sustained by the passengers of both vehicles was the
recklessness of Boyet Dolor, the driver of the owner-type jeepney, who was driving in a zigzagging manner under the influence of
alcohol. Petitioners also alleged that Gonzales was not the driver-employee of the Hernandez spouses as the former only leased the
passenger jeepney on a daily basis. The Hernandez spouses further claimed that even if an employer-employee relationship is found to
exist between them, they cannot be held liable because as employers they exercised due care in the selection and supervision of their
employee.

During the trial of the case, it was established that the drivers of the two vehicles were duly licensed to drive and that the road where
the collision occurred was asphalted and in fairly good condition.6 The owner-type jeep was travelling uphill while the passenger
jeepney was going downhill. It was further established that the owner-type jeep was moderately moving and had just passed a road
bend when its passengers, private respondents Joseph Sandoval and Rene Castillo, saw the passenger jeepney at a distance of three
meters away. The passenger jeepney was traveling fast when it bumped the owner type jeep.7 Moreover, the evidence presented by
respondents before the trial court showed that petitioner Juan Gonzales obtained his professional driver's license only on September
24, 1986, or three months before the accident. Prior to this, he was holder of a student driver's permit issued on April 10, 1986.8

On November 24, 1997, the trial court rendered a decision in favor of respondents, the dispositive portion of which states:

Premises duly considered and the plaintiffs having satisfactorily convincingly and credibly presented evidence clearly
satisfying the requirements of preponderance of evidence to sustain the complaint, this Court hereby declares judgment in
favor of the plaintiffs and against the defendants. Defendants-spouses Francisco Hernandez and Aniceta Abel Hernandez and
Juan Gonzales are therefore directed to pay jointly and severally, the following:

Page 63 of 66
 1) To spouses Lorenzo Dolor and Margarita Dolor:

a) P50,000.00 – for the death of their son, Lorenzo Menard "Boyet" Dolor, Jr.;
b) P142,000.00 – as actual and necessary funeral expenses;
c) P50,000.00 – reasonable value of the totally wrecked owner-type jeep with plate no. DEB 804 Phil '85;
d) P20,000.00 – as moral damages;
e) P20,000.00 as reasonable litigation expenses and attorney's fees.
2) To spouses Francisco Valmocina and Virginia Valmocina:
a) P50,000.00 – for the death of their son, Oscar Balmocina (sic);
b) P20,000.00 – as moral damages;
c) P18,400.00 – for funeral expenses;
d) P10,000.00 – for litigation expenses and attorney's fees.
3) To spouses Victor Panopio and Martina Panopio:
a) P10,450.00 – for the cost of the artificial leg and crutches being used by their son Fred Panopio;
b) P25,000.00 – for hospitalization and medical expenses they incurred for the treatment of their son, Fred Panopio.
4) To Fred Panopio:
a) P25,000.00 – for the loss of his right leg;
b) P10,000.00 – as moral damages.
5) To Joseph Sandoval:
a) P4,000.00 for medical treatment.
The defendants are further directed to pay the costs of this proceedings.
SO ORDERED.9

Petitioners appealed10 the decision to the Court of Appeals, which affirmed the same with modifications as to the amount of damages,
actual expenses and attorney's fees awarded to the private respondents. The decretal portion of the decision of the Court of Appeals
reads:

WHEREFORE, the foregoing premises considered, the appealed decision is AFFIRMED. However, the award for damages,
actual expenses and attorney's fees shall be MODIFIED as follows:

1) To spouses Lorenzo Dolor and Margarita Dolor:

a) P50,000.00 – civil indemnity for their son Lorenzo Menard Dolor, Jr.;
b) P58,703.00 – as actual and necessary funeral expenses;
c) P25,000,00 – as temperate damages;
d) P100,000.00 – as moral damages;
e) P20,000.00 – as reasonable litigation expenses and attorney's fees.
2) To Spouses Francisco Valmocina and Virginia Valmocina:
a) P50,000.00 – civil indemnity for the death of their son, Oscar Valmocina;
b) P100,000.00 – as moral damages;
c) P10,000.00 – as temperate damages;
d) P10,000.00 – as reasonable litigation expenses and attorney's fees.
3) To Spouses Victor Panopio and Martina Panopio:
a) P10,352.59 – as actual hospitalization and medical expenses;
b) P5,000.00 – as temperate damages.
4) To Fred Panopio:
a) P50,000.00 – as moral damages.
5) To Joseph Sandoval:
a) P3,000.00 as temperate damages.
SO ORDERED.11

Hence the present petition raising the following issues:

1. Whether the Court of Appeals was correct when it pronounced the Hernandez spouses as solidarily liable with Juan
Gonzales, although it is of record that they were not in the passenger jeepney driven by latter when the accident occurred;
2. Whether the Court of Appeals was correct in awarding temperate damages to private respondents namely the Spouses
Dolor, Spouses Valmocina and Spouses Panopio and to Joseph Sandoval, although the grant of temperate damages is not
provided for in decision of the court a quo;
3. Whether the Court of Appeals was correct in increasing the award of moral damages to respondents, Spouses Dolor,
Spouses Valmocina and Fred Panopio;
4. Whether the Court of Appeals was correct in affirming the grant of attorney's fees to Spouses Dolor and to Spouses
Valmocina although the lower court did not specify the fact and the law on which it is based.

Petitioners contend that the absence of the Hernandez spouses inside the passenger jeepney at the time of the collision militates
against holding them solidarily liable with their co-petitioner, Juan Gonzales, invoking Article 2184 of the Civil Code, which provides:

ARTICLE 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle,
could have, by the use of the due diligence, prevented the misfortune. It is disputably presumed that a driver was negligent, if
he had been found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.

The Hernandez spouses argues that since they were not inside the jeepney at the time of the collision, the provisions of Article 2180 of
the Civil Code, which does not provide for solidary liability between employers and employees, should be applied.

We are not persuaded.

Article 2180 provides:

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 ARTICLE 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for
those of persons for whom one is responsible.

The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children
who live in their company.

Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their
company.

The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees
in the service of the branches in which the latter are employed or on the occasion of their functions.

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope
of their assigned tasks, even though the former are not engaged in any business or industry.

The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by
the official to whom the task done properly pertains, in which case what is provided in article 2176 shall be applicable.

Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students
or apprentices, so long as they remain in their custody.

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage. (Underscoring supplied)

On the other hand, Article 2176 provides –

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.

While the above provisions of law do not expressly provide for solidary liability, the same can be inferred from the wordings of the first
paragraph of Article 2180 which states that the obligation imposed by article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.

Moreover, Article 2180 should be read with Article 2194 of the same Code, which categorically states that the responsibility of two or
more persons who are liable for quasi-delict is solidary.  In other words, the liability of joint tortfeasors is solidary.12 Verily, under Article
2180 of the Civil Code, an employer may be held solidarily liable for the negligent act of his employee.13

The solidary liability of employers with their employees for quasi-delicts having been established, the next question is whether Julian
Gonzales is an employee of the Hernandez spouses. An affirmative answer will put to rest any issue on the solidary liability of the
Hernandez spouses for the acts of Julian Gonzales. The Hernandez spouses maintained that Julian Gonzales is not their employee
since their relationship relative to the use of the jeepney is that of a lessor and a lessee. They argue that Julian Gonzales pays them a
daily rental of P150.00 for the use of the jeepney.14 In essence, petitioners are practicing the "boundary system" of jeepney operation
albeit disguised as a lease agreement between them for the use of the jeepney.

We hold that an employer-employee relationship exists between the Hernandez spouses and Julian Gonzales.

Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system" on the ground that he is a
mere lessor would be not only to abet flagrant violations of the Public Service Law, but also to place the riding public at the mercy of
reckless and irresponsible drivers — reckless because the measure of their earnings depends largely upon the number of trips they
make and, hence, the speed at which they drive; and irresponsible because most if not all of them are in no position to pay the
damages they might cause.15

Anent the award of temperate damages to the private respondents, we hold that the appellate court committed no reversible error in
awarding the same to the respondents.

Temperate or moderate damages are damages which are more than nominal but less than compensatory which may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with
certainty.16 Temperate damages are awarded for those cases where, from the nature of the case, definite proof of pecuniary loss cannot
be offered, although the court is convinced that there has been such loss. A judge should be empowered to calculate moderate
damages in such cases, rather than the plaintiff should suffer, without redress, from the defendant's wrongful act.17 The assessment of
temperate damages is left to the sound discretion of the court provided that such an award is reasonable under the circumstances.18

We have gone through the records of this case and we find that, indeed, respondents suffered losses which cannot be quantified in
monetary terms. These losses came in the form of the damage sustained by the owner type jeep of the Dolor spouses; the internment
and burial of Oscar Valmocina; the hospitalization of Joseph Sandoval on account of the injuries he sustained from the collision and the
artificial leg and crutches that respondent Fred Panopio had to use because of the amputation of his right leg. Further, we find that the
amount of temperate damages awarded to the respondents were reasonable under the circumstances.

As to the amount of moral damages which was awarded to respondents, a review of the records of this case shows that there exists no
cogent reason to overturn the action of the appellate court on this aspect.

Under Article 2206, the "spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages
for mental anguish for the death of the deceased." The reason for the grant of moral damages has been explained, thus:

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 . . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status quo ante; and
therefore, it must be proportionate to the suffering inflicted. The intensity of the pain experienced by the relatives of the victim
is proportionate to the intensity of affection for him and bears no relation whatsoever with the wealth or means of the
offender.19

Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the
former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone due to the
defendant's culpable action and must, perforce, be proportional to the suffering inflicted.20

Truly, the pain of the sudden loss of one's offspring, especially of a son who was in the prime of his youth, and who holds so much
promise waiting to be fulfilled is indeed a wellspring of intense pain which no parent should be made to suffer. While it is true that there
can be no exact or uniform rule for measuring the value of a human life and the measure of damages cannot be arrived at by a precise
mathematical calculation,21 we hold that the Court of Appeals' award of moral damages of P100,000.00 each to the Spouses Dolor and
Spouses Valmocina for the death of their respective sons, Boyet Dolor and Oscar Valmocina, is in full accord with prevailing
jurisprudence.22

With respect to the award of attorney's fees to respondents, no sufficient basis was established for the grant thereof.

It is well settled that attorney's fees should not be awarded in the absence of stipulation except under the instances enumerated in
Article 2208 of the Civil Code. As we have held in Rizal Surety and Insurance Company v. Court of Appeals:23

Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is compelled to litigate with
third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is
sought. While judicial discretion is here extant, an award thereof demands, nevertheless, a factual, legal or equitable
justification. The matter cannot and should not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA 337;
Stronghold Insurance Company, Inc. vs. Court of Appeals, 173 SCRA 619).

In the case at bench, the records do not show enough basis for sustaining the award for attorney's fees and to adjudge its
payment by petitioner. x x x.

Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals that:

"In Abrogar v. Intermediate Appellate Court G.R. No. 67970, January 15, 1988, 157 SCRA 57], the Court had
occasion to state that '[t]he reason for the award of attorney's fees must be stated in the text of the court's decision,
otherwise, if it is stated only in the dispositive portion of the decision, the same must be disallowed on appeal.' x x
x."24

WHEREFORE, the petition is DENIED. The assailed decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the
grant of attorney's fees is DELETED for lack of basis.

Costs against petitioners.SO ORDERED.

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