SPOUSES DANTE CRUZ AND LEONORA CRUZ, PETITIONERS, VS.

SUN HOLIDAYS,
INC., RESPONDENT.
I. COMMON CARRIER

A. Concept (Article 1732, NCC) DECISION

1. Spouses Cruz vs. Sun Holidays, Inc. [G.R. No. 186312, June 29,
2010] CARPIO MORALES, J.:

2. Caltex Philippines vs. Sulpicio Lines [G.R. No. 131166, Sept.

30, 1999] Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
2001[1] against Sun Holidays, Inc. (respondent) with the Regional Trial Court (RTC)
3. First Philippine Industrial Corp. vs. CA [G.R. No. 125948, Dec. of Pasig City for damages arising from the death of their son Ruelito C. Cruz
29, 1998] (Ruelito) who perished with his wife on September 11, 2000 on board the
4. De Guzman vs. CA [168 SCRA 612 (1988)] boat M/B Coco Beach III  that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort
5. Loadstar Shipping vs. CA, et.al. [G.R. No. 131621, Sept. 28, (Resort) owned and operated by respondent.
1999]

6. Sps. Perena vs. Sps. Nicolas [G.R. No. 157917] The stay of the newly wed Ruelito and his wife at the Resort from September 9 to
11, 2000 was by virtue of a tour package-contract with respondent that included
7. Japan Airlines vs. CA [G.R. No. 118664, Aug. 7, 1998] transportation to and from the Resort and the point of departure in Batangas.

Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors,
gave his account of the incident that led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000.  He was originally
scheduled to leave the Resort in the afternoon of September 10, 2000, but was
advised to stay for another night because of strong winds and heavy rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests
including petitioners' son and his wife trekked to the other side of the Coco Beach
mountain that was sheltered from the wind where they boarded M/B Coco Beach
1. THIRD DIVISION III, which was to ferry them to Batangas.

[ G.R. No. 186312, June 29, 2010 ] Shortly after the boat sailed, it started to rain.  As it moved farther away from
Puerto Galera and into the open seas, the rain and wind got stronger, causing the
1
boat to tilt from side to side and the captain to step forward to the front, leaving
the wheel to one of the crew members.
The waves got more unwieldy.  After getting hit by two big waves which came one
after the other, M/B Coco Beach III  capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat.
Upon seeing the captain, Matute and the other passengers who reached the
surface asked him what they could do to save the people who were still trapped
under the boat.  The captain replied "Iligtas niyo na lang ang sarili niyo" (Just save
yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in
Sabang, Puerto Galera passed by the capsized M/B Coco Beach III.  Boarded on
those two boats were 22 persons, consisting of 18 passengers and four crew
members, who were brought to Pisa Island.  Eight passengers, including
petitioners' son and his wife, died during the incident.
At the time of Ruelito's death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.[3]
Petitioners, by letter of October 26, 2000,[4] demanded indemnification from
respondent for the death of their son in the amount of at least P4,000,000.
Replying, respondent, by letter dated November 7, 2000, [5] denied any
responsibility for the incident which it considered to be a fortuitous event.  It
nevertheless offered, as an act of commiseration, the amount of P10,000 to
petitioners upon their signing of a waiver.
As petitioners declined respondent's offer, they filed the Complaint, as earlier
reflected, alleging that respondent, as a common carrier, was guilty of negligence
in allowing M/B Coco Beach III  to sail notwithstanding storm warning bulletins
issued by the Philippine Atmospheric, Geophysical and Astronomical Services
2
Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000. [6]
In its Answer,[7] respondent denied being a common carrier, alleging that its boats
are not available to the general public as they only ferry Resort guests and crew
members.  Nonetheless, it claimed that it exercised the utmost diligence in
ensuring the safety of its passengers; contrary to petitioners' allegation, there
was no storm on September 11, 2000 as the Coast Guard in fact cleared the
voyage; and M/B Coco Beach III  was not filled to capacity and had sufficient life
jackets for its passengers.  By way of Counterclaim, respondent alleged that it is
entitled to an award for attorney's fees and litigation expenses amounting to not
less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort
customarily requires four conditions to be met before a boat is allowed to sail, to
wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3) there is
clearance from the captain and (4) there is clearance from the Resort's assistant
manager.[8] He added that M/B Coco Beach III  met all four conditions on
September 11, 2000,[9] but a subasco  or squall, characterized by strong winds and
big waves, suddenly occurred, causing the boat to capsize. [10]
By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed
petitioners' Complaint and respondent's Counterclaim.
Petitioners' Motion for Reconsideration having been denied by Order dated
September 2, 2005,[12] they appealed to the Court of Appeals.
By Decision of August 19, 2008,[13] the appellate court denied petitioners' appeal,
holding, among other things, that the trial court correctly ruled that respondent is
a private carrier which is only required to observe ordinary diligence; that
respondent in fact observed extraordinary diligence in transporting its guests on
board M/B Coco Beach III; and that the proximate cause of the incident  was a
squall, a fortuitous event.
Petitioners' Motion for Reconsideration having been denied by Resolution dated
January 16, 2009,[14] they filed the present Petition for Review. [15]
Petitioners maintain the position they took before the trial court, adding that
respondent is a common carrier since by its tour package, the transporting of its
guests is an integral part of its resort business. They inform that another division
of the appellate court in fact held respondent liable for damages to the other
survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present
evidence to prove that it is a common carrier; that the Resort's ferry services for
guests cannot be considered as ancillary to its business as no income is derived
therefrom; that it exercised extraordinary diligence as shown by the conditions it
had imposed before allowing M/B Coco Beach III  to sail; that the incident was
caused by a fortuitous event without any contributory negligence on its part; and
that the other case wherein the appellate court held it liable for damages
involved different plaintiffs, issues and evidence. [16]
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing
respondent as a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732.  Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as "a sideline").  Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis.  Neither does
3
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.
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 . . . [18]  (emphasis and
underscoring supplied.)
Indeed, respondent is a common carrier.  Its ferry services are so intertwined with
its main business as to be properly considered ancillary thereto.  The constancy of
respondent's ferry services in its resort operations is underscored by its having its
own Coco  Beach  boats. And the tour packages it offers, which include the ferry
services, may be availed of by anyone who can afford to pay the same.  These
services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of
no moment.  It would be imprudent to suppose that it provides said services at a
loss.  The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price.  Mindoro.[22]  By the testimony of Dr. Frisco Nilo, supervising weather specialist of
That guests who opt not to avail of respondent's ferry services pay the same
amount is likewise inconsequential.  These guests may only be deemed to have
overpaid.
As De Guzman  instructs, Article 1732 of the Civil Code defining "common
carriers" has deliberately refrained from making distinctions on whether the
carrying of persons or goods is the carrier's principal business, whether it is
offered on a regular basis, or whether it is offered to the general public.  The
intent of the law is thus to not consider such distinctions.  Otherwise, there is no
telling how many other distinctions may be concocted by unscrupulous
businessmen engaged in the carrying of persons or goods in order to avoid the
legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the
safety of the passengers transported by them, according to all the circumstances
of each case.[19]  They are bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances. [20]
When a passenger dies or is injured in the discharge of a contract of carriage, it is
presumed that the common carrier is at fault or negligent.  In fact, there is even
no need for the court to 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. [21]
Respondent nevertheless harps on its strict compliance with the earlier
mentioned conditions of voyage before it allowed M/B Coco Beach III  to sail on
September 11, 2000.  Respondent's position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
4
tropical depressions in Northern Luzon which would also affect the province of
PAGASA, squalls are to be expected under such weather condition. [23]
A very cautious person exercising the utmost diligence would thus not brave such
stormy weather and put other people's lives at risk.  The extraordinary diligence
required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.
Respondent's insistence that the incident was caused by a fortuitous event does
not impress either.
The elements of a "fortuitous event" are: (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. [24]
To fully free a common carrier from any liability, the fortuitous event must have
been the proximate and only cause of the loss.  And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence
of the fortuitous event.[25]
Respondent cites the squall that occurred during the voyage as the fortuitous
event that overturned M/B Coco Beach III.  As reflected above, however, the
occurrence of squalls was expected under the weather condition of September
11, 2000.  Moreover, evidence shows that M/B Coco Beach III  suffered engine
trouble before it capsized and sank.[26]  The incident was, therefore, not
completely free from human intervention.
The Court need not belabor how respondent's evidence likewise fails to
 demonstrate that it exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the squall.
Article 1764[27] vis-א-vis Article 2206[28] 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.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at
P50,000.[29]
As for damages representing unearned income, the formula for its computation
is:
Net Earning = life expectancy x (gross annual income - reasonable and necessary
Capacity living expenses).
Life expectancy is determined in accordance with the formula:
2 / 3 x [80 -- age of deceased at the time of death] [30]
The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x
[80 -- age at death]) adopted in the American Expectancy Table of Mortality or
the Actuarial of Combined Experience Table of Mortality. [31]
The second factor is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental expenses.
[32]
  The loss is not equivalent to the entire earnings of the deceased, but only such
portion as he would have used to support his dependents or heirs.  Hence, to be
deducted from his gross earnings are the necessary expenses supposed to be
used by the deceased for his own needs. [33]
5
In computing the third factor - necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja[34] teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as
follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of
$900[35] which, when converted to Philippine peso applying the annual average
exchange rate of $1 = P44 in 2000, [36] amounts to P39,600. Ruelito's net earning
capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and
necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning Capacity = P8,316,000
Respecting the award of moral damages, since respondent common carrier's
breach of contract of carriage resulted in the death of petitioners' son, following
Article 1764 vis-א-vis  Article 2206 of the Civil Code,  petitioners are entitled to
moral damages.
Since respondent failed to prove that it exercised the extraordinary diligence
required of common carriers, it is presumed to have acted recklessly, thus
warranting the award too of exemplary damages, which are granted in
contractual obligations if the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.[37]
Under the circumstances, it is reasonable to award petitioners the amount of
P100,000 as moral damages and P100,000 as exemplary damages. [38]
Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be awarded
where exemplary damages are awarded. The Court finds that  10% of the total
amount adjudged against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals [40] teaches 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
6
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).
Since the amounts payable by respondent have been determined with certainty
only in the present petition, the interest due shall be computed upon the finality
of this decision at the rate of 12% per annum until satisfaction, in accordance
with paragraph number 3 of the immediately cited guideline in Easter Shipping
Lines, Inc.
  WHEREFORE, the Court of Appeals Decision of August 19, 2008
is REVERSED and SET ASIDE.  Judgment is rendered in favor of petitioners
ordering respondent to pay petitioners the following: (1) P50,000 as indemnity
for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelito's loss of
earning capacity; (3) P100,000 as moral damages;  (4) P100,000 as exemplary
damages; (5) 10% of the total amount adjudged against respondent as attorneys
fees; and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of
12% per annum computed from the finality of this decision until full payment.
SO ORDERED.
2. FIRST DIVISION
[ G.R. No. 131166, September 30, 1999 ]
CALTEX (PHILIPPINES), INC. PETITIONER, VS. SULPICIO LINES, INC., GO SIOC SO,
ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO,
DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S.
GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION,
TERESITA G. CAÑEZAL AND SOTERA E. CAÑEZAL, RESPONDENTS.
DECISION
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision
between the chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying
petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could
have guessed that it would collide with MV Doña Paz, killing almost all the
passengers and crew members of both ships, and thus resulting in one of the
country’s worst maritime disasters.
[1]
The petition before us seeks to reverse the Court of Appeals decision holding
petitioner jointly liable with the operator of MT Vector for damages when the
latter collided with Sulpicio Lines, Inc.’s passenger ship MV Doña Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00
p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum products
shipped by petitioner Caltex.[2] MT Vector is a tramping motor tanker owned and
operated by Vector Shipping Corporation, engaged in the business of transporting
fuel products such as gasoline, kerosene, diesel and crude oil. During that
particular voyage, the MT Vector carried on board gasoline and other oil products
owned by Caltex by virtue of a charter contract between them. [3]
7
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left
the port of Tacloban headed for Manila with a complement of 59 crew members
including the master and his officers, and passengers totaling 1,493 as indicated
in the Coast Guard Clearance.[4] The MV Doña Paz is a passenger and cargo vessel
owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/
Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open
sea within the vicinity of Dumali Point between Marinduque and Oriental
Mindoro. All the crewmembers of MV Doña Paz died, while the two survivors
from MT Vector claimed that they were sleeping at the time of the incident.
The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not
in the passenger manifest. Only 24 survived the tragedy after having been
rescued from the burning waters by vessels that responded to distress calls.
[5]
 Among those who perished were public school teacher Sebastian Cañezal (47
years old) and his daughter Corazon Cañezal (11 years old), both unmanifested
passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after
investigation found that the MT Vector, its registered operator Francisco Soriano,
and its owner and actual operator Vector Shipping Corporation, were at fault and
responsible for its collision with MV Doña Paz. [6]
On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal’s
wife and mother respectively, filed with the Regional Trial Court, Branch 8,
Manila, a complaint for “Damages Arising from Breach of Contract of Carriage”
against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party
complaint against Francisco Soriano, Vector Shipping Corporation and Caltex
(Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and
evident bad faith knowing fully well that MT Vector was improperly manned, ill-
equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed
against MV Doña Paz in the open sea setting MT Vector’s highly flammable cargo
ablaze.
 “2. Compensatory damages representing the unearned income of Sebastian E.
On September 15, 1992, the trial court rendered decision dismissing the third Cañezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED
party complaint against petitioner. The dispositive portion reads: EIGHTY (P306,480.00) PESOS;

“WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against

“3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P
defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit:
300,000.00);

“1. For the death of Sebastian E. Cañezal and his 11-year old daughter Corazon G.
“4. Attorney’s fees in the concept of actual damages in the amount of FIFTY
Cañezal, including loss of future earnings of said Sebastian, moral and exemplary
THOUSAND PESOS (P 50,000.00);
damages, attorney’s fees, in the total amount of P 1,241,287.44 and finally;
“5. Costs of the suit.
“2. The statutory costs of the proceedings.
“Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held
“Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation
equally liable under the third party complaint to reimburse/indemnify defendant
and with costs against the 3rd party plaintiff.
Sulpicio Lines, Inc. of the above-mentioned damages, attorney’s fees and costs
which the latter is adjudged to pay plaintiffs, the same to be shared half by Vector
“IT IS SO ORDERED.
Shipping Co. (being the vessel at fault for the collision) and the other half by
Caltex (Phils.), Inc. (being the charterer that negligently caused the shipping of
“DONE IN MANILA, this 15th day of September 1992.
combustible cargo aboard an unseaworthy vessel).
“ARSENIO M. GONONG
“Judge”[7] “SO ORDERED.
 
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15,
1997, the Court of Appeal modified the trial court’s ruling and included petitioner “JORGE S. IMPERIAL
Caltex as one of the those liable for damages. Thus:
“Associate Justice
“WHEREFORE, in view of all the foregoing, the judgment rendered by the
Regional Trial Court is hereby MODIFIED as follows:
“WE CONCUR:
“WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of “RAMON U. MABUTAS. JR. PORTIA ALIÑO HERMACHUELOS
Sebastian E. Cañezal and Corazon Cañezal:
“Associate Justice Associate Justice”[8]
“1. Compensatory damages for the death of Sebastian E.Cañezal and Corazon
Cañezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000); Hence, this petition.

8

We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on
whether the carrier is public or private, but on whether the contract of carriage is
a bill of lading or equivalent shipping documents on the one hand, or a charter
party or similar contract on the other. [9]
Petitioner and Vector entered into a contract of affreightment, also known as a
voyage charter.[10]
A charter party is a contract by which an entire ship, or some principal part
thereof, is let by the owner to another person for a specified time or use; a
contract of affreightment is one by which the owner of a ship or other vessel lets
the whole or part of her to a merchant or other person for the conveyance of
goods, on a particular voyage, in consideration of the payment of freight. [11]
A contract of affreightment may be either time charter, wherein the leased vessel
is leased to the charterer for a fixed period of time, or voyage charter, wherein
the ship is leased for a single voyage. In both cases, the charter-party provides for
the hire of the vessel only, either for a determinate period of time or for a single
or consecutive voyage, the ship owner to supply the ship’s store, pay for the
wages of the master of the crew, and defray the expenses for the maintenance of
the ship.[12]
Under a demise or bareboat charter on the other hand, the charterer mans the
vessel with his own people and becomes, in effect, the owner for the voyage or
service stipulated, subject to liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights and the responsibilities
of ownership rest on the owner. The charterer is free from liability to third
9
persons in respect of the ship.[13]
Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time
charter, (3) voyage charter. Does a charter party agreement turn the common
carrier into a private one? We need to answer this question in order to shed light
on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into
a private carrier. The parties entered into a voyage charter, which retains the
character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals, [14] we said:
“It is therefore imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a time-
charter or voyage charter. It is only when the charter includes both the vessel and
its crew, as in a bareboat or demise that a common carrier becomes private, at
least insofar as the particular voyage covering the charter-party is concerned.
Indubitably, a ship-owner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of
the charterer.”
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: [15]
“Although a charter party may transform a common carrier into a private one, the
same however is not true in a contract of affreightment xxx”
A common carrier is a person or corporation whose regular business is to carry
passengers or property for all persons who may choose to employ and to
remunerate him.[16] MT Vector fits the definition of a common carrier under
Article 1732 of the Civil Code. In Guzman vs. Court of Appeals,[17] we ruled:
“The Civil Code defines “common carriers” in the following terms:
“Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers for passengers or
goods or both, by land, water, or air for compensation, offering their services to
the public.”
“The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as “a sideline”). Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering
such services on a 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.
“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,
occasional rather than regular or scheduled manner, and even though
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 the fee frequently fell below commercial freight rates is not
relevant here.”
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to -
(a) Make the ship seaworthy;
10
(b) Properly man, equip, and supply the ship;
xxx           xxx            xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship.
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 the vessel involved in its
contract of carriage is a clear breach of its duty prescribed in Article 1755 of the
Civil Code.[18]
The provisions owed their conception to the nature of the business of common
carriers. This business is impressed with a special public duty. The public must of
necessity rely on the care and skill of common carriers in the vigilance over the
goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid,
more complicated and somehow more hazardous. [19] For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an inspection of
the ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil
Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo
aboard an unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vector’s certificate of inspection and coastwise
license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan
Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the
Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite
these deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate license to
command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized
to navigate only in bays and rivers when the subject collision occurred in the open
sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the
vessel;
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
5. The vessel had a defective main engine. [20]
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and
2176 of the Civil Code, which provide:
“Article 20. - Every person who contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
“Article 2176. - 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.”
11
And what is negligence?
The Civil Code provides:
“Article 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 Article 1171 and 2201 paragraph 2,
shall apply.
If the law 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.”
In Southeastern College, Inc. vs. Court of Appeals, [21] we said that negligence, as
commonly understood, is conduct which naturally or reasonably creates undue
risk or harm to others. It may be the failure to observe that degree of care,
precaution, and vigilance, which the circumstances justly demand, or the
omission to do something which ordinarily regulate the conduct of human affairs,
would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure
that the vessel it chartered complied with all legal requirements. The duty rests
upon the common carrier simply for being engaged in “public service.” [22] The Civil
Code demands diligence which is required by the nature of the obligation and
that which corresponds with the circumstances of the persons, the time and the
place. Hence, considering the nature of the obligation between Caltex and MT
Vector, the liability as found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special laws.
Because of the implied warranty of seaworthiness, [23] shippers of goods, when
transacting with common carriers, are not expected to inquire into the vessel’s
seaworthiness, genuineness of its licenses and compliance with all maritime laws.
To demand more from shippers and hold them liable in case of failure exhibits
nothing but the futility of our maritime laws insofar as the protection of the
public in general is concerned. By the same token, we cannot expect passengers
to inquire every time they board a common carrier, whether the carrier possesses
the necessary papers or that all the carrier’s employees are qualified. Such a
practice would be an absurdity in a business where time is always of the essence.
Considering the nature of transportation business, passengers and shippers alike
customarily presume that common carriers possess all the legal requisites in its
operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any
other shipper in shipping his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe
that MT Vector could legally transport cargo that time of the year.
“Atty. Poblador: Mr. Witness, I direct your attention to this portion here
containing the entries here under “VESSEL’S DOCUMENTS
1.  Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires
December 7, 1987”, Mr. Witness, what steps did you take regarding the
impending expiry of the C.I. or the Certificate of Inspection No. 1290-85 during
the hiring of MT Vector?
“Apolinar Ng: At the time when I extended the Contract, I did nothing because
the tanker has a valid C.I. which will expire on December 7, 1987 but on the last
week of November, I called the attention of Mr. Abalos to ensure that the C.I. be
renewed and Mr. Abalos, in turn, assured me they will renew the same.
“Q: What happened after that?
“A: On the first week of December, I again made a follow-up from Mr. Abalos, and
said they were going to send me a copy as soon as possible, sir. [24]
xxx       xxx      xxx
12
“Q: What did you do with the C.I.?
“A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first
place, because of our long business relation, we trust Mr. Abalos and the fact that
the vessel was able to sail indicates that the documents are in order. xxx” [25]
On cross examination -
“Atty. Sarenas: This being the case, and this being an admission by you, this
Certificate of Inspection has expired on December 7. Did it occur to you not to let
the vessel sail on that day because of the very approaching date of expiration?
“Apolinar Ng: No sir, because as I said before, the operation Manager assured us
that they were able to secure a renewal of the Certificate of Inspection and that
they will in time submit us a copy.”[26]
Finally, on Mr. Ng’s redirect examination:
“Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the
Certificate of Inspection in the coastwise license on December 7, 1987. What was
your assurance for the record that this document was renewed by the MT
Vector?
“Atty. Sarenas: xxx
“Atty. Poblador: The certificate of Inspection?
“A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner;
secondly, those three years, they were allowed to sail by the Coast Guard. That
are some that make me believe that they in fact were able to secure the
necessary renewal.
“Q: If the Coast Guard clears a vessel to sail, what would that mean?
“Atty. Sarenas: Objection.
 No costs in this instance.
“Court: He already answered that in the cross examination to the effect that if it
was allowed, referring to MV Vector, to sail, where it is loaded and that it was SO ORDERED.
scheduled for a destination by the Coast Guard, it means that it has Certificate of
Inspection extended as assured to this witness by Restituto Abalos. That in no
case MV Vector will be allowed to sail if the Certificate of Inspection is, indeed,
not to be extended. That was his repeated explanation to the cross-examination.
So, there is no need to clarify the same in the re-direct examination.” [27]

Caltex and Vector Shipping Corporation had been doing business since 1985, or
for about two years before the tragic incident occurred in 1987. Past services
rendered showed no reason for Caltex to observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship
was seaworthy as even the Philippine Coast Guard itself was convinced of its
seaworthiness. All things considered, we find no legal basis to hold petitioner 3. SECOND DIVISION
liable for damages.
[ G.R. No. 125948, December 29, 1998 ]

As Vector Shipping Corporation did not appeal from the Court of Appeals’
decision, we limit our ruling to the liability of Caltex alone. However, we maintain
the Court of Appeals’ ruling insofar as Vector is concerned .
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision
of the Court of Appeals in CA-G. R. CV No. 39626, promulgated on April 15, 1997,
insofar as it held Caltex liable under the third party complaint to
reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is
adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the Court
of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E.
Cañezal and Corazon Cañezal damages as set forth therein. Third-party
defendant-appellee Vector Shipping Corporation and Francisco Soriano are held
liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages,
attorneys’ fees and costs the latter is adjudged to pay plaintiffs-appellees in the
case.
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.
DECISION
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.

13
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 1967[1] 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
Code.[3] 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 x x
xx
"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
14
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
complaint[6] for tax refund with prayer for a 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, respondent court rendered a decision[11] affirming the trial court's dismissal of
ruling in this wise: petitioner's complaint. Petitioner's motion for reconsideration was denied on July
18, 1996.[12]
"xxx Plaintiff is either a contractor or other independent contractor.
Hence, this petition. At first, the petition was denied due course in a Resolution
xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule
dated November 11, 1996.[13] Petitioner moved for a reconsideration which was
that tax exemptions are to be strictly construed against the taxpayer, taxes being
granted by this Court in a Resolution[14] of January 20, 1997. Thus, the petition
the lifeblood of the government. Exemption may therefore be granted only by
was reinstated.
clear and unequivocal provisions of law.
Petitioner claims that the respondent Court of Appeals erred in holding that (1)
"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act
the petitioner is not a common carrier or a transportation contractor, and (2) the
387, (Exhibit A) whose concession was lately renewed by the Energy Regulatory
exemption sought for by petitioner is not clear under the law.
Board (Exhibit B). Yet neither said law nor the deed of concession grant any tax
exemption upon the plaintiff.
There is merit in the petition.

"Even the Local Government Code imposes a tax on franchise holders under Sec.
A "common carrier" may be defined, broadly, as one who holds himself out to the
137 of the Local Tax Code. Such being the situation obtained in this case
public as engaged in the business of transporting persons or property from place
(exemption being unclear and equivocal) resort to distinctions or other
to place, for compensation, offering his services to the public generally.
considerations may be of help:
Article 1732 of the Civil Code defines a "common carrier" as "any person,
1.  That the exemption granted under Sec. 133 (j) encompasses only common
corporation, firm or association engaged in the business of carrying or
carriers so as not to overburden the riding public or commuters with taxes.
transporting passengers or goods or both, by land, water, or air, for
Plaintiff is not a common carrier, but a special carrier extending its services and
compensation, offering their services to the public."
facilities to a single specific or "special customer" under a "special contract."
The test for determining whether a party is a common carrier of goods is:
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 1. He must be engaged in the business of carrying goods for others as a public
them economically and financially viable to serve the people and discharge their employment, and must hold himself out as ready to engage in the transportation
functions with a concomitant obligation to accept certain devolution of powers, x of goods for person generally as a business and not as a casual occupation;
x x 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] 2. He must undertake to carry goods of the kind to which his business is confined;

Petitioner assailed the aforesaid decision before this Court via a petition for
3. He must undertake to carry by the method by which his business is conducted
review. On February 27, 1995, we referred the case to the respondent Court of
and over his established roads; and
Appeals for consideration and adjudication. [10] On November 29, 1995, the
15

[15]
4. The transportation must be for hire.
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 x x x 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
16
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.' "(Underscoring Supplied)
Also, respondent's argument that the term "common carrier" as used in Section
133 (j) of the Local Government Code refers only to common carriers transporting
goods and passengers through moving vehicles or vessels either by land, sea or
water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the
Civil Code makes no distinction as to the means of transporting, as long as it is by
land, water or air. It does not provide that the transportation of the passengers or
goods should be by motor vehicle. In fact, in the United States, oil pipe line
operators are considered common carriers. [17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
considered a "common carrier." Thus, Article 86 thereof provides that:
"Art. 86. Pipe line concessionaire as a 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 x x
and everything relating to the manufacture, refining, storage, or transportation
by special methods of petroleum, is hereby declared to be a public
utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common
carrier." In BIR Ruling No. 069-83, it declared:
"x x x 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 x x x. 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:
"Section 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."
xxx
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
17
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. x x x[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.
4. THIRD DIVISION
[ G.R. No. L-47822, December 22, 1988 ]
PEDRO DE GUZMAN, PETITIONER, VS. COURT OF APPEALS AND ERNESTO
CENDAÑA, RESPONDENTS.
DECISION
FELICIANO, J.:
Respondent Ernesto Cendaña, a junk dealer, was engaged in buying up used
bottles and scrap metal in Pangasinan. Upon gathering sufficient quantities of
such scrap material, respondent would bring such material to Manila for resale.
He utilized two (2) six-wheeler trucks which he owned for hauling the material to
Manila. On the return trip to Pangasinan, respondent would load his vehicles with
cargo which various merchants wanted delivered to differing establishments in
Pangasinan. For that service, respondent charged freight rates which were
commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman, a merchant and
authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta,
Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty
filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's
establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1
December 1970, respondent loaded in Makati the merchandise on to his trucks:
18
150 cartons were loaded on a truck driven by respondent himself; while 600
cartons were placed on board the other truck which was driven by Manuel
Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600
boxes never reached petitioner, since the truck which carried these boxes was
hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed
men who took with them the truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in
the Court of First Instance of Pangasinan, demanding payment of P22,150.00, the
claimed value of the lost merchandise, plus damages and attorney's fees.
Petitioner argued that private respondent, being a common carrier, and having
failed to exercise the extraordinary diligence required of him by the law, should
be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and
argued that he could not be held responsible for the value of the lost goods, such
loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision [1] finding private
respondent to be a common carrier and holding him liable for the value of the
undelivered goods (P22,150.00) as well as for P4,000.00 as damages and
P2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had
erred in considering him a common carrier: in finding that he had habitually
offered trucking services to the public; in not exempting him from liability on the
ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that
respondent had been engaged in transporting return loads of freight "as a casual
occupation -- a sideline to his scrap iron business" and not as a common carrier.
Petitioner came to this Court by way of a Petition for Review assigning as errors
the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo.
(Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendaña
may, under the facts earlier set forth, be properly characterized as a common
carrier.
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air for compensation, offering their services to the public."
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the "general public,"
i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that
Article 1733 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:
19
"x x x every person that now or hereafter may own, operate, manage, or control
in the Philippines, for hire or compensation, with general or limited 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. x x x." (Underscoring
supplied).
It appears to the Court that private respondent is properly characterized as a
common carrier even though he merely "back-hauled" goods for other merchants
from Manila to Pangasinan, although such backhauling was done on a periodic or
occasional rather than regular or scheduled manner, and even though private
respondent's principal occupation was not the carriage of goods for others. There
is no dispute that private respondent charged his customers a fee for hauling
their goods; that that fee frequently fell below commercial freight rates is not
relevant here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common carrier.
This is palpable error. A certificate of public convenience is not a requisite for the
incurring of liability under the Civil Code provisions governing common carriers.
That liability arises the moment a person or firm acts as a common carrier,
without regard to whether or not such carrier has also complied with the
requirements of the applicable regulatory statute and implementing regulations
and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he
has not secured the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward private respondent
precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety
and well being and property of those members of the general community who
happen to deal with such carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who utilize their services
and the law cannot allow a common carrier to render such duties and liabilities
merely facultative by simply failing to obtain the necessary permits and
authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public
policy,"[2] are held to a very high degree of care and diligence ("extraordinary
diligence") in the carriage of goods as well as of passengers. The specific import of
extraordinary diligence in the care of goods transported by a common carrier is,
according to Article 1733, "further expressed in Articles 1734, 1735 and 1745,
numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for
the loss, destruction or deterioration of the goods which they carry, "unless the
same is due to any of the following causes only;
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
 
(4) The character of the goods or defects in the packing or in the containers; and
 
20
(5) Order or act of competent public authority."
It is important to point out that the above list of causes of loss, destruction or
deterioration which exempt the common carrier for responsibility therefor, is a
closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure, fall within the scope of Article 1735, which
provides as follows:
"In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the
preceeding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in Article 1733."
(Underscoring supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the
specific cause alleged in the instant case -- the hijacking of the carrier's truck --
does not fall within any of the five (5) categories of exempting causes listed in
Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle
must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to
have acted negligently. This presumption, however, may be overthrown by proof
of extraordinary diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary
diligence in the care of petitioner's goods. Petitioner argues that in the
circumstances of this case, private respondent should have hired a security guard
presumably to ride with the truck carrying the 600 cartons of Liberty filled milk.
We do not believe, however, that in the instant case, the standard of
extraordinary diligence required private respondent to retain a security guard to
ride with the truck and to engage brigands in a firefight at the risk of his own life
and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the
duty or extraordinary diligence in the vigilance over the goods carried in the
specific context of hijacking or armed robbery.

As noted earlier, the duty of extraordinary diligence in the vigilance over goods is,
under Article 1733, given additional specification not only by Articles 1734 and
1735 but also by Article 1745, numbers 4, 5 and 6. Article 1745 provides in
relevant part:
“Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:
xxxxxxxxx
(5) that the common carrier shall not be responsible for the acts or omissions of
his or its employees;
 
(6) that the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished; and
 
(7) that the common carrier shall not responsible for the loss, destruction or
deterioration of goods on account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in the contract of carriage."
(Underscoring supplied)
Under Article 1745 (6) above, a common carrier is held responsible -- and will not
be allowed to divest or to diminish such responsibility -- even for acts of strangers
like thieves or robbers, except where such thieves or robbers in fact acted "with
grave or irresistible threat, violence or force." We believe and so hold that the
limits of the duty of extraordinary diligence in the vigilance over the goods carried
are reached where the goods are lost as a result of a robbery which is attended by
"grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private
21
respondent which carried petitioner's cargo. The record shows that an
information for robbery in band was filed in the Court of First Instance of Tarlac,
Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe
Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe."
There, the accused were charged with willfully and unlawfully taking and carrying
away with them the second truck, driven by Manuel Estrada and loaded with the
600 cartons of Liberty filled milk destined for delivery at petitioner's store in
Urdaneta, Pampanga. The decision of the trial court shows that the accused acted
with grave, if not irresistible threat, violence or force. [3] Three (3) of the five (5)
hold-uppers were armed with firearms. The robbers not only took away the truck
and its cargo but also kidnapped the driver and his helper, detaining them for
several days and later releasing them in another province (in Zambales). The
hijacked truck was subsequently found by the police in Quezon City. The Court of
First Instance convicted all the accused of robbery, though not of robbery in band.
[4]
In these circumstances, we hold that the occurrence of the loss must reasonably
be regarded as quite beyond the control of the common carrier and properly
regarded as a fortuitous event. It is necessary to recall that even common carriers
are not made absolute insurers against all risks of travel and of transport of
goods, and are not held liable for acts or events which cannot be foreseen or are
inevitable, provided that they shall have complied with the rigorous standard of
extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private
respondent Cendaña is not liable for the value of the undelivered merchandise
which was lost because of an event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on Certiorari is hereby DENIED and the
Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

5. FIRST DIVISION
[ G.R. No. 131621, September 28, 1999 ]
LOADSTAR SHIPPING CO., INC., PETITIONER, VS. COURT OF APPEALS AND THE
MANILA INSURANCE CO., INC., RESPONDENTS.
DECISION
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 complaint 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.
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 others; and
c)  49 bundles of mouldings R & W (3) Apitong Bolidenized.
22
The goods, amounting to P6,067,178, were insured for the same amount with
MIC against various risks including “TOTAL LOSS BY TOTAL LOSS OF 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 of 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 the 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]
23
The errors assigned by LOADSTAR boil down to a determination of the following
issues:
(1) Is the M/V “Cherokee” a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier
because it was not issued a 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. MIC’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 Insurance Co. v. Macondray & Co., Inc., [9]  and
National Union Fire Insurance Company of Pittsburg 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.
24
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 large 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 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:
“Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air for compensation, offering their services to the public.”
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as “a sideline”’. Article 1732
also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering
such service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the “general public,”
i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that
Article 1733 deliberately refrained from making such distinctions.
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 even though private
respondent’s principal occupation was not the carriage of goods for others. There
is no dispute that private respondent charged his customers a fee for hauling
their goods; that 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
25
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 area where it sank was
determined to be moderate. Since it was remiss 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 is
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.
26
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
good.[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.
SO ORDERED.
6. FIRST DIVISION
[ G.R. No. 157917, August 29, 2012 ]
SPOUSES TEODORO[1] AND NANETTE PERENA, PETITIONERS, VS. SPOUSES
NICOLAS AND TERESITA L. ZARATE, PHILIPPINE NATIONAL RAILWAYS, AND THE
COURT OF APPEALS, RESPONDENTS.
DECISION
BERSAMIN, J.:
The operator of a school bus service is a common carrier in the eyes of the law. 
He is bound to observe extraordinary diligence in the conduct of his business.  He
is presumed to be negligent when death occurs to a passenger.  His liability may
include indemnity for loss of earning capacity even if the deceased passenger may
only be an unemployed high school student at the time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Pereña
(Pereñas) appeal the adverse decision promulgated on November 13, 2002, by
which the Court of Appeals (CA) affirmed with modification the decision rendered
on December 3, 1999 by the Regional Trial Court (RTC), Branch 260, in Parañaque
City that had decreed them jointly and severally liable with Philippine National
Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita Zarate
(Zarates) for the death of their 15-year old son, Aaron John L. Zarate (Aaron), then
a high school student of Don Bosco Technical Institute (Don Bosco).
Antecedents
The Pereñas were engaged in the business of transporting students from their
respective residences in Parañaque City to Don Bosco in Pasong Tamo, Makati
City, and back. In their business, the Pereñas used a KIA Ceres Van (van) with
Plate No. PYA 896, which had the capacity to transport 14 students at a time, two
of whom would be seated in the front beside the driver, and the others in the
rear, with six students on either side. They employed Clemente Alfaro (Alfaro) as
driver of the van.
In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from
Don Bosco. On August 22, 1996, as on previous school days, the van picked Aaron
up around 6:00 a.m. from the Zarates’ residence. Aaron took his place on the left
side of the van near the rear door. The van, with its air-conditioning unit turned
on and the stereo playing loudly, ultimately carried all the 14 student riders on
their way to Don Bosco. Considering that the students were due at Don Bosco by
7:15 a.m., and that they were already running late because of the heavy vehicular
traffic on the South Superhighway, Alfaro took the van to an alternate route at
about 6:45 a.m. by traversing the narrow path underneath the Magallanes
27
Interchange that was then commonly used by Makati-bound vehicles as a short
cut into Makati. At the time, the narrow path was marked by piles of construction
materials and parked passenger jeepneys, and the railroad crossing in the narrow
path had no railroad warning signs, or watchmen, or other responsible persons
manning the crossing. In fact, the bamboo barandilla was up, leaving the railroad
crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter
No. 302 (train), operated by Jhonny Alano (Alano), was in the vicinity of the
Magallanes Interchange travelling northbound. As the train neared the railroad
crossing, Alfaro drove the van eastward across the railroad tracks, closely tailing a
large passenger bus. His view of the oncoming train was blocked because he
overtook the passenger bus on its left side. The train blew its horn to warn
motorists of its approach. When the train was about 50 meters away from the
passenger bus and the van, Alano applied the ordinary brakes of the train. He
applied the emergency brakes only when he saw that a collision was imminent.
The passenger bus successfully crossed the railroad tracks, but the van driven by
Alfaro did not. The train hit the rear end of the van, and the impact threw nine of
the 12 students in the rear, including Aaron, out of the van. Aaron landed in the
path of the train, which dragged his body and severed his head, instantaneously
killing him. Alano fled the scene on board the train, and did not wait for the police
investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates commenced
this action for damages against Alfaro, the Pereñas, PNR and Alano. The Pereñas
and PNR filed their respective answers, with cross-claims against each other, but
Alfaro could not be served with summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
(1) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;
(2) Spouses Zarate engaged the services of spouses Pereña for the adequate
and safe transportation carriage of the former spouses' son from their
residence in Parañaque to his school at the Don Bosco Technical Institute
in Makati City;
(3) During the effectivity of the contract of carriage and in the
implementation thereof, Aaron, the minor son of spouses Zarate died in
connection with a vehicular/train collision which occurred while Aaron
was riding the contracted carrier Kia Ceres van of spouses Pereña, then
driven and operated by the latter's employee/authorized driver Clemente
Alfaro, which van collided with the train of PNR, at around 6:45 A.M. of
August 22, 1996, within the vicinity of the Magallanes Interchange in
Makati City, Metro Manila, Philippines;
(4) At the time of the vehicular/train collision, the subject site of the
vehicular/train collision was a railroad crossing used by motorists for
crossing the railroad tracks;
(5) During the said time of the vehicular/train collision, there were no
appropriate and safety warning signs and railings at the site commonly
used for railroad crossing;
(6) At the material time, countless number of Makati bound public utility and
private vehicles used on a daily basis the site of the collision as an
alternative route and short-cut to Makati;
(7) The train driver or operator left the scene of the incident on board the
commuter train involved without waiting for the police investigator;
(8) The site commonly used for railroad crossing by motorists was not in fact
intended by the railroad operator for railroad crossing at the time of the
vehicular collision;
(9) PNR received the demand letter of the spouses Zarate;
(10) PNR refused to acknowledge any liability for the vehicular/train collision;
(12) The eventual closure of the railroad crossing alleged by PNR was an
28
internal arrangement between the former and its project contractor; and
(11) The site of the vehicular/train collision was within the vicinity or less than
100 meters from the Magallanes station of PNR.
B. ISSUES
(1) Whether or not defendant-driver of the van is, in the performance of his
functions, liable for negligence constituting the proximate cause of the
vehicular collision, which resulted in the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Pereña being the employer of
defendant Alfaro are liable for any negligence which may be attributed to
defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the
operator of the railroad system is liable for negligence in failing to
provide adequate safety warning signs and railings in the area commonly
used by motorists for railroad crossings, constituting the proximate cause
of the vehicular collision which resulted in the death of the plaintiff
spouses' son;
(4) Whether or not defendant spouses Pereña are liable for breach of the
contract of carriage with plaintiff-spouses in failing to provide adequate
and safe transportation for the latter's son;
(5) Whether or not defendants spouses are liable for actual, moral damages,
exemplary damages, and attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette Pereña
observed the diligence of employers and school bus operators;
(7) Whether or not defendant-spouses are civilly liable for the accidental
death of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating the
 commuter train involved in the accident, in allowing or tolerating the
motoring public to cross, and its failure to install safety devices or
equipment at the site of the accident for the protection of the public;
(9) Whether or not defendant PNR should be made to reimburse defendant
spouses for any and whatever amount the latter may be held answerable
or which they may be ordered to pay in favor of plaintiffs by reason of the
action;
(10) Whether or not defendant PNR should pay plaintiffs directly and fully on
the amounts claimed by the latter in their Complaint by reason of its
gross negligence;
(11) Whether or not defendant PNR is liable to defendants spouses for actual,
moral and exemplary damages and attorney's fees. [2]
The Zarates’ claim against the Pereñas was upon breach of the contract of
carriage for the safe transport of Aaron; but that against PNR was based on quasi-
delict under Article 2176, Civil Code.
In their defense, the Pereñas adduced evidence to show that they had exercised
the diligence of a good father of the family in the selection and supervision of
Alfaro, by making sure that Alfaro had been issued a driver’s license and had not
been involved in any vehicular accident prior to the collision; that their own son
had taken the van daily; and that Teodoro Pereña had sometimes accompanied
Alfaro in the van’s trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had
been the reckless crossing of the van whose driver had not first stopped, looked
and listened; and that the narrow path traversed by the van had not been
intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision, [3] disposing:
29
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendants ordering them to jointly and severally pay the
plaintiffs as follows:
(1) (for) the death of Aaron-Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity-Php2,109,071.00;
(4) Moral damages in the amount of (Php)4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorney’s fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration,
[4]
 reiterating that the cooperative gross negligence of the Pereñas and PNR had
caused the collision that led to the death of Aaron; and that the damages
awarded to the Zarates were not excessive, but based on the established
circumstances.
The CA’s Ruling
Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916). PNR assigned the
following errors, to wit:[5]
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways jointly
and severally liable together with defendant-appellants spouses
Teodorico and Nanette Pereña and defendant-appellant Clemente Alfaro
to pay plaintiffs-appellees for the death of Aaron Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees
witnesses despite overwhelming documentary evidence on record,
 supporting the case of defendants-appellants Philippine National
Railways.
The Pereñas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally liable
for actual, moral and exemplary damages and attorney’s fees with the other
defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereñas
against the Philippine National Railways and in not holding the latter and its train
driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorney’s fees.
The trial court erred in awarding damages in the form of deceased’s loss of
earning capacity in the absence of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings of
the RTC, but limited the moral damages to P2,500,000.00; and deleted the
attorney’s fees because the RTC did not state the factual and legal bases, to wit: [6]
WHEREFORE, premises considered, the assailed Decision of the Regional Trial
Court, Branch 260 of Parañaque City is AFFIRMED with the modification that the
award of Actual Damages is reduced to P59,502.76; Moral Damages is reduced
to P2,500,000.00; and the award for Attorney’s Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aaron’s earning capacity, taking
cognizance of the ruling in Cariaga v. Laguna Tayabas Bus Company and Manila
Railroad Company,[7] wherein the Court gave the heirs of Cariaga a sum
representing the loss of the deceased’s earning capacity despite Cariaga being
30
only a medical student at the time of the fatal incident. Applying the formula
adopted in the American Expectancy Table of Mortality:–
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning
his life expectancy from age of 21 (the age when he would have graduated from
college and started working for his own livelihood) instead of 15 years (his age
when he died). Considering that the nature of his work and his salary at the time
of Aaron’s death were unknown, it used the prevailing minimum wage of
P280.00/day to compute Aaron’s gross annual salary to be P110,716.65, inclusive
of the thirteenth month pay. Multiplying this annual salary by Aaron’s life
expectancy of 39.3 years, his gross income would aggregate to P4,351,164.30,
from which his estimated expenses in the sum of P2,189,664.30 was deducted to
finally arrive at P2,161,500.00 as net income. Due to Aaron’s computed net
income turning out to be higher than the amount claimed by the Zarates, only
P2,109,071.00, the amount expressly prayed for by them, was granted.
On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration. [8]
Issues
In this appeal, the Pereñas list the following as the errors committed by the CA, to
wit:
I. The lower court erred when it upheld the trial court’s decision holding
the petitioners jointly and severally liable to pay damages with Philippine
National Railways and dismissing their cross-claim against the latter.
II. The lower court erred in affirming the trial court’s decision awarding
damages for loss of earning capacity of a minor who was only a high
school student at the time of his death in the absence of sufficient basis
for such an award.
 III. The lower court erred in not reducing further the amount of damages
awarded, assuming petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereñas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the Pereñas
and the PNR, basing their claim against the Pereñas on breach of contract of
carriage and against the PNR on quasi-delict.
The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.
We concur with the CA.
To start with, the Pereñas’ defense was that they exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, the van driver,
by seeing to it that Alfaro had a driver’s license and that he had not been involved
in any vehicular accident prior to the fatal collision with the train; that they even
had their own son travel to and from school on a daily basis; and that Teodoro
Pereña himself sometimes accompanied Alfaro in transporting the passengers to
and from school. The RTC gave scant consideration to such defense by regarding
such defense as inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that
the Pereñas operated as a common carrier; and that their standard of care was
extraordinary diligence, not the ordinary diligence of a good father of a family.
31
Although in this jurisdiction the operator of a school bus service has been usually
regarded as a private carrier,[9] primarily because he only caters to some specific
or privileged individuals, and his operation is neither open to the indefinite public
nor for public use, the exact nature of the operation of a school bus service has
not been finally settled. This is the occasion to lay the matter to rest.
A carrier is a person or corporation who undertakes to transport or convey goods
or persons from one place to another, gratuitously or for hire. The carrier is
classified either as a private/special carrier or as a common/public carrier. [10] A
private carrier is one who, without making the activity a vocation, or without
holding himself or itself out to the public as ready to act for all who may desire his
or its services, undertakes, by special agreement in a particular instance only, to
transport goods or persons from one place to another either gratuitously or for
hire.[11] The provisions on ordinary contracts of the Civil Code govern the contract
of private carriage. The diligence required of a private carrier is only ordinary,
that is, the diligence of a good father of the family. In contrast, a common carrier
is a person, corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering such services to the public.[12] Contracts of common
carriage are governed by the provisions on common carriers of the Civil Code, the
Public Service Act,[13] and other special laws relating to transportation. A common
carrier is required to observe extraordinary diligence, and is presumed to be at
fault or to have acted negligently in case of the loss of the effects of passengers,
or the death or injuries to passengers. [14]
In relation to common carriers, the Court defined public use in the following
terms in United States v. Tan Piaco,[15] viz:
“Public use” is the same as “use by the public”. The essential feature of the public
use is not confined to privileged individuals, but is open to the indefinite public. It
is this indefinite or unrestricted quality that gives it its public character. In
determining whether a use is public, we must look not only to the character of
the business to be done, but also to the proposed mode of doing it. If the use is
merely optional with the owners, or the public benefit is merely incidental, it is
not a public use, authorizing the exercise of the jurisdiction of the public utility
commission. There must be, in general, a right which the law compels the owner
to give to the general public. It is not enough that the general prosperity of the
public is promoted. Public use is not synonymous with public interest. The true
criterion by which to judge the character of the use is whether the public may
enjoy it by right or only by permission.
In  De Guzman v. Court of Appeals,[16] the Court noted that Article 1732 of the Civil
Code avoided any distinction between a person or an enterprise offering
transportation on a regular or an isolated basis; and has not distinguished a
carrier offering his services to the general public, that is, the general community
or population, from one offering his services only to a narrow segment of the
general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of
the Civil Code coincides neatly with the notion of public service under the  Public
Service Act, which supplements the law on common carriers found in the  Civil
Code. Public service, according to Section 13, paragraph (b) of the  Public Service
Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in
the Philippines, for hire or compensation, with general or limited clientèle,
whether permanent or occasional, and done for the general business purposes,
any common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class, express
service, steamboat, or steamship line, pontines, ferries and water craft, engaged
in the transportation of passengers or freight or both, shipyard, marine repair
shop, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and
power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar
public services. x x x.[17]
32
Given the breadth of the aforequoted characterization of a common carrier, the
Court has considered as common carriers pipeline operators, [18] custom brokers
and warehousemen,[19] and barge operators[20] even if they had limited clientèle.
As all the foregoing indicate, the true test for a common carrier is not the
quantity or extent of the business actually transacted, or the number and
character of the conveyances used in the activity, but whether the undertaking is
a part of the activity engaged in by the carrier that he has held out to the general
public as his business or occupation. If the undertaking is a single transaction, not
a part of the general business or occupation engaged in, as advertised and held
out to the general public, the individual or the entity rendering such service is a
private, not a common, carrier. The question must be determined by the
character of the business actually carried on by the carrier, not by any secret
intention or mental reservation it may entertain or assert when charged with the
duties and obligations that the law imposes. [21]
Applying these considerations to the case before us, there is no question that the
Pereñas as the operators of a school bus service were: (a) engaged in transporting
passengers generally as a business, not just as a casual occupation; (b)
undertaking to carry passengers over established roads by the method by which
the business was conducted; and (c) transporting students for a fee. Despite
catering to a limited clientèle, the Pereñas operated as a common carrier because
they held themselves out as a ready transportation indiscriminately to the
students of a particular school living within or near where they operated the
service and for a fee.
The common carrier’s standard of care and vigilance as to the safety of the
passengers is defined by law. Given the nature of the business and for reasons of
public policy, the common carrier is bound “to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case.” [22] Article 1755 of the Civil
Code specifies that the common carrier should “carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.” To successfully
fend off liability in an action upon the death or injury to a passenger, the common
carrier must prove his or its observance of that extraordinary diligence;
otherwise, the legal presumption that he or it was at fault or acted negligently
would stand.[23] No device, whether by stipulation, posting of notices, statements
on tickets, or otherwise, may dispense with or lessen the responsibility of the
common carrier as defined under Article 1755 of the Civil Code.[24]
And, secondly, the Pereñas have not presented any compelling defense or reason
by which the Court might now reverse the CA’s findings on their liability. On the
contrary, an examination of the records shows that the evidence fully supported
the findings of the CA.
As earlier stated, the Pereñas, acting as a common carrier, were already
presumed to be negligent at the time of the accident because death had occurred
to their passenger.[25] The presumption of negligence, being a presumption of law,
laid the burden of evidence on their shoulders to establish that they had not been
negligent.[26] It was the law no less that required them to prove their observance
of extraordinary diligence in seeing to the safe and secure carriage of the
passengers to their destination. Until they did so in a credible manner, they stood
to be held legally responsible for the death of Aaron and thus to be held liable for
all the natural consequences of such death.
There is no question that the Pereñas did not overturn the presumption of their
negligence by credible evidence. Their defense of having observed the diligence
of a good father of a family in the selection and supervision of their driver was not
legally sufficient. According to Article 1759 of the Civil Code, their liability as a
common carrier did not cease upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision of their employee. This
was the reason why the RTC treated this defense of the Pereñas as inappropriate
in this action for breach of contract of carriage.
The Pereñas were liable for the death of Aaron despite the fact that their driver
might have acted beyond the scope of his authority or even in violation of the
33
orders of the common carrier.[27] In this connection, the records showed their
driver’s actual negligence. There was a showing, to begin with, that their driver
traversed the railroad tracks at a point at which the PNR did not permit motorists
going into the Makati area to cross the railroad tracks. Although that point had
been used by motorists as a shortcut into the Makati area, that fact alone did not
excuse their driver into taking that route. On the other hand, with his familiarity
with that shortcut, their driver was fully aware of the risks to his passengers but
he still disregarded the risks. Compounding his lack of care was that loud music
was playing inside the air-conditioned van at the time of the accident. The
loudness most probably reduced his ability to hear the warning horns of the
oncoming train to allow him to correctly appreciate the lurking dangers on the
railroad tracks. Also, he sought to overtake a passenger bus on the left side as
both vehicles traversed the railroad tracks. In so doing, he lost his view of the
train that was then coming from the opposite side of the passenger bus, leading
him to miscalculate his chances of beating the bus in their race, and of getting
clear of the train. As a result, the bus avoided a collision with the train but the van
got slammed at its rear, causing the fatality. Lastly, he did not slow down or go to
a full stop before traversing the railroad tracks despite knowing that his
slackening of speed and going to a full stop were in observance of the right of way
at railroad tracks as defined by the traffic laws and regulations. [28] He thereby
violated a specific traffic regulation on right of way, by virtue of which he was
immediately presumed to be negligent. [29]
The omissions of care on the part of the van driver constituted negligence,
[30]
 which, according to Layugan v. Intermediate Appellate Court,[31] is “the
omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do,
or the doing of something which a prudent and reasonable man would not do,
[32]
 or as Judge Cooley defines it, ‘(t)he failure to observe for the protection of the
interests of another person, that degree of care, precaution, and vigilance which
the circumstances justly demand, whereby such other person suffers injury.’” [33]
The test by which to determine the existence of negligence in a particular case
has been aptly stated in the leading case of Picart v. Smith,[34] thuswise:
The test by which to determine the existence of negligence in a particular case
may be stated as follows: Did the defendant in doing the alleged negligent act
use that reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence. The law
here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of
negligence in a given case is not determined by reference to the personal
judgment of the actor in the situation before him. The law considers what would
be reckless, blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a
given situation must of course be always determined in the light of human
experience and in view of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much can be profitably
said: Reasonable men govern their conduct by the circumstances which are
before them or known to them. They are not, and are not supposed to be,
omniscient of the future. Hence they can be expected to take care only when
there is something before them to suggest or warn of danger. Could a prudent
man, in the case under consideration, foresee harm as a result of the course
actually pursued? If so, it was the duty of the actor to take precautions to guard
against that harm. Reasonable foresight of harm, followed by the ignoring of the
suggestion born of this prevision, is always necessary before negligence can be
held to exist. Stated in these terms, the proper criterion for determining the
existence of negligence in a given case is this: Conduct is said to be negligent
when a prudent man in the position of the tortfeasor would have foreseen that
an effect harmful to another was sufficiently probable to warrant his foregoing
the conduct or guarding against its consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was entirely
negligent when he traversed the railroad tracks at a point not allowed for a
motorist’s crossing despite being fully aware of the grave harm to be thereby
caused to his passengers; and when he disregarded the foresight of harm to his
34
passengers by overtaking the bus on the left side as to leave himself blind to the
approach of the oncoming train that he knew was on the opposite side of the bus.
Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate
Court,[35] where the Court held the PNR solely liable for the damages caused to a
passenger bus and its passengers when its train hit the rear end of the bus that
was then traversing the railroad crossing. But the circumstances of that case and
this one share no similarities. In Philippine National Railways v. Intermediate
Appellate Court, no evidence of contributory negligence was adduced against the
owner of the bus. Instead, it was the owner of the bus who proved the exercise of
extraordinary diligence by preponderant evidence. Also, the records are replete
with the showing of negligence on the part of both the Pereñas and the PNR.
Another distinction is that the passenger bus in Philippine National Railways v.
Intermediate Appellate Court  was traversing the dedicated railroad crossing when
it was hit by the train, but the Pereñas’ school van traversed the railroad tracks at
a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereñas and the PNR “jointly
and severally” liable for damages arising from the death of Aaron. They had been
impleaded in the same complaint as defendants against whom the Zarates had
the right to relief, whether jointly, severally, or in the alternative, in respect to or
arising out of the accident, and questions of fact and of law were common as to
the Zarates.[36] Although the basis of the right to relief of the Zarates (i.e., breach
of contract of carriage) against the Pereñas was distinct from the basis of the
Zarates’ right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil
Code), they nonetheless could be held jointly and severally liable by virtue of their
respective negligence combining to cause the death of Aaron. As to the PNR, the
RTC rightly found the PNR also guilty of negligence despite the school van of the
Pereñas traversing the railroad tracks at a point not dedicated by the PNR as a
railroad crossing for pedestrians and motorists, because the PNR did not ensure
the safety of others through the placing of crossbars, signal lights, warning signs,
and other permanent safety barriers to prevent vehicles or pedestrians from
crossing there. The RTC observed that the fact that a crossing guard had been
assigned to man that point from 7 a.m. to 5 p.m. was a good indicium  that the
PNR was aware of the risks to others as well as the need to control the vehicular
and other traffic there. Verily, the Pereñas and the PNR were joint tortfeasors.
2. Was the indemnity for loss of
Aaron’s earning capacity proper?
The RTC awarded indemnity for loss of Aaron’s earning capacity. Although
agreeing with the RTC on the liability, the CA modified the amount. Both lower
courts took into consideration that Aaron, while only a high school student, had
been enrolled in one of the reputable schools in the Philippines and that he had
been a normal and able-bodied child prior to his death. The basis for the
computation of Aaron’s earning capacity was not what he would have become or
what he would have wanted to be if not for his untimely death, but the minimum
wage in effect at the time of his death. Moreover, the RTC’s computation of
Aaron’s life expectancy rate was not reckoned from his age of 15 years at the
time of his death, but on 21 years, his age when he would have graduated from
college.
We find the considerations taken into account by the lower courts to be
reasonable and fully warranted.
Yet, the Pereñas submit that the indemnity for loss of earning capacity was
speculative and unfounded. They cited People v. Teehankee, Jr.,[37] where the
Court deleted the indemnity for victim Jussi Leino’s loss of earning capacity as a
pilot for being speculative due to his having graduated from high school at the
International School in Manila only two years before the shooting, and was at the
time of the shooting only enrolled in the first semester at the Manila Aero Club to
pursue his ambition to become a professional pilot. That meant, according to the
Court, that he was for all intents and purposes only a high school graduate.
We reject the Pereñas’ submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation
35
there of Jussi Leino was not akin to that of Aaron here. The CA and the RTC were
not speculating that Aaron would be some highly-paid professional, like a pilot
(or, for that matter, an engineer, a physician, or a lawyer). Instead, the
computation of Aaron’s earning capacity was premised on him being a lowly
minimum wage earner despite his being then enrolled at a prestigious high school
like Don Bosco in Makati, a fact that would have likely ensured his success in his
later years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings should
not be taken against his parents and in favor of the defendants whose negligence
not only cost Aaron his life and his right to work and earn money, but also
deprived his parents of their right to his presence and his services as well. Our law
itself states that the loss of the earning capacity of the deceased shall be the
liability of the guilty party in favor of the heirs of the deceased, and shall in every
case be assessed and awarded by the court “unless the deceased on account of
permanent physical disability not caused by the defendant, had no earning
capacity at the time of his death.”[38] Accordingly, we emphatically hold in favor of
the indemnification for Aaron’s loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time
or earnings but for loss of the deceased’s power or ability to earn money. [39]
This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v.
Laguna Tayabas Bus Company and Manila Railroad Company,[40] fourth-year
medical student Edgardo Carriaga’s earning capacity, although he survived the
accident but his injuries rendered him permanently incapacitated, was computed
to be that of the physician that he dreamed to become. The Court considered his
scholastic record sufficient to justify the assumption that he could have finished
the medical course and would have passed the medical board examinations in
due time, and that he could have possibly earned a modest income as a medical
practitioner. Also, in People v. Sanchez,[41] the Court opined that murder and rape
victim Eileen Sarmienta and murder victim Allan Gomez could have easily landed
good-paying jobs had they graduated in due time, and that their jobs would
probably pay them high monthly salaries from P10,000.00 to P15,000.00 upon
their graduation. Their earning capacities were computed at rates higher than the
minimum wage at the time of their deaths due to their being already senior
agriculture students of the University of the Philippines in Los Baños, the
country’s leading educational institution in agriculture.
3.
Were the amounts of damages excessive?
The Pereñas plead for the reduction of the moral and exemplary damages
awarded to the Zarates in the respective amounts of P2,500,000.00 and
P1,000,000.00 on the ground that such amounts were excessive.
The plea is unwarranted.
The moral damages of P2,500,000.00 were really just and reasonable under the
established circumstances of this case because they were intended by the law to
assuage the Zarates’ deep mental anguish over their son’s unexpected and violent
death, and their moral shock over the senseless accident. That amount would not
be too much, considering that it would help the Zarates obtain the means,
diversions or amusements that would alleviate their suffering for the loss of their
child. At any rate, reducing the amount as excessive might prove to be an
injustice, given the passage of a long time from when their mental anguish was
inflicted on them on August 22, 1996.
Anent the P1,000,000.00 allowed as exemplary damages, we should not reduce
the amount if only to render effective the desired example for the public good. As
a common carrier, the Pereñas needed to be vigorously reminded to observe
their duty to exercise extraordinary diligence to prevent a similarly senseless
accident from happening again. Only by an award of exemplary damages in that
amount would suffice to instill in them and others similarly situated like them the
ever-present need for greater and constant vigilance in the conduct of a business
imbued with public interest.
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision
promulgated on November 13, 2002; and ORDER the petitioners to pay the costs
36
of suit.
SO ORDERED.
7. THIRD DIVISION
[ G.R. No. 118664, August 07, 1998 ]
JAPAN AIRLINES, PETITIONER, VS. THE COURT OF APPEALS ENRIQUE AGANA,
MARIA ANGELA NINA AGANA, ADALIA B. FRANCISCO AND JOSE MIRANDA,
RESPONDENTS.
DECISION
ROMERO, J.:
Before us is an appeal by certiorari filed by petitioner Japan Airlines, Inc. (JAL)
seeking the reversal of the decision of the Court of Appeals, [1] which affirmed with
modification the award of damages made by the trial court in favor of herein
private respondents Enrique Agana, Maria Angela Nina Agana, Adelia Francisco
and Jose Miranda.
On June 13, 1991, private respondent Jose Miranda boarded JAL flight No. JL 001
in San Francisco, California bound for Manila. Likewise, on the same day private
respondents Enrique Agana, Maria Angela Nina Agana and Adelia Francisco left
Los Angeles, California for Manila via JAL flight No. JL 061. As an incentive for
travelling on the said airline, both flights were to make an overnight stopover at
Narita, Japan, at the airlines’ expense, thereafter proceeding to Manila the
following day.

Upon arrival at Narita, Japan on June 14, 1991, private respondents were billeted
at Hotel Nikko Narita for the night. The next day, private respondents, on the final
leg of their journey, went to the airport to take their flight to Manila. However,
due to the Mt. Pinatubo eruption, unrelenting ashfall blanketed Ninoy Aquino
International Airport (NAIA), rendering it inaccessible to airline traffic. Hence,
private respondents’ trip to Manila was cancelled indefinitely.
To accommodate the needs of its stranded passengers, JAL rebooked all the
Manila-bound passengers on flight No. 741 due to depart on June 16, 1991 and
also paid for the hotel expenses for their unexpected overnight stay. On June 16,
1991, much to the dismay of the private respondents, their long anticipated flight
to Manila was again cancelled due to NAIA’s indefinite closure. At this point, JAL
informed the private respondents that it would no longer defray their hotel and
accommodation expense during their stay in Narita.
Since NAIA was only reopened to airline traffic on June 22, 1991, private
respondents were forced to pay for their accommodations and meal expenses
from their personal funds from June 16 to June 21, 1991. Their unexpected stay in
Narita ended on June 22, 1991 when they arrived in Manila on board JL flight No.
741.
Obviously, still reeling from the experience, private respondents, on July 25, 1991,
commenced an action for damages against JAL before the Regional Trial Court of
Quezon City, Branch 104.[2] To support their claim, private respondents asserted
that JAL failed to live up to its duty to provide care and comfort to its stranded
passengers when it refused to pay for their hotel and accommodation expenses
from June 16 to 21, 1991 at Narita, Japan. In other words, they insisted that JAL
was obligated to shoulder their expenses as long as they were still stranded in
Narita. On the other hand, JAL denied this allegation and averred that airline
passengers have no vested right to these amenities in case a flight is cancelled
due to "force majeure."
37
On June 18, 1992, the trial court rendered its judgment in favor of private
respondents holding JAL liable for damages, viz.:
"WHEREFORE, judgment is rendered in favor of plaintiffs ordering the defendant
Japan Airlines to pay the plaintiffs Enrique Agana, Adalia B. Francisco and Maria
Angela Nina Agana the sum of One million Two Hundred forty-six Thousand Nine
Hundred Thirty-Six Pesos (P1,246,936.00) and Jose Miranda the sum of Three
Hundred Twenty Thousand Six Hundred sixteen and 31/100 (P320,616.31) as
actual, moral and exemplary damages and pay attorney’s fees in the amount of
Two Hundred Thousand Pesos (P200,000.00), and to pay the costs of suit."
Undaunted, JAL appealed the decision before the Court of Appeals, which,
however, with the exception of lowering the damages awarded affirmed the trial
court’s finding,[3] thus:
"Thus, the award of moral damages should be as it is hereby reduced to
P200,000.00 for each of the plaintiffs, the exemplary damages to P300,000.00 and
the attorney’s fees to P100,000.00 plus the costs.
WHEREFORE, with the foregoing Modification, the judgment appealed from is
hereby AFFIRMED in all other respects."
JAL filed a motion for reconsideration which proved futile and unavailing. [4]
Failing in its bid to reconsider the decision, JAL has now filed this instant petition.
The issue to be resolved is whether JAL, as a common carrier has the obligation to
shoulder the hotel and meal expenses of its stranded passengers until they have
reached their final destination, even if the delay were caused by "force majeure."
To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL
from proceeding to Manila on schedule. Likewise, private respondents concede
that such event can be considered as "force majeure" since their delayed arrival
in Manila was not imputable to JAL.[5]
However, private respondents contend that while JAL cannot be held responsible
for the delayed arrival in Manila, it was nevertheless liable for their living
expenses during their unexpected stay in Narita since airlines have the obligation
to ensure the comfort and convenience of its passengers. While we sympathize
with the private respondents’ plight, we are unable to accept this contention.
We are not unmindful of the fact that in a plethora of cases we have consistently
ruled that a contract to transport passengers is quite different in kind and degree
from any other contractual relation. It is safe to conclude that it is a relationship
imbued with public interest. Failure on the part of the common carrier to live up
to the exacting standards of care and diligence renders it liable for any damages
that may be sustained by its passengers. However, this is not to say that common
carriers are absolutely responsible for all injuries or damages even if the same
were caused by a fortuitous event. To rule otherwise would render the defense of
"force majeure," as an exception from any liability, illusory and ineffective.
Accordingly, there is no question that when a party is unable to fulfill his
obligation because of "force majeure," the general rule is that he cannot be held
liable for damages for non-performance.[6] Corollarily, when JAL was prevented
from resuming its flight to Manila due to the effects of Mt. Pinatubo eruption,
whatever losses or damages in the form of hotel and meal expenses the stranded
passengers incurred, cannot be charged to JAL. Yet it is undeniable that JAL
assumed the hotel expenses of respondents for their unexpected overnight stay
on June 15, 1991.
Admittedly, to be stranded for almost a week in a foreign land was an
exasperating experience for the private respondents. To be sure, they underwent
distress and anxiety during their unanticipated stay in Narita, but their
predicament was not due to the fault or negligence of JAL but the closure of NAIA
to international flights. Indeed, to hold JAL, in the absence of bad faith or
negligence, liable for the amenities of its stranded passengers by reason of a
fortuitous event is too much of a burden to assume.
Furthermore, it has been held that airline passengers must take such risks
incident to the mode of travel.[7] In this regard, adverse weather conditions or
38
extreme climatic changes are some of the perils involved in air travel, the
consequences of which the passenger must assume or expect. After all, common
carriers are not the insurer of all risks. [8]
Paradoxically, the Court of Appeals, despite the presence of "force majeure," still
ruled against JAL relying in our decision in PAL v. Court of Appeals,[9] thus:
"The position taken by PAL in this case clearly illustrates its failure to grasp the
exacting standard required by law. Undisputably, PAL’s diversion of its flight due
to inclement weather was a fortuitous event. Nonetheless, such occurrence did
not terminate PAL’s contract with its passengers. Being in the business of air
carriage and the sole one to operate in the country, PAL is deemed equipped to
deal with situations as in the case at bar. What we said in one case once again
must be stressed, i.e., the relation of carrier and passenger continues until the
latter has been landed at the port of destination and has left the carrier’s
premises. Hence, PAL necessarily would still have to exercise extraordinary
diligence in safeguarding the comfort, convenience and safety of its stranded
passengers until they have reached their final destination. On this score, PAL
grossly failed considering the then ongoing battle between government forces
and Muslim rebels in Cotabato City and the fact that the private respondent was a
stranger to the place."
The reliance is misplaced. The factual background of the PAL case is different
from the instant petition. In that case there was indeed a fortuitous event
resulting in the diversion of the PAL flight. However, the unforeseen diversion
was worsened when "private respondents (passenger) was left at the airport and
could not even hitch a ride in a Ford Fiera loaded with PAL personnel," [10] not to
mention the apparent apathy of the PAL station manager as to the predicament
of the stranded passengers.[11] In light of these circumstances, we held that if the
fortuitous event was accompanied by neglect and malfeasance by the carrier’s
employees, an action for damages against the carrier is permissible.
Unfortunately, for private respondents, none of these conditions are present in
the instant petition.
We are not prepared, however, to completely absolve petitioner JAL from any
liability. It must be noted that private respondents bought tickets from the United the private respondents nominal damages in the sum of P100,000.00 each
States with Manila as their final destination. While JAL was no longer required to including attorney’s fees of P50,000.00 plus costs.
defray private respondents’ living expenses during their stay in Narita on account
of the fortuitous event, JAL had the duty to make the necessary arrangements to SO ORDERED.
transport private respondents on the first available connecting flight to Manila.
Petitioner JAL reneged on its obligation to look after the comfort and convenience
of its passengers when it declassified private respondents from "transit
passengers" to "new passengers" as a result of which private respondents were
obliged to make the necessary arrangements themselves for the next flight to
Manila. Private respondents were placed on the waiting list from June 20 to June
24. To assure themselves of a seat on an available flight, they were compelled to
stay in the airport the whole day of June 22, 1991 and it was only at 8:00 p.m. of
the aforesaid date that they were advised that they could be accommodated in
said flight which flew at about 9:00 a.m. the next day.

We are not oblivious to the fact that the cancellation of JAL flights to Manila from
June 15 to June 21, 1991 caused considerable disruption in passenger booking
and reservation. In fact, it would be unreasonable to expect, considering NAIA’s
closure, that JAL flight operations would be normal on the days affected.
Nevertheless, this does not excuse JAL from its obligation to make the necessary
arrangements to transport private respondents on its first available flight to
Manila. After all, it had a contract to transport private respondents from the
United States to Manila as their final destination.

Consequently, the award of nominal damages is in order. Nominal damages are

adjudicated in order that a right of a plaintiff, which has been violated or invaded
by the defendant, may be vindicated or recognized and not for the purpose of
indemnifying any loss suffered by him.[12] The court may award nominal damages
in every obligation arising from any source enumerated in Article 1157, or in
every case where any property right has been invaded. [13]

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated
December 22, 1993 is hereby MODIFIED. The award of actual, moral and
exemplary damages is hereby DELETED. Petitioner JAL is ordered to pay each of
39