Spouses Fabre v CA
However, the bridge at Carmen was under repair, so that petitioner Cabil,
I. Recit-ready summary
Spouses Fabre owns a Mazda minibus that they use as a bus service for
school children in Manila. Cabil was hired by the spouses as its driver. Word
for World Christian Fellowship Inc. (WWCF) made a transportation
arrangement with spouses Fabre where the latter would transport the 33
members of the former’s Young Adults Ministry from Manila to La Union and
back in the amount of P3,000.00.
A car crash ensued allegedly due to the negligence of Cabil. Several
passengers were injured. A criminal complaint was filed against Cabil where
spouses Fabre were held to be jointly liable due to breach of contract of
carriage, under Arts. 1733, 1755 and 1759 of the Civil Code. Spouses Fabre
contended that these Civil Code provisions on common carriers are not
applicable to them for they are not engaged in the business of public
transportation.
The issue before the Court is whether or not spouses Fabre are common
carriers. The Court ruled in the affirmative.
The Court held that this case actually involves a contract of carriage. The
Fabres did not have to be engaged in the business of public transportation
for the provisions of the Civil Code on common carriers to apply to them. As
this Court has held: Art. 1732, Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation, offering
their services to the public.
II. Facts of the case
Engracio Fabre, Jr. and his wife were owners of a Mazda minibus. They used
the bus principally in connection with a bus service for school children which
they operated in Manila. The couple hired Porfirio Cabil as the driver after
trying him for 2 weeks.
Private respondent Word for the World Christian Fellowship Inc. (WWCF) had
an arrangement with the Fabres for the transportation of 33 members of its
Young Adults Ministry from Manila to La Union and back in the amount of
P3,000.00.
The usual route to Caba, La Union was through Carmen, Pangasinan.
who was unfamiliar with the area (it being his first trip to La Union), was
forced to take a detour through the town of Ba-ay in Lingayen, Pangasinan.
At 11:30 that night, Cabil came upon a sharp curve on the highway. As it was
raining, the road was slippery causing the bus, which was running at the
speed of 50 kph, to skid to the left road shoulder. The bus hit the left traffic
steel brace and sign along the road, rammed a fence then turned over and
landed on its left side, coming to a full stop only after a series of impacts. A
coconut tree which it had hit fell on it and smashed its front portion. Because
of the mishap, several passengers were injured.
A criminal complaint was filed against the Cabil and the Spouses Fabres were
also made jointly liable for breach of contract of carriage. Spouses Fabre on
the other hand contended that they are not liable since they are not engaged
in the business of public transportation, making the Civil Code provisions on
common carriers inapplicable to them.
III. Issue
Whether or not the spouses Fabre are common carriers?
IV. Ratio/Legal Basis
Yes. Spouses Fabre are common carriers.
The Supreme Court held that this case actually involves a contract of carriage.
The Fabres did not have to be engaged in the business of public
transportation for the provisions of the Civil Code on common carriers to
apply to them. As this Court has held: Art. 1732, Common carriers are
persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air
for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business
activity is the carrying of persons or goods or both, and one who does such
carrying only as an ancillary activity (in local idiom, as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled basis and
one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1732 deliberately refrained from making
such distinctions.
V. Disposition
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION as to award of damages.
Petitioners are ORDERED to PAY jointly and severally the private respondent
Amyline Antonio the following amounts:
1) P93,657.11 as actual damages;
2) P500,000.00 as the reasonable amount of loss of earning capacity of
plaintiff Amyline Antonio;
3) P20,000.00 as moral damages;
4) P20,000.00 as exemplary damages;
5) 25% of the recoverable amount as attorney's fees; and
6) costs of suit.
SO ORDERED.
VI. Notes
Article 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the former’s employees,
although such employees may have acted beyond the scope of their
authority or in violation of the orders of the common carriers. This liability of
the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their
employees.
Calvo v UCPB
I. Recit-ready summary
Virgines Calvo is the owner of Transorient Container Terminal Services, Inc.
(TCTSI), entered into a contract with San Miguel Corporation (SMC) for the
transfer of paper and kraft liner board. The cargo was insured by UCPB.
However, when the goods arrived at the destination and were inspected,
some were damaged and hence, SMC collected payment from UCPB under
the insurance contract. UCPB likewise filed a claim against Calvo/Transorient.
RTC rendered Calvo/Transorient liable for the damage to the shipment.
Is Transorient Container Terminal Services, Inc. a common carrier? YES.
Transorient is a common carrier because the transportation of goods is an
integral part of her business. To uphold Calvo's contention that she is not a
common carrier but a private carrier because, as a customs broker and
warehouseman, she does not indiscriminately hold her services out to the
public but only offers the same to select parties with whom she may contract
in the conduct of her business, would be to deprive those with whom she
contracts the protection which the law affords them notwithstanding the fact
that the obligation to carry goods for her customers, as already noted, is part
and parcel of petitioner's business.
As a common carrier, she is bound to observe extraordinary diligence in the
carriage of goods; that to prove extraordinary diligence, Calvo must do more
than merely show the possibility that some other party could be responsible
for the damage; and that improper packing of the goods could be a basis to
exempt petitioner from liability, but petitioner accepted the cargo without
exception despite the apparent defects in some of the container vans.
II. Facts of the case
Virgines Calvo doing business under Transorient Container Terminal Services,
Inc.
Virgines Calvo is the owner of Transorient Container Terminal Services,
Inc. (TCTSI), a sole proprietorship customs broker. Calvo entered into a
contract with San Miguel Corporation (SMC) for the transfer of 114 reels of
semi-chemical Nuting paper and 124 reels of kraft liner board from the Port
Area in Manila to SMC's warehouse at the Tabacalera Compound, Romualdez
St., Ermita, Manila. The cargo was insured by UCPB General Insurance Co.
The shipment in question contained in 30 metal vans, arrived in Manila on
board "M/V Hayakawa Maru" and, after 24 hours, were unloaded from the
vessel to the custody of the arrastre operator, Manila Port Services, Inc.
Pursuant to her contract with SMC, Calvo withdrew the cargo from the
arrastre operator and delivered it to SMC's warehouse. The goods were
inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-
chemical Nuting paper were "wet/stained/torn" and 3 reels of kraft liner
board were likewise torn. The damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract
for the aforementioned amount. In turn, UCPB, as subrogee of SMC, brought
suit against Calvo in the Regional Trial Court. RTC rendered judgment finding
Calvo liable to respondent for the damage to the shipment. CA affirmed.
 Calvo contends that contrary to the findings of the trial court and the Court
of Appeals, she is not a common carrier but a private carrier because, as a
customs broker and warehouseman, she does not indiscriminately hold her
services out to the public but only offers the same to select parties with
whom she may contract in the conduct of her business.
III. Issue
Is Transorient Container Terminal Services, owned by Calvo a common
carrier?
IV. Ratio/Legal Basis
In De Guzman v. Court of Appeals, the Court dismissed a similar contention
and held the party to be a common carrier, thus —
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 . . . Article 1732
also carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We
think that Article 1732 deliberately refrained from making such
distinctions. 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. . . .
There is greater reason for holding petitioner to be a common carrier
because the transportation of goods is an integral part of her business. To
uphold petitioner's contention would be to deprive those with whom she
contracts the protection which the law affords them notwithstanding the fact
that the obligation to carry goods for her customers, as already noted, is part
and parcel of petitioner's business.
As to Calvo's liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
...
In Compania Maritima v. Court of Appeals, the meaning of "extraordinary
diligence in the vigilance over goods" was explained thus:
The extraordinary diligence in the vigilance over the goods tendered
for shipment requires the common carrier to know and to follow the
required precaution for avoiding damage to, or destruction of the
goods entrusted to it for sale, carriage and delivery. It requires
common carriers to render service with the greatest skill and
foresight and "to use all reasonable means to ascertain the nature
and characteristic of goods tendered for shipment, and to exercise
due care in the handling and stowage, including such methods as
their nature requires."
Contrary to Calvo's assertion, the Survey Report (Exh. H) of the Marine Cargo
Surveyors indicates that when the shipper transferred the cargo in question
to the arrastre operator, these were covered by clean Equipment Interchange
Report (EIR) and, when Calvo's employees withdrew the cargo from the
arrastre operator, they did so without exception or protest either with regard
to the condition of container vans or their contents.
Anent Calvo's insistence that the cargo could not have been damaged while
in her custody as she immediately delivered the containers to SMC's
compound, suffice it to say that to prove the exercise of extraordinary
diligence, petitioner must do more than
merely show the possibility that some other party could be responsible for
the damage. It must prove that it used "all reasonable means to ascertain the
nature and characteristic of
goods tendered for [transport] and that [it] exercise[d] due care in the
handling [thereof]." Calvo failed to do this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which
provides —
Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the
following causes only:
xxx xxx xxx
(4) The character of the goods or defects in the packing or in the
containers.
xxx xxx xxx
For this provision to apply, the rule is that if the improper packing or, in this
case, the defect/s in the container, is/are known to the carrier or his
employees or apparent upon
ordinary observation, but he nevertheless accepts the same without protest
or exception notwithstanding such condition, he is not relieved of liability for
damage resulting therefrom. In this case, petitioner accepted the cargo
without exception despite the
apparent defects in some of the container vans. Hence, for failure of
petitioner to prove that she exercised extraordinary diligence in the carriage
of goods in this case or that she is exempt from liability, the presumption of
negligence as provided under Art. 1735 holds.
V. Disposition
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.
VI. Notes
Guzman v CA
PETITIONER: Pedro De Guzman
RESPONDENT: CA and Ernesto Cendaña
Recit-ready summary
Ernesto Cendaña is a junk dealer and owned and used 2 six-wheeler trucks
for hauling material to Manila. On the return trip to Pangasinan, he would
load his vehicles with cargo which various merchants wanted delivered to
differing establishments in Pangasinan. For that service, he charged freight
rates that are lower than the regular commercial rates. Petitioner de Guzman,
a merchant and dealer of General Milk Company contracted respondent for
hauling 750 cartons of Liberty filled milk from a warehouse of General Milk in
Makati.
Only 150 boxes were delivered to petitioner. The other 600 in the other truck
was hijacked somewhere along MarArthur Highway in Paniqui Tarlac by
armed men who took with them the truck, its driver, his helper and cargo.
Petitioner filed an action demanding payment of P22,150 and that private
respondent, as a common carrier, failed to exercise extraordinary diligence
required of him by law and should be held liable for the undelivered goods.
Private respondent denied that he’s a common carrier and said that such the
lost goods was due to a force majeure.
W/N Respondent Cendaña is a common carrier? Yes. But he is not liable
because the hijacking of the truck is considered as force majeure.
The Court ruled that private respondent is 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
(see Sec. 13 of Public Service Act in ruling).
Under Article 1745 (6) [RULING], a common carrier is held responsible — and
will not be allowed to divest or to diminish such responsibility — even for
acts of strangers like thieves or robbers, except where such thieves or robbers
in fact acted "with grave or irresistible threat, violence or force."
We believe and so hold that the limits of the duty of extraordinary diligence
in the vigilance over the goods carried are reached where the goods are lost
as a result of a robbery which is attended by "grave or irresistible threat,
violence or force."
In the instant case, armed men held up the second truck owned by private
respondent which carried petitioner's cargo. 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.
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.
FACTS:
Ernesto Cendaña is a junk dealer engage in buying up used bottles and scrap
metal in Pangasinan. Once he gathered sufficient scarp metal, he would bring
the material to Manila for resale.
He owned and used 2 six-wheeler trucks for hauling the material to Manila.
On the return trip to Pangasinan, he would load his vehicles with cargo which
various merchants wanted delivered to differing establishments in
Pangasinan. For that service, he charged freight rates that are lower than the
regular commercial rates.
Petitioner de Guzman, a merchant and dealer of General Milk Company
contracted respondent for hauling 750 cartons of Liberty filled milk from a
warehouse of General Milk in Makati, Rizal, to petitioner’s establishment in
Urdaneta before Dec. 4 1970.
On Dec. 1 1970, respondent loaded in Makati the merchandise on his trucks.
150 cartons were loaded on a truch driven by respondent while 600 cartons
were on board the other truck driven by Manuel Estrada, petitioner’s driver
and employee.
Only 150 boxes were delivered to petitioner. The other 600 in the other truck
was hijacked somewhere along MarArthur Highway in Paniqui Tarlac by
armed men who took with them the truck, its driver, his helper and cargo.
Petitioner filed an action demanding payment of P22,150 – value of the lost
merchandise plus damages. He argued that given that private respondent is
common carrier failed to exercise extraordinary diligence required of him by
law and should be held liable for the undelivered goods.
Private respondent denied that he’s a common carrier and said that such the
lost goods was due to a force majeure.
Trial Court found private respondent to be a common carrier and liable for
the value of the undelivered goods.
CA held that respondent is not a common carrier because the transporting of
return loads of freight as a “casual occupation – a sideline to his scrap iron
business. It also ordered that the hijacking incident is force majeure and that
respondent is not liable for the value of the lost goods.
Petitioner filed a Petition for Review.
ISSUE:
W/N Respondent Cendaña is a common carrier?
RULING:
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 which
at least partially supplements the law on common carriers set forth in the
Civil Code. In Section 13, (b) of the Public Service Act, "public service"
includes:
". . . every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or limited
clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway,
traction railway, subway motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its classification,
freight or carrier service of any class, express service, steamboat, or steamship
line, pontines, ferries and water craft, engaged in the transportation of
passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice
plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power petroleum, sewerage system, wire or
wireless communications systems, wire or wireless broadcasting stations and
other similar public services . . ." (Emphasis supplied)
The Court ruled that private respondent is 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 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. 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.
Common carriers, "by the nature of their business and for reasons of public
policy," are held to a very high degree of care and diligence ("extraordinary
diligence") in the carriage of goods as well as of passengers.
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;
5. Order or act of competent public authority.
Causes falling outside the foregoing list, even if they appear to constitute a
species of force majeure, fall within the scope of Article 1735, which
provides as follows:
"In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as required
in Article 1733."
Applying the above-quoted Articles 1734 and 1735, 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.
Court does not believe that the extraordinary diligence required private
respondent to retain a security guard to ride with the truck and to engage
brigands in a fire fight at the risk of his own life and the lives of the driver and
his helper (as petitioner would argue).
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 in relevant part:
Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
(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."
Under Article 1745 (6) above, a common carrier is held responsible — and
will not be allowed to divest or to diminish such responsibility — even for
acts of strangers like thieves or robbers, except where such thieves or robbers
in fact acted "with grave or irresistible threat, violence or force."
We believe and so hold that the limits of the duty of extraordinary diligence
in the vigilance over the goods carried are reached where the goods are lost
as a result of a robbery which is attended by "grave or irresistible threat,
violence or force."
In the instant case, armed men held up the second truck owned by private
respondent which carried petitioner's cargo. The record shows that an
information for robbery in band was filed in the Court. There, the accused
were charged with willfully and unlawfully taking and carrying away with
them the second truck, driven by Manuel Estrada and loaded with the 600
cartons of Liberty filled milk destined for delivery at petitioner's store in
Urdaneta, Pangasinan.
 The decision of the trial court shows that the accused acted with grave, if not
irresistible, threat, violence or force. Three (3) of the (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.
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 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.
Disposition
Petition for Review is DENIED. CA decision AFFIRMED.
Notes
Article 1732* makes no distinction between one whose principal business
activity is carrying of persons or goods or both and one who does such
carrying only as an ancillary activity (aka sideline). It 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.
Bascos v CA
I. Recit ready
Jibfair Shipping Agency engaged the services of Ciptrade for the hauling of
the soya bean meal from Manila to Laguna. To fulfill its obligations, Ciptrade
subcontracted with Estrellita Bascos for the transport and delivery of the soya
bean meal.
Bascos, however, failed to deliver the cargo from Manila to Laguna. Ciptrade
paid Jibfair the amount of the lost goods. Thereafter, Ciptrade went after
Bascos to demand reimbursement from Bascos. Bascos refused to pay
because 1) there was no contract of carriage, only a contract of lease of the
truck and 2) there was a hijacking incident which should be considered as a
force majeure enough to exculpate Bascos from liability.
The RTC and CA both ruled in favor of Ciptrade and ordered Bascos to pay
Ciptrade actual damages.
Issue: Is Bascos is a common carrier? (YES)
The SC held that YES, it is. The test to determine a common carrier is
"whether the given undertaking is a part of the business engaged in by the
carrier which he has held out to the general public as his occupation rather
than the quantity or extent of the business transacted." In this case, petitioner
has made the admission that she was in the trucking business, offering her
trucks to those with cargo to move. Judicial admissions are conclusive and no
evidence is required to prove the same. As to the issue of hijacking, the SC
held that it is not force majeure. As such, the presumption of negligence
stands against Bascos. It was therefore Bascos’ burden to overcome it. As
held by the RTC and CA, the affidavits presented by Bascos were not enough
to overcome said presumption.
Doctrine: Art. 1732 did not 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.
II. Facts of the case
CIPTRADE (a hauling business) entered into a hauling contract with JIBFAIR
Shipping Agency --- Ciptrade bound itself to haul soya bean meals from
Manila to Laguna. In carrying out its obligation with JIBFAIR, Ciptrade
subcontracted with Estelita Bascos of BASCOS TRUCKING to deliver the
aforementioned soya bean meals (400 sacks worth P156k)
Bascos failed to deliver the cargo. This forced Ciptrade to pay JIBFAIR the
amount of the lost goods. Ciptrade then demanded reimbursement from
Bascos, who in turn refused to pay. Ciptrade was forced to file a collection
suit with damages for breach of contract of carriage.
Bascos defense:
(1) No contract of carriage since Ciptrade leased the cargo-truck to load
the soya bean meals.
(2) Said truck was hijacked along Paco, Manila and was rported to
Ciptrade.
(3) With the help of the police, Bascos exerted all efforts to locate the
hijacked properties. (a criminal information was filed against
suspects)
(4) Hijacking, a force majeure, absolved Bascos from liability to Ciptrade
RTC ruled against Bascos. CA Affirmed. Records show that BASCOS admitted
in its answer that she did business under the name “A.M. Bascos Trucking”.
Furthermore, the lower courts appreciated the following proof that BASCOS
was a common carrier:
(1) A receipt signed by the truck driver evidencing that he carried a
cargo consisting 400 bags of soya bean meal.
(2) The truck ‘helper’ was an employee of BASCOS
(3) Control of the cargo was placed under BASCOS’ care.
In its appeal, Bascos argues that the contract b/w she and Ciptrade was a
lease – evidenced by certain affidavits referring to the contract as “lease”. She
further alleged that she did not cater to the general public, and that her main
business is offering trucks for lease to only those who have cargo to move.
III. Issue/s
1) Is BASCOS a common carrier? (YES)
2) Is the hijacking in this case a force majeure? (NO)
IV. Ratio/Legal Basis
1) BASCOS is a common carrier
The test to determine a common carrier is “whether the given undertaking is
a part of the business engaged in by the carrier which he has held out to
the general public as his occupation rather than the quantity or extent of
the business transacted.”
In this case, Bascos had already made an admission that she was in the
trucking business, offering her trucks to those with cargo to move. Judicial
admissions are conclusive and no evidence is required to prove the same.
As to the contention that Bascos’ services are offered only to a select group
of people --- The SC cited De Guzman v. CA in ruling that NCC1732 makes no
distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on occasional,
episodic or unscheduled basis. Neither does it distinguish between a carrier
offering its service to the ‘general public’ and one who offers services
business only from a narrow segment. NCC1732 deliberately refrained from
making such distinction.
As to the contract of lease ---the affidavits that referred to the contract as
that of a “lease” were not sufficient to prove the same. A contract is what the
law defines it to be, not what it is called by the contracting parties.
2) Hijacking not considered a force majeure in this case
Common carriers are obliged to observe extraordinary diligence in the
vigilance over the goods transported by them. Accordingly, they are
presumed to have been at fault or to have acted negligently if the goods
are lost, destroyed or deteriorated. There are very few instances when the
presumption of negligence does not attach and these instances are
enumerated in NCC1734. In those cases where the presumption is applied,
the common carrier must prove that it exercised extraordinary diligence
in order to overcome the presumption. The presumption of negligence
was raised against petitioner. It was petitioner's burden to overcome it. Thus,
contrary to Bascos’ assertion, private respondent Ciptrade need not introduce
any evidence to prove Bascos’ negligence. Her own failure to adduce
sufficient proof of extraordinary diligence made the presumption
conclusive against her.
Hijacking. In De Guzman vs. CA, the SC held that hijacking, not being
included in the provisions of NCC1734, must be dealt with under the
provisions of NCC1735 and thus, the common carrier is presumed to have
been at fault or negligent.
To exculpate the carrier from liability arising from hijacking, he must prove
that the robbers or the hijackers acted with grave or irresistible threat,
violence, or force. This is in accordance with NCC1745 of the Civil Code which
provides: "Art. 1745. Any of the following or similar stipulations shall be
considered unreasonable, unjust and contrary to public policy. (6) That the
common carrier's liability for acts committed by thieves, or of robbers who
do not act with grave or irresistible threat, violences or force, is dispensed
with or diminished"; In the same case, the SC also held that: "Under NCC1745
(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 of irresistible threat, violence of 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."
V. Disposition
Petition DISMISSED. CA decision affirmed.
VI. Notes
FGU Insurance v Sarmiento
- GPS is a private carrier, exclusively servicing Concepcion
Industries. However, it may still be held liable for a breach of
contract.
I. Recit-ready summary
Respondent G.P. Sarmiento trucking company (GTS) undertook to
transport cargoes for Concepcion Industries, Inc. when it collided with
an unidentified truck, causing damage to the cargoes. Petitioner, FGU,
insurer of the shipment, paid to Concepcion Industries the value of the
covered cargoes. Then, as subrogee of Concepcion Industries, Inc., petitioner
FGU sued GPS for breach of contract of carriage for reimbursement.
Instead of filing an answer, GPS filed a demurrer to evidence, claiming that it
cannot be held liable as a common carrier because it was only a private
carrier, being the exclusive hauler only of Concepcion Industries, Inc.
since 1988.
The lower court granted the motion, ruling that plaintiff FGU failed to prove
that GPS is a common carrier. The CA affirmed the trial court's order.
Is GPS liable for breach of contract as a common carrier? No
On appeal, the Supreme Court held; that GPS cannot be considered a
common carrier as it renders service exclusively to Concepcion
Industries; that notwithstanding, GPS cannot escape from liability since in
culpa contractual, mere proof of the existence of the contract and the
failure of its compliance justify prima facie a corresponding right of
relief. Respondent driver, however, who is not a party to the contract of
carriage, may not be held liable under the agreement without concrete proof
of his negligence or fault.
Hence, the Supreme Court affirmed the assailed order of the trial court and
the CA insofar as the respondent driver was concerned but GPS trucking
company was ordered to pay the petitioner FGU the value of the damaged
and lost cargoes.
II. Facts of the case
G.P. Sarmiento Trucking Corporation (GPS) undertook to 30 units of
Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by
Eroles, from the plant site of Concepcion Industries, Inc. (Metro Manila) to
the Central Luzon Appliances (Dagupan City). While the truck was
traversing the north diversion road along McArthur highway in Tarlac, it
collided with an unidentified truck, causing it to fall into a deep canal,
resulting in damage to the cargoes.
FGU Insurance Corporation, an insurer of the shipment, paid to
Concepcion Industries, Inc., the value of the covered cargoes in the sum of
P204,450.00. FGU, in turn, being the subrogee of the rights and interests of
Concepcion Industries, Inc., sought reimbursement of the amount it had
paid to the latter from GPS. Since the trucking company failed to heed the
claim, FGU filed a complaint for damages and breach of contract of carriage
against GPS and its driver Eroles with the RTC of Makati. In its answer, GPS
asserted that it was the exclusive hauler only of Concepcion Industries, Inc.,
since 1988, and it was not so engaged in business as a common carrier. FGU
further claimed that the cause of damage was purely accidental.
FGU presented evidence establishing the extent of damage to the cargoes
and the amount it had paid to the assured. GPS filed a motion to dismiss the
complaint by way of demurrer to evidence on the ground that FGU had failed
to prove that it was a common carrier.
The trial court granted the motion to dismiss noting that FGU did not present
any single evidence that would prove that GPS is a common carrier.
Evidence for the FGU shows no proof that defendant was violating any traffic
regulation. Hence, the presumption of negligence is not obtaining.
Considering that plaintiff failed to adduce evidence that GPS is a common
carrier and its driver was the one negligent, defendant cannot be made liable
for the damages of the subject cargoes."
The Court of Appeals rejected the appeal of FGU and ruled in favor of GPS
holding that the dismissal of the FGU’s complaint by the trial court is justified.
Hence, the instant petition.
III. Issue/s
1. Whether respondent GPS may be considered as a common carrier as
defined under the law and existing jurisprudence. – NO.
2. Whether respondent GPS, either as a common carrier or a private carrier,
may be presumed to have been negligent when the goods it undertook
to transport safely were subsequently damaged while in its protective
custody and possession. – YES.
3. Whether the doctrine of res ipsa loquitur is applicable in the instant
case. – NO to GPS, YES to driver.
IV. Ratio/Legal Basis
On Being a Common Carrier
The Court finds the conclusion of the trial court and the Court of Appeals to
be amply justified. GPS, being an exclusive contractor and hauler of
Concepcion Industries, Inc., rendering or offering its services to no other
individual or entity, cannot be considered a common carrier. The true
test of a common carrier is the carriage of passengers or goods,
providing space for those who opt to avail themselves of its
transportation service for a fee. Given accepted standards, GPS scarcely
falls within the term "common carrier."
2. The above conclusion notwithstanding, GPS cannot escape from liability.
In culpa contractual, upon which the action of petitioner rests as being the
subrogee of Concepcion Industries, Inc., the mere proof of the existence of
the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory force of
contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the
tenor thereof. A breach upon the contract confers upon the injured party a
valid cause for recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promisee that may include his
"expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the
contract been performed, or his "reliance interest," which is his interest in
being reimbursed for loss caused by reliance on the contract by being put in
as good a position as he would have been in had the contract not been
made; or his "restitution interest," which is his interest in having restored to
him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers or for
society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make recompense to the one
who has been injured by the failure of another to observe his contractual
obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence (normally that of the diligence of a good father of
a family or, exceptionally by stipulation or by law such as in the case of
common carriers, that of extraordinary diligence) or of the attendance of
fortuitous event, to excuse him from his ensuing liability.
Respondent trucking corporation recognizes the existence of a contract
of carriage between it and petitioner's assured, and admits that the
cargoes it has assumed to deliver have been lost or damaged while in its
custody. In such a situation, a default on, or failure of compliance with, the
obligation — in this case, the delivery of the goods in its custody to the place
of destination — gives rise to a presumption of lack of care and
corresponding liability on the part of the contractual obligor the burden
being on him to establish otherwise. GPS has failed to do so.
. WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court,
Respondent driver, on the other hand, without concrete proof of his
negligence or fault, may not himself be ordered to pay petitioner. The driver,
not being a party to the contract of carriage between petitioner's principal
and defendant, may not be held liable under the agreement.
3. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant
liable where the thing which caused the injury complained of is shown to be
under the latter's management and the accident is such that, in the ordinary
course of things, cannot be expected to happen if those who have its
management or control use proper care. It affords reasonable evidence, in
the absence of explanation by the defendant, that the accident arose
from want of care.
Res ipsa loquitur generally finds relevance whether or not a contractual
relationship exists between the plaintiff and the defendant, for the inference
of negligence arises from the circumstances and nature of the occurrence
and not from the nature of the relation of the parties. Nevertheless, the
requirement that responsible causes other than those due to defendant's
conduct must first be eliminated, for the doctrine to apply, should be
understood as being confined only to cases of pure (non-contractual) tort
since obviously the presumption of negligence in culpa contractual, as
previously so pointed out, immediately attaches by a failure of the covenant
or its tenor. In the case of the truck driver, whose liability in a civil action is
predicated on culpa acquiliana, while he admittedly can be said to have been
in control and management of the vehicle which figured in the accident, it is
not equally shown, however, that the accident could have been exclusively
due to his negligence, a matter that can allow, forthwith, res ipsa loquitur
work against him.
If a demurrer to evidence is granted but on appeal the order of dismissal is
reversed, the movant shall be deemed to have waived the right to present
evidence. Thus, respondent corporation may no longer offer proof to
establish that it has exercised due care in transporting the cargoes of the
assured so as to still warrant a remand of the case to the trial court.
V. Disposition
Branch 66, of Makati City, and the decision, dated 10 June 1999, of the Court
of Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is
concerned, but said assailed order of the trial court and decision of the
appellate court are REVERSED as regards G.P. Sarmiento Trucking
Corporation which, instead, is hereby ordered to pay FGU Insurance
Corporation the value of the damaged and lost cargoes in the amount of
P204,450.00. No costs.
First Phil Industrial v CA
I. Recit-ready summary
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 and renewed by the Energy
Regulatory Board in 1992. 
Payment of the local tax
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.
Petitioner argues that since he is a common carrier, he is exempt. The
Supreme Court ruled that the petitioner is EXEMPT. See Ratio.
Test to determine whether he is a common carrier
Art. 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as
a public employment, and must hold himself out as ready to engage in
the transportation of goods for person generally as a business and not
as a casual occupation;
2. He must undertake to carry goods of the kind to which his business
is confined;
3. He must undertake to carry by the method by which his business is
conducted and over his established roads; and
4. The transportation must be for hire.  In order not to hamper its operations, petitioner paid the tax under protest in
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:
II. Facts
Business tax refund
This petition for review on  certiorari  assails the Decision of the Court of
Appeals dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the
decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case
No. 4293, which DISMISSED petitioners' complaint for a business tax refund
imposed by the City of Batangas.
Petitioner is a GRANTEE of a pipeline concession under Republic Act No.
387, as amended, to contract, install and operate oil pipelines. The original
pipeline concession was granted in 1967 and renewed by the Energy
Regulatory Board in 1992. 
Payment of the local tax
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.
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.
the amount of P239,019.01 for the first quarter of 1993.
The letter protest against the local
On January 20, 1994, petitioner filed a letter-protest addressed to the
respondent City Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator
with a government concession granted under the Petroleum
Act. It is engaged in the business of transporting petroleum
products from the Batangas refineries, via pipeline, to Sucat
and JTF Pandacan Terminals. As such, our Company is exempt
 from paying tax on gross receipts under Section 133 of the
Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the
enumeration of contractors under Section 131, Paragraph (h)
of the Local Government Code. Therefore, the authority to
impose tax "on contractors and other independent
contractors" under Section 143, Paragraph (e) of the Local
Government Code does NOT include the power to levy on
transportation contractors.
The imposition and assessment cannot be categorized as a
mere fee authorized under Section 147 of the Local
Government Code. The said section limits the imposition of
fees and charges on business to such amounts as may be
commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for the
license fee, the imposition thereof based on gross receipts is
violative of the aforecited provision. The amount of
P956,076.04 (P239,019.01 per quarter) is not commensurate to
the cost of regulation, inspection and licensing. The fee is
already a revenue raising measure, and not a mere regulatory
imposition.
Denial of the City Treasurer
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.
Tax refund case at the RTC which was dismissed; RTC ruled that petitioner is
NOT a common carrier
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas
City a complaint for tax refund with prayer for writ of preliminary injunction
against respondents City of Batangas and Adoracion Arellano in her capacity
as City Treasurer.
On October 3, 1994, the trial court rendered a decision dismissing the
complaint, ruling in this wise:
1. That the exemption granted under Sec. 133 (j) encompasses
only common carriers  so as not to overburden the riding
public or commuters with taxes.  Plaintiff  is not a common
carrier, but a special carrier extending its services and facilities
to a single specific or "special customer" under a "special
contract."
2. The Local Tax Code of 1992 was basically enacted to give
more and effective local autonomy to local governments than
the previous enactments, to make them economically and
financially viable to serve the people and discharge their
functions with a concomitant obligation to accept certain
devolution of powers, . . . So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and contractors are
also taxed under Sec. 143 (e) and 151 of the Code.
Petitioner assailed the aforesaid decision before this Court  via  a petition for
review. On February 27, 1995, we referred the case to the respondent Court
of Appeals for consideration and adjudication. 
On November 29, 1995, the respondent court rendered a decision 11 affirming
the trial court's dismissal of petitioner's complaint. Petitioner's motion for
reconsideration was denied on July 18, 1996. 
III. Issue/s
Whether or not First Philippine is a common carrier
IV. Ratio/Legal Basis
There is merit in the petition.
Definition of A Common Carrier
A "common carrier" may be defined, broadly, as one who holds himself out
to the public as engaged in the business of transporting persons or property
from place to place, for compensation, offering his services to the public
generally.
Test to determine whether he is a common carrier
Art. 1732 of the Civil Code defines a "common carrier" as "any person,
corporation, firm or association engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying goods for others as
a public employment, and must hold himself out as ready to engage in
the transportation of goods for person generally as a business and not
as a casual occupation;
2. He must undertake to carry goods of the kind to which his business
is confined;
3. He must undertake to carry by the method by which his business is
conducted and over his established roads; and
4. The transportation must be for hire.  class, express service, steamboat, or steamship line, pontines, ferries
Based on the above definitions and requirements, there is no doubt that
petitioner is a common carrier. It is engaged in the business of transporting
or carrying goods,  i.e. petroleum products, for hire as a public employment. It
undertakes to carry for all persons indifferently, that is, to all persons who
choose to employ its services, and transports the goods by land and for
compensation. The fact that petitioner has a limited clientele does not
exclude it from the definition of a common carrier. In De Guzman vs. Court of
Appeals  16 we ruled that:
The above article (Art. 1732, Civil Code) makes no distinction between one
whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity (in local idiom, as
a "sideline"). Article 1732 . . . avoids making any distinction between a person
or enterprise offering transportation service on a  regular  or  scheduled
basis and one offering such service on an  occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its
services to the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a narrow segment
of the general population. We think that Article 1877 deliberately refrained
from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be
seen to coincide neatly with the notion of "public service," under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code.
Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
every person that now or hereafter may own, operate. manage, or
control in the Philippines, for hire or compensation, with general or
limited clientele, whether permanent, occasional or accidental, and
done for general business purposes, any common carrier, railroad,
street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any
and water craft, engaged in the transportation of  passengers or
freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system gas, electric light heat
and power, water supply and  power petroleum, sewerage system,
wire or wireless communications systems, wire or wireless
broadcasting stations and other similar public services. (Emphasis
Supplied)
Also, respondent's argument that the term "common carrier" as used in
Section 133 (j) of the Local Government Code refers only to common carriers
transporting goods and passengers through moving vehicles or vessels either
by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in
the Civil Code makes no distinction as to the means of transporting, as long
as it is by land, water or air. It does not provide that the transportation of the
passengers or goods should be by motor vehicle. In fact, in the United States,
oil pipe line operators are considered common carriers. 17
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
considered a "common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. — A pipe line shall have
the preferential right to utilize installations for the transportation of
petroleum owned by him, but is obligated to utilize the remaining
transportation capacity pro rata for the transportation of such other
petroleum as may be offered by others for transport, and to charge without
discrimination such rates as may have been approved by the Secretary of
Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility.
Pertinent portion of Article 7 thereof provides:
that everything relating to the exploration for and exploitation of
petroleum . . . and everything relating to the manufacture, refining, storage,
or transportation by special methods of petroleum, is hereby declared to be
a  public utility. (Emphasis Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common
carrier." In BIR Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is engaged only in
transporting petroleum products, it is considered a common carrier under
Republic Act No. 387 . . . . Such being the case, it is not subject to withholding
tax prescribed by Revenue Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a
"common carrier" and, therefore, exempt from the business tax as provided
for in Section 133 (j), of the Local Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
x x x           x x x          x x x
(j) Taxes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight
by hire and common carriers by air, land or water, except as
provided in this Code.
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.
Schmitz v Transport Venue
I. Recit Ready
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of
Ilyichevsk, Russia on board M/V "Alexander Saveliev" (a vessel of Russian
registry and owned by Black Sea) 545 hot rolled steel sheets in coil.
The cargoes, which were to be discharged at the port of Manila in favor of the
consignee, Little Giant Steel Pipe Corporation (Little Giant), were insured
against all risks with Industrial Insurance Company Ltd. (Industrial Insurance)
Schmitz Transport, whose services the consignee engaged to secure the
requisite clearances, to receive the cargoes from the shipside, and to deliver
them to its (the consignee's) warehouse at Cainta, Rizal, in turn engaged the
services of TVI to send a barge and tugboat at shipside.
TVI's tugboat "Lailani" towed the barge "Erika V" to shipside. By 7:00 p.m. also
of October 26, 1991, the tugboat, after positioning the barge alongside the
vessel, left and returned to the port terminal. At 9:00 p.m., arrastre operator
 Ocean Terminal Services Inc. commenced to unload 37 of the 545 coils from
the vessel unto the barge.
On October 27, 1991 during which the weather condition had become
inclement due to an approaching storm, the unloading unto the barge of the
37 coils was accomplished. No tugboat pulled the barge back to the pier,
however.
At around 5:30 a.m. of October 27, 1991, due to strong waves, the crew of the
barge abandoned it and transferred to the vessel. The barge pitched and
rolled with the waves and eventually capsized, washing the 37 coils into the
sea. At 7:00 a.m., a tugboat finally arrived to pull the already empty and
damaged barge back to the pier.
Little Giant thus filed a formal claim against Industrial Insurance which paid it
the amount of P5,246,113.11. Industrial Insurance later filed a complaint
against Schmitz Transport, TVI, and Black Sea through its representative
Inchcape (the defendants) before the RTC of Manila, for the recovery of the
amount it paid to Little Giant plus adjustment fees, attorney's fees, and
litigation expenses.
If there was negligence, whether liability for the loss may attach to Black Sea,
petitioner and TVI? Only Petitioner and TVI is liable
From a review of the records of the case, there is no indication that there was
greater risk in loading the cargoes outside the breakwater. As the defendants
proffered, the weather on October 26, 1991 remained normal with moderate
sea condition such that port operations continued and proceeded normally.
That no tugboat towed back the barge to the pier after the cargoes were
completely loaded by 12:30 in the morning is, however, a material fact which
the appellate court failed to properly consider and appreciate - the proximate
cause of the loss of the cargoes. Had the barge been towed back promptly to
the pier, the deteriorating sea conditions notwithstanding, the loss could have
been avoided. But the barge was left floating in open sea until big waves set in
at 5:30 a.m., causing it to sink along with the cargoes. The loss thus falls
outside the "act of God doctrine."
Contrary to petitioner's insistence, this Court, as did the appellate court, finds
that petitioner is a common carrier. For it undertook to transport the cargoes
from the shipside of "M/V Alexander Saveliev" to the consignee's warehouse at
Cainta, Rizal. As the appellate court put it, "as long as a person or corporation
holds [itself] to the public for the purpose of transporting goods as [a]
business, [it] is already considered a common carrier regardless if [it] owns the
vehicle to be used or has to hire one." That petitioner is a common carrier, the
testimony of its own Vice-President and General Manager Noel Aro that part of
the services it offers to its clients as a brokerage firm includes the
transportation of cargoes reflects so.
And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the
transportation of goods is an integral part of a customs broker, the customs
broker is also a common carrier. For to declare otherwise "would be to deprive
those with whom [it] contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for [its] customers,
is part and parcel of petitioner's business."
Not being a party to the service contract, Little Giant cannot directly sue TVI
based thereon but it can maintain a cause of action for negligence.
In the case of TVI, while it acted as a private carrier for which it was under no
duty to observe extraordinary diligence, it was still required to observe ordinary
diligence to ensure the proper and careful handling, care and discharge of the
carried goods.
TVI's failure to promptly provide a tugboat did not only increase the risk that
might have been reasonably anticipated during the shipside operation, but was
the proximate cause of the loss. A man of ordinary prudence would not leave
a heavily loaded barge floating for a considerable number of hours, at such a
precarious time, and in the open sea, knowing that the barge does not have
any power of its own and is totally defenseless from the ravages of the sea.
That it was nighttime and, therefore, the members of the crew of a tugboat
would be charging overtime pay did not excuse TVI from calling for one such
tugboat.
While petitioner sent checkers and a supervisoron board the vessel to counter-
check the operations of TVI, it failed to take all available and reasonable
precautions to avoid the loss. After noting that TVI failed to arrange for the
prompt towage of the barge despite the deteriorating sea conditions, it should
have summoned the same or another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable for the loss of
the cargoes. The following pronouncement of the Supreme Court is instructive:
The foundation of LRTA's liability is the contract of carriage and its obligation
to indemnify the victim arises from the breach of that contract by reason of its
failure to exercise the high diligence required of the common carrier. In the
discharge of its commitment to ensure the safety of passengers, a carrier may
choose to hire its own employees or avail itself of the services of an outsider or
an independent firm to undertake the task. In either case, the common carrier
is not relieved of its responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for
tort under the provisions of Article 2176 and related provisions, in conjunction
with Article 2180 of the Civil Code. 
As for Black Sea, its duty as a common carrier extended only from the time the
goods were surrendered or unconditionally placed in its possession and
received for transportation until they were delivered actually or constructively
to consignee Little Giant.
II. Facts of the case
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of
Ilyichevsk, Russia on board M/V "Alexander Saveliev" (a vessel of Russian
registry and owned by Black Sea) 545 hot rolled steel sheets in coil.
The cargoes, which were to be discharged at the port of Manila in favor of the
consignee, Little Giant Steel Pipe Corporation (Little Giant), were insured
against all risks with Industrial Insurance Company Ltd. (Industrial Insurance)
The vessel arrived at the port of Manila and the Philippine Ports Authority
(PPA) assigned it a place of berth at the outside breakwater at the Manila
South Harbor.
Schmitz Transport, whose services the consignee engaged to secure the
requisite clearances, to receive the cargoes from the shipside, and to deliver
them to its (the consignee's) warehouse at Cainta, Rizal, in turn engaged the
services of TVI to send a barge and tugboat at shipside.
On October 26, 1991, around 4:30 p.m., TVI's tugboat "Lailani" towed the
barge "Erika V" to shipside. By 7:00 p.m. also of October 26, 1991, the tugboat,
after positioning the barge alongside the vessel, left and returned to the port
terminal. At 9:00 p.m., arrastre operator Ocean Terminal Services Inc.
commenced to unload 37 of the 545 coils from the vessel unto the barge.
On October 27, 1991 during which the weather condition had become
inclement due to an approaching storm, the unloading unto the barge of the
37 coils was accomplished. No tugboat pulled the barge back to the pier,
however.
At around 5:30 a.m. of October 27, 1991, due to strong waves, the crew of the
barge abandoned it and transferred to the vessel. The barge pitched and
rolled with the waves and eventually capsized, washing the 37 coils into the
sea. At 7:00 a.m., a tugboat finally arrived to pull the already empty and
damaged barge back to the pier.
Little Giant thus filed a formal claim against Industrial Insurance which paid it
the amount of P5,246,113.11. Industrial Insurance later filed a complaint
against Schmitz Transport, TVI, and Black Sea through its representative
Inchcape (the defendants) before the RTC of Manila, for the recovery of the
amount it paid to Little Giant plus adjustment fees, attorney's fees, and
litigation expenses.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting
for its principal, consignee Little Giant, hence, the transportation contract was
by and between Little Giant and TVI.
III. Issue/s
Whether the loss of the cargoes was due to a fortuitous event, independent of
any act of negligence on the part of petitioner Black Sea and TVI? NO
If there was negligence, whether liability for the loss may attach to Black Sea,
petitioner and TVI? Only Petitioner and TVI is liable
IV. Legal Basis
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any
party from any and all liability arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which though foreseen, were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to comply
with his obligation, must be independent of human will; (2) it must be
impossible to foresee the event which constitute the caso fortuito, or if it can
be foreseen it must be impossible to avoid; (3) the occurrence must be such as
to render it impossible for the debtor to fulfill his obligation in any manner;
and (4) the obligor must be free from any participation in the aggravation of
the injury resulting to the creditor.
[T]he principle embodied in the act of God doctrine strictly requires that the act
must be occasioned solely by the violence of nature. Human intervention is to
be excluded from creating or entering into the cause of the mischief. When the
effect is found to be in part the result of the participation of man, whether due
to his active intervention or neglect or failure to act, the whole occurrence is
then humanized and removed from the rules applicable to the acts of God.
The appellate court, in affirming the finding of the trial court that human
intervention in the form of contributory negligence by all the defendants
resulted to the loss of the cargoes, held that unloading outside the breakwater,
instead of inside the breakwater, while a storm signal was up constitutes
negligence. It thus concluded that the proximate cause of the loss was Black
Sea's negligence in deciding to unload the cargoes at an unsafe place and
while a typhoon was approaching.
From a review of the records of the case, there is no indication that there was
greater risk in loading the cargoes outside the breakwater. As the defendants
proffered, the weather on October 26, 1991 remained normal with moderate
sea condition such that port operations continued and proceeded normally.
That no tugboat towed back the barge to the pier after the cargoes were
completely loaded by 12:30 in the morning is, however, a material fact which
the appellate court failed to properly consider and appreciate - the proximate
cause of the loss of the cargoes. Had the barge been towed back promptly to
the pier, the deteriorating sea conditions notwithstanding, the loss could have
been avoided. But the barge was left floating in open sea until big waves set in
at 5:30 a.m., causing it to sink along with the cargoes. The loss thus falls
outside the "act of God doctrine."
The proximate cause of the loss having been determined, who among the
parties is/are responsible therefor?
Contrary to petitioner's insistence, this Court, as did the appellate court, finds
that petitioner is a common carrier. For it undertook to transport the cargoes
from the shipside of "M/V Alexander Saveliev" to the consignee's warehouse at
Cainta, Rizal. As the appellate court put it, "as long as a person or corporation
holds [itself] to the public for the purpose of transporting goods as [a]
business, [it] is already considered a common carrier regardless if [it] owns the
vehicle to be used or has to hire one." That petitioner is a common carrier, the
testimony of its own Vice-President and General Manager Noel Aro that part of
the services it offers to its clients as a brokerage firm includes the
transportation of cargoes reflects so.
And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the
transportation of goods is an integral part of a customs broker, the customs
broker is also a common carrier. For to declare otherwise "would be to deprive
those with whom [it] contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for [its] customers,
is part and parcel of petitioner's business."
As for petitioner's argument that being the agent of Little Giant, any
negligence it committed was deemed the negligence of its principal, it does
not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of
the cargoes. In effecting the transportation of the cargoes from the shipside
and into Little Giant's warehouse, however, petitioner was discharging its own
personal obligation under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of
TVI as handler to provide the barge and the tugboat. In their Service
Contract, while Little Giant was named as the consignee, petitioner did not
disclose that it was acting on commission and was chartering the vessel for
Little Giant. Little Giant did not thus automatically become a party to the
Service Contract and was not, therefore, bound by the terms and conditions
therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI
based thereon but it can maintain a cause of action for negligence.
In the case of TVI, while it acted as a private carrier for which it was under no
duty to observe extraordinary diligence, it was still required to observe ordinary
diligence to ensure the proper and careful handling, care and discharge of the
carried goods.
TVI's failure to promptly provide a tugboat did not only increase the risk that
might have been reasonably anticipated during the shipside operation, but was
the proximate cause of the loss. A man of ordinary prudence would not leave
a heavily loaded barge floating for a considerable number of hours, at such a
precarious time, and in the open sea, knowing that the barge does not have
any power of its own and is totally defenseless from the ravages of the sea.
That it was nighttime and, therefore, the members of the crew of a tugboat
would be charging overtime pay did not excuse TVI from calling for one such
tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article
1739 of the Civil Code, prove that it exercised due diligence to prevent or
minimize the loss, before, during and after the occurrence of the storm in order
that it may be exempted from liability for the loss of the goods.
While petitioner sent checkers and a supervisoron board the vessel to counter-
check the operations of TVI, it failed to take all available and reasonable
precautions to avoid the loss. After noting that TVI failed to arrange for the
prompt towage of the barge despite the deteriorating sea conditions, it should
have summoned the same or another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable for the loss of
the cargoes. The following pronouncement of the Supreme Court is instructive:
The foundation of LRTA's liability is the contract of carriage and its obligation
to indemnify the victim arises from the breach of that contract by reason of its
failure to exercise the high diligence required of the common carrier. In the
discharge of its commitment to ensure the safety of passengers, a carrier may
choose to hire its own employees or avail itself of the services of an outsider or
an independent firm to undertake the task. In either case, the common carrier
is not relieved of its responsibilities under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for
tort under the provisions of Article 2176 and related provisions, in conjunction
with Article 2180 of the Civil Code. 
As for Black Sea, its duty as a common carrier extended only from the time the
goods were surrendered or unconditionally placed in its possession and
received for transportation until they were delivered actually or constructively
to consignee Little Giant.
Parties to a contract of carriage may, however, agree upon a definition of
delivery that extends the services rendered by the carrier. In the case at bar, Bill
of Lading No. 2 covering the shipment provides that delivery be made "to the
port of discharge or so near thereto as she may safely get, always afloat." The
delivery of the goods to the consignee was not from "pier to pier" but from the
shipside of "M/V Alexander Saveliev" and into barges, for which reason the
consignee contracted the services of petitioner. Since Black Sea had
constructively delivered the cargoes to Little Giant, through petitioner, it had
discharged its duty.
In fine, no liability may thus attach to Black Sea.
V. Dispositive Portion
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz
Transport & Brokerage Corporation, and Transport Venture Incorporation
jointly and severally liable for the amount of P5,246,113.11 with the
MODIFICATION that interest at SIX PERCENT per annum of the amount due
should be computed from the promulgation on November 24, 1997 of the
decision of the trial court.
VI. Notes
Crisostomo v CA
I. Recit-ready summary
Estela Crisostomo contracted the services of Caravan Travel and Tours
International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed "Jewels of Europe." Meriam Menor was
Caravan Travel’s ticketing manager. Menor went to her aunt's residence to
deliver Crisostomo's travel documents and plane tickets. Without checking
her travel documents, Crisostomo went to NAIA on Saturday, June 15, 1991,
to take the flight for the first leg of her journey from Manila to Hongkong. To
Crisostomo's dismay, she discovered that the flight she was supposed to take
had already departed the previous day. Subsequently, Menor prevailed upon
Crisostomo to take another tour — the "British Pageant." Upon Crisostomo's
return, she demanded from Caravan Travel the reimbursement of P61,421.70,
representing the difference between the sum she paid for "Jewels of Europe"
and the amount she owed Caravan Travel for the "British Pageant" tour.
Caravan Travel refused to reimburse the amount, contending it was non-
refundable. Crisostomo filed a complaint against Caravan Travel for breach of
contract of carriage and damages.
Whether or not Caravan Travel is a common carrier? NO
Whether or not Crisostomo is entitled to a refund? NO
Caravan Travel is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier.
Caravan Travel did not undertake to transport Crisostomo from one place to
another since its covenant with its customers is simply to make travel
arrangements in their behalf. Caravan Travel's services as a travel agency
include procuring tickets and facilitating travel permits or visas as well as
booking customers for tours. Since the contract between the parties is an
ordinary one for services, the standard of care required of Caravan Travel is
that of a good father of a family under Article 1173 of the Civil Code.
The test to determine whether negligence attended the performance of an
obligation is: 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 Court agrees that Menor was negligent and maintains that Crisostomo's
assertion is belied by the evidence on record. The date and time of departure
was legibly written on the plane ticket and the travel papers were delivered
two days in advance precisely so that Crisostomo could prepare for the trip. It
performed all its obligations to enable Crisostomo to join the tour and
exercised due diligence in its dealings with the latter.
II. Facts of the case
Estela L. Crisostomo contracted the services of Caravan Travel and Tours
International, Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed "Jewels of Europe." The package tour
included the countries of England, Holland, Germany, Austria, Liechtenstein,
Switzerland and France at a total cost of P74,322.70. Crisostomo was given a
5% discount because Crisostomo’s niece, Meriam Menor was Caravan Travel’s
ticketing manager.
Pursuant to said contract, Menor went to her aunt's residence on June 12,
1991 — a Wednesday — to deliver Crisostomo's travel documents and plane
tickets. Crisostomo, gave Menor the full payment for the package tour.
Menor then told her to be at the NAIA on Saturday, 2 hours before her flight
on board British Airways.
Without checking her travel documents, Crisostomo went to NAIA on
Saturday, June 15, 1991, to take the flight for the first leg of her journey from
Manila to Hongkong. To Crisostomor's dismay, she discovered that the flight
she was supposed to take had already departed the previous day. She
learned that her plane ticket was for the flight scheduled on June 14, 1991.
She thus called up Menor to complain.
Subsequently, Menor prevailed upon Crisostomo to take another tour — the
"British Pageant" — which included England, Scotland and Wales in its
itinerary. For this tour package, Crisostomo was asked anew to pay
US$785.00 or P20,881.00). She gave Caravan Travel US$300 or P7,980.00 as
partial payment and commenced the trip in July 1991.
Upon Crisostomo's return from Europe, she demanded from Caravan Travel
the reimbursement of P61,421.70, representing the difference between the
sum she paid for "Jewels of Europe" and the amount she owed Caravan
Travel for the "British Pageant" tour. Despite several demands, Caravan Travel
refused to reimburse the amount, contending that the same was non-
refundable. Crisostomo was thus constrained to file a complaint against
Caravan Travelfor breach of contract of carriage and damages.
III. Issue/s
Whether or not Caravan Travel is a common carrier? NO
Whether or not Crisostomo is entitled to a refund? NO
IV. Ratio/Legal Basis
By definition, a contract of carriage or transportation is one whereby a certain
person or association of persons obligate themselves to transport persons,
things, or news from one place to another for a fixed price. Such person or
association of persons are regarded as carriers and are classified as private or
special carriers and common or public carriers. A common carrier is defined
under Article 1732 of the Civil Code as persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water or air, for compensation, offering their
services to the public.
It is obvious from the above definition that Caravan Travel is not an entity
engaged in the business of transporting either passengers or goods and is
therefore, neither a private nor a common carrier. Caravan Travel did not
undertake to transport Crisostomo from one place to another since its
covenant with its customers is simply to make travel arrangements in their
behalf. Caravan Travel's services as a travel agency include procuring tickets
and facilitating travel permits or visas as well as booking customers for tours.
The nature of the contractual relation between Crisostomo and Caravan
Travel is determinative of the degree of care required in the performance of
the latter's obligation under the contract. For reasons of public policy, a
common carrier in a contract of carriage is bound by law to carry passengers
as far as human care and foresight can provide using the utmost diligence of
very cautious persons and with due regard for all the circumstances.
Since the contract between the parties is an ordinary one for services, the
standard of care required of Caravan Travel is that of a good father of a
family under Article 1173 of the Civil Code. This connotes reasonable care
consistent with that which an ordinarily prudent person would have observed
when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: 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 Court agrees that Menor was negligent and maintains that Crisostomo's
assertion is belied by the evidence on record. The date and time of departure
was legibly written on the plane ticket and the travel papers were delivered
two days in advance precisely so that Crisostomo could prepare for the trip. It
performed all its obligations to enable Crisostomo to join the tour and
exercised due diligence in its dealings with the latter.
The evidence on record shows that Caravan Travel exercised due diligence in
performing its obligations under the contract and followed standard
procedure in rendering its services to Crisostomo.
- BA Finance was ordered to pay the victims, it being the registered
owner of the truck. It matters not that the truck in question had been
leased to a certain Castro and was under the latter’s control. The
registered owner of any vehicle, even if not used for a public
service, should primarily be responsible to the public or to third
persons for injuries caused the latter while the vehicle is being
driven on the highways or streets

The plane ticket issued to Crisostomo clearly reflected the departure date and
I. Recit-ready summary
time. The travel documents, consisting of the tour itinerary, vouchers and
instructions, were likewise delivered to Crisostomo two days prior to the trip.
BA Finance owned a 10-wheeler truck and leased it to Rock
Caravan Travel also properly booked Crisostomo for the tour, prepared the
Component. The truck figured in an accident.
necessary documents and procured the plane tickets. It arranged
Rogelia Villa y Amare, the driver of the Isuzu ten-wheeler truck, was at
Crisostomo's hotel accommodation as well as food, land transfers and
fault for the accident, and he was found guilty beyond reasonable doubt
sightseeing excursions, in accordance with its avowed undertaking.
reckless imprudence resulting in triple homicide with multiple physical
injuries with damage to property. Petitioner BA Finance Corp was held
Needless to say, after the travel papers were delivered to Crisostomo, it
liable for damages as the truck was registered in its name during the
became incumbent upon her to take ordinary care of her concerns. This
incident. In the same breadth, Rock Component Philippines, Inc. was ordered
undoubtedly would require that she at least read the documents in order to
to reimburse BA Finance for any amount that the latter may be adjudged
assure herself of the important details regarding the trip.
liable to pay the victims due to a stipulation in their contract of lease.

In the case at bar, the evidence on record shows that Caravan Travel
The issue is whether BA Finance can be held responsible to the victims even if
performed its duty diligently and did not commit any contractual breach.
the truck was leased when the incident occurred? YES.
Hence, Crisostomo cannot recover and must bear her own damage.

The registered owner of a certificate of public convenience is liable to

V. Disposition
the public for the injuries or damages suffered by passengers or third
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of
persons caused by the operation of said vehicle, even though the same
the Court of Appeals in CA-G.R. CV No. 51932 is AFFIRMED. Accordingly,
had been transferred to a third person. The principle upon which this
petitioner is ordered to pay respondent the amount of P12,901.00
doctrine is based is that in dealing with vehicles registered under the
representing the balance of the price of the British Pageant Package Tour,
Public Service Law, the public has the right to assume or presume that
with legal interest thereon at the rate of 6% per annum, to be computed from
the registered owner is the actual owner thereof, for it would be difficult
the time the counterclaim was filed until the finality of this Decision. After this
for the public to enforce the actions that they may have for injuries caused to
Decision becomes final and executory, the rate of 12% per annum shall be
them by the vehicles being negligently operated if the public should be
imposed until the obligation is fully settled, this interim period being deemed
required to prove who the actual owner is.
to be by then an equivalent to a forbearance of credit.

II. Facts of the case

BA Finance v CA
 Rogelia Villar y Amare, the driver of the Isuzu ten-wheeler truck, was at
fault for the accident, and he was found guilty beyond reasonable doubt
reckless imprudence resulting in triple homicide with multiple physical
injuries with damage to property by RTC Bulacan. Petitioner BA Finance Corp.
was held liable for damages as the truck was registered in its name during
the incident. In the same breadth, Rock Component Philippines, Inc. was
ordered to reimburse BA Finance for any amount that the latter may be
adjudged liable to pay respondents Carlos Ocampo, Moises Ocampo,
Nicolas Cruz and Inocencio Turla, Sr. (victims/plaintiffs) or their heirs. This is
because the reimbursement is expressly stipulated in the contract of
lease between BA Finance and Rock Component. Moreover, the trial court
applied Article 2194 of the new Civil Code to both of them on solidary
accountability of joint tortfeasors insofar as the liability of the driver.
BA Finance argues that it was not the employer of the negligent
driver, the driver was under the control and supervision of Lino Castro at
the time of the accident. Therefore, Art. 2180 of Civil Code on vicarious
liability should not apply to it as there was no employer-employee
relationship. Further, the physical possession was with Rock Component by
virtue of the lease.
III. Issue/s
Whether BA Finance can be held responsible to the victims even if the truck
was leased when the incident occurred? YES.
IV. Ratio/Legal Basis
The Court held that the ruling in Erezo, et. al. v. Jepte is still good law,
thus:
“In previous decisions, We already have held that the registered owner
of a certificate of public convenience is liable to the public for the
injuries or damages suffered by passengers or third persons caused by
the operation of said vehicle, even though the same had been
transferred to a third person. The principle upon which this doctrine is
based is that in dealing with vehicles registered under the Public Service Law,
the public has the right to assume or presume that the registered owner is
the actual owner thereof, for it would be difficult for the public to enforce the
actions that they may have for injuries caused to them by the vehicles being
negligently operated if the public should be required to prove who the actual
owner is.
Under the same principle the registered owner of any vehicle, even if
not used for a public service, should primarily be responsible to the
public or to third persons for injuries caused the latter while the vehicle
is being driven on the highways or streets. The members of the Court are
in agreement that the defendant-appellant should be held liable to plaintiff-
appellee for the injuries occasioned to the latter because of the negligence of
the driver, even if the defendant-appellant was no longer the owner of the
vehicle at the time of the damage because he had previously sold it to
another. The basis for the liability is there is a presumption that the
owner of the guilty vehicle is the defendant appellant as he is the
registered owner in the Motor Vehicles Office.
The Revised Motor vehicles Law (Act No. 3992, as amended) provides
that no vehicle may be used or operated upon any public highway unless the
same is properly registered. It has been stated that the system of licensing
and the requirement that each machine must carry a registration number,
conspicuously displayed, is one of the precautions taken to reduce the
danger of injury to pedestrians and other travellers from the careless
management of automobiles. Further, dealers in motor vehicles shall furnish
the Motor Vehicles Office a report showing the name and address of each
purchaser of motor vehicle during the previous month and the
manufacturer's serial number and motor number.
Registration is required not to make said registration the operative
act by which ownership in vehicles is transferred… but to permit the use
and operation of the vehicle upon any public highway. The main aim of
motor vehicle registration is to identify the owner so that if any accident
happens, or that any damage or injury is caused by the vehicle on the public
highways, responsibility therefor can be fixed on a definite individual, the
registered owner. Identification of the vehicle and the operator may act as a
deterrent from lax observance of the law and of the rules of conservative and - Ford Fiera and Bus accident. The TC awarded damages to Almedilla,
safe operation. even though the Ford was registered under the Sevilla Lines. The
Court held it was correct because the party who stands to benefit or
Should the registered owner be allowed at the trial to prove who the suffer (i.e. party of interest) is the private respondent, not the owner
actual owner is? We hold with the trial court that the law does not allow him of the Ford. Estoppel.
to do so; the law, with its aim and policy in mind, does not relieve him
I. Recit-ready summary
directly of the responsibility that the law fixes and places upon him as an
incident or consequence of registration. Were a registered owner allowed
The case is a situation where a Bus hit a Ford Fiera and the owner of the Ford
to evade responsibility by proving who the supposed transferee or
and its passenger were injured. The bus did not stop and just proceeded.
owner is, it would be easy for him, by collusion with others or otherwise,
There were 2 cases filed. (1) The owner of the passenger bus filed a case
to escape said responsibility and transfer the same to an indefinite
against the registered owner of the Ford [Sevilla Line]; (2) The owner of the
person, or to one who possesses no property with which to respond
Ford filed a case against the owner of the passenger bus.
financially for the damage or injury done. The protection that the law aims to
extend to him would become illusory were the registered owner given the
The 2 cases both found Occidental Land (owner of the passenger bus) liable
opportunity to escape liability by disproving his ownership.
due to the negligence of their Bus driver. The main issue to note is the fact
that in the promulgation of the decision in Case no 2728 (the 2 riders) the
The above policy and application of the law may appear quite harsh and
courts adopted some of the facts found in Case 3156 (The heirs of Carbajosa)
would seem to conflict with truth and justice. We do not think it is so. A
registered owner who has already sold or transferred a vehicle has the
W/N TC erred in taking judicial notice the previous case decided
recourse to a third-party complaint, in the same action brought against
between the parties. NO
him to recover for the damage or injury done, against the vendee or
transferee of the vehicle. The inconvenience of the suit is no justification for
As a general rule, "courts are not authorized to take judicial notice in the
relieving him of liability; said inconvenience is the price he pays for failure to
adjudication of cases pending before them, of the contents of the records of
comply with the registration that the law demands and requires.”
other cases, even when such have been tried or are pending in the same
court, and notwithstanding the fact that both cases may have been heard or
The same rationale is applied in this case. The cases of Duavit and
are actually pending before the same judge."
Duquillo does not apply here because in those two cases, the vehicles were
stolen from their respective owners.
The Court in Tabuena applied the general rule since the conditions necessary
for the exception to be applicable were not established. The same is not true
V. Disposition
in the instant case. Civil Case No. 3156 [prior case], which the lower court in
WHEREFORE, the petition is hereby DISMISSED and decision under Civil Case No. 2728 took judicial notice of, decided the issue of negligence
review AFFIRMED without special pronouncement as to costs. between the driver of the two vehicles involved in the subject collision. It
was therefore a matter of convenience, to consider the decision rendered
in that case. And unlike the factual situation in Tabuena v. CA, the decision in
Civil Case No. 3156 formed part of the records of the instant case (Civil Case
Occidental Transport v CA No. 2728) with the knowledge of the parties and in the absence of their
objection. The lower court did not merely "adopt by reference" the findings
of fact of the court that decided the previous case, but used it in its discourse
to obtain the conclusions pronounced in its decision.
TRANSPO ISSUE
Petitioner alleges that the Ford Fiera did not belong to Trencio Almedilla,
but to its registered owner — Sevilla Lines, and therefore the grant of
damages for its repair was improperly awarded to private respondent
Almedilla. This factual matter has already been decided upon in the trial
court.
The fact that the Fiera was owned by Almedilla though registered with Sevilla
Line, will not alter the conclusion arrived at by the lower court. The party
who stands to benefit or suffer from the decision is admittedly private
respondent Almedilla and not Sevilla Lines. William Sevilla admitted that
the real owner of the vehicle was Trencio Almedilla, in the case for
damages by Occidental Land Transportation against Sevilla Lines and/or
William Sevilla. Having thus been settled in the lower court, petitioner is
now no longer in any position to question the ownership of the Fiera or
the award of damages to private respondent Almedilla.
II. Facts of the case
The case began with the collision of a Ford Fiera and a Carina Express No. C-
24 passenger bus in Bunawan, Calamba, Misamis Occidental on November
25, 1975 at about six o'clock a.m. As a result of this, the Ford Fiera was
thrown into the canal on the right side of the road. Pacifico Carbajosa, the
driver, was pinned to the steering wheel and was severely burnt where he
died from his injuries. Trencio Almedilla, the owner of the vehicle
registered under Sevilla Line, and Alberto Pingkian were injured. The bus
did not stop and just proceeded to continue on.
The owner of the Carina passenger bus, Occidental Land Transportation
Company filed a case for damages against Sevilla Line and/or William Sevilla,
the registered owner of the Ford Fiera, which case was docketed as Civil Case
No. 3156 before the Court of First Instance, Branch III, Oroquieta City.
Trencio Almedilla and Alberto Pingkian also filed a civil suit for damages
against Occidental Land Transportation Company, Inc. and the driver of the
Carina bus, Edgardo Enerio. Later the heirs of Pacifico Carbajosa filed a
complaint-in- intervention. This case was docketed as Civil Case No. 2728
before the Regional Trial Court of Zamboanga del Norte, Branch VI, Dipolog
City. (KEEP NOTE 2 CASES WERE FILED)
On July 30, 1977, Judge Rodolfo A. Ortiz of the Oroquieta court rendered a
decision in Civil Case No. 3156 finding the driver of the Carina passenger
bus and not the driver of the Ford Fiera, as negligent.
On March 11, 1986, more than ten years after the inception of the case,
Judge Daniel B. Bernaldez rendered the decision in Civil Case No. 2728
against Occidental Land Transportation Company, Inc. and Edgardo
Enerio. They gave damages to Trencio and Alberto.
What is crucial to note is that in Case No 2728, facts were adopted from the
facts of Case 3156. To know these facts are irrelevant for the case but will
include in notes below since it’s primarily a procedural issue.
III. Issue/s
W/N TC erred in taking judicial notice of the previous case? NO
W/N TC Erred in not holding the ford fiesta exclusively responsible? Are you
f****** serious????? NO
W/N TC Erred in not holding that the ford fiesta did not belong to
Trencio Almedilla NO
IV. Ratio/Legal Basis
The petition is devoid of merit.
No error was committed by the respondent court when it upheld the findings
of the trial court in Civil Case No. 2728.
The reasons advanced by the respondent court in taking judicial notice of
Civil Case No. 3156 are valid and not contrary to law. As a general rule,
"courts are not authorized to take judicial notice in the adjudication of cases
pending before them, of the contents of the records of other cases, even
when such have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been heard or are actually
pending before the same judge."
The exceptions are: 'in the absence of objection,' 'with the knowledge of the
opposing party,' or 'at the request or with the consent of the parties,' the
case is clearly referred to or 'the original or part of the records of the case are
actually withdrawn from the archives' and 'admitted as part of the record of
the case then pending
The Court in Tabuena ruled that the conditions necessary for the exception to
be applicable were not established, such as that ". . ., (t)he petitioner was
completely unaware that his testimony in Civil Case No. 1327 was being
considered by the trial court in the case then before it. As the petitioner puts
it, the matter was never taken up at the trial and was 'unfairly sprung' upon
him, leaving him no opportunity to counteract."
The same is not true in the instant case. Civil Case No. 3156, which the lower
court in Civil Case No. 2728 took judicial notice of, decided the issue of
negligence between the driver of the two vehicles involved in the subject
collision. It was therefore a matter of convenience, to consider the decision
rendered in that case.
And unlike the factual situation in Tabuena v. CA, the decision in Civil Case
No. 3156 formed part of the records of the instant case (Civil Case No. 2728)
with the knowledge of the parties and in the absence of their objection.
This being the case, petitioners were aware that Exhibit "O" (Decision in Civil
Case No. 3156) had formed part of the records of the case and would thereby
be considered by the trial court in its decision.
The lower court did not merely "adopt by reference" the findings of fact of
the Oroquieta court, but used it in its discourse to obtain the conclusions
pronounced in its decision.
Third Issue: TRANSPO
Petitioner alleges that the Ford Fiera did not belong to Trencio Almedilla,
but to its registered owner — Sevilla Lines, and therefore the grant of
damages for its repair was improperly awarded to private respondent
Almedilla. This factual matter has already been decided upon in the trial
court.
The fact that the Fiera was owned by Almedilla though registered with Sevilla
Line, will not alter the conclusion arrived at by the lower court. The party
who stands to benefit or suffer from the decision is admittedly private
respondent Almedilla and not Sevilla Lines. William Sevilla admitted that
the real owner of the vehicle was Trencio Almedilla, in the case for damages
by Occidental Land Transportation against Sevilla Lines and/or William
Sevilla. Having thus been settled in the lower court, petitioner is now no
longer in any position to question the ownership of the Fiera or the award of
damages to private respondent Almedilla.
V. Disposition
WHEREFORE, finding no error in the decision of the Court of Appeals
dated September 28,1990 (CA-G.R. CV No. 10176) affirming the decision
of the trial court dated March 11,1986, the petition for review is denied
for lack of merit with cost against the petitioners.
SO ORDERED.
VI. Notes
That at about 4:50 o'clock in the morning of November 25, 1975, Trencio
Almedilla, who was the real owner of the Ford Fiera, but attached to the
Sevilla Lines of dependant William Sevilla, left for Ozamis City, on board his
Ford Fiera, to buy textiles, together with Alberto Pingkian who wanted to visit
his aunt at Ozamis City. Reaching Dipolog City, Trencio Almedilla, came upon
Pacifico Carbajosa, who wants (sic) to load fish in the Ford Fiera for Ozamis
City. As it was an opportune occasion, Trencio agreed to load the fish of
Pacifico for a freight of P130.00. So they loaded the fish of Pacifico at
Miputak, then got gasoline at a Caltex Station and proceeded towards
Ozamis City. Trencio, was driving his Ford Fiera, was running slowly as
Pacifico alias "Balodoy" told him not to go fast so that his fish will not get
destroyed. After passing Sapang Dalaga, at Misamis Occidental, Trencio
developed stomach ache. At this, "Balodoy" requested that Trencio allow him
to drive the Ford Fiera as he was an experienced driver. Trencio agreed. And
so, with "Balodoy" on the wheels of the Ford Fiera, they proceeded slowly for
fear that the fish will get damaged. Reaching Bunawan at Calamba, and while
negotiating a curb at the descending portion of the asphalted national
highway, which was get, as it was raining, a Carina passenger bus was
running fast in an ascent, zigzagging towards them. Because of this, the Ford
Fiera went towards the extreme right of the road with its right front and rear
tires already running at (sic) the ground shoulder, but even as the Ford Fiera
tried to avoid the zigzagging Carina Express No. C-24, the said Carina bus
jerked towards the left, hitting as a result, the Ford Fiera at the left fender and
hood, throwing it to the canal at the right side, with engine burning. The
Carina passenger bus continued to swerve towards the left until it turn about,
facing towards the direction of Ozamis City. Balodoy was pinned by the
steering wheel to his driver's seat and was seriously injured, Pingkian and
Trencio were also injured, but they were well enough to try to help to
extricate Balodoy, not until Genito Compania got a piece of wood from his
house nearby, which he used as a lever to pry out Balodoy. The driver of
Carina passenger bus, which had three (3) passengers, at that time, did not
help Balodoy. Instead it proceeded towards Sapang Dalaga.
The accident was reported to the police authorities of Calamba, as a result of
which Acting Station Commander Arceno of Calamba Police Station, Police
District No. II, made a Police Report dated November 25 1975 as follows:
'POLICE REPORT
At about 0645 Hrs More or less 25, Nov. Sevilla Line bearing plate No. 8-B940
which was driven by Pacifico Carbajosa y Gemillan, 40 years old, married and
a resident of 398 Martines St., Dipolog City, said driver was burned and
injured seriously when on the way at Bunawan this Municipality, due to a
bumping incident.
Bus Line marked Carina bearing Plate No. 939 driven by Edgardo Enerio y
Paglinawan of Sapang Dalaga, Misamis Occidental, Hit and run and
surrendered to Sapang Dalaga office of the Station Commander.
The Driver of Sevilla Line with his two companions were rushed to the
Calamba Community Hospital for treatment. The scene of the incident was
investigated by F/Sgt. Pagalaran, Sr.' "
Benedicto v IAC
- Benedicto, being a common carrier, is liable for the lost cargo of
Greenhills Lumber. The prevailing doctrine on common carriers
makes the registered owner liable for consequences flowing
from the operations of the carrier, even though the specific
vehicle involved may already have been transferred to another
person.
- The doctrine of the liability of the registered owner applies not only
in cases of death or injury to passengers, but also to the loss and
deterioration of goods.
I. Recit-ready summary
Greenhills bound itself to sell and deliver to Blue Star (from Madella to
Valenzuela) sawn lumber with an initial delivery on 15 May 1980. Licuden,
the driver of a cargo truck, was contracted by Greenhills to make the
delivery. This cargo truck was registered in the name of Benedicto the
proprietor of a business enterprise engaged in hauling freight. In a letter
dated 18 May 1980, Blue Star's administrative and personnel manager
formally informed Greenhills' president and general manager that Blue Star
still had not received the sawn lumber and because of this delay, "they
were constrained to look for other suppliers." Greenhills filed a criminal
case against driver Licuden for estafa. Greenhills also filed a case for
recovery of the value of the lost sawn lumber plus damages against
petitioner Benedicto.
Benedicto claims she sold the subject truck to Benjamin Tee, on 28
February 1980. She claimed that the truck had remained registered in her
name because the latter had not fully paid the agreed price. However, she
averred that Tee had been operating the said truck in Central Luzon from that
date (28 February 1980) onwards, and that, therefore, Licuden was Tee's
employee and not hers.
WON Benedicto, being the registered owner of the carrier, should be held liable
for the value of the undelivered or lost sawn lumber. YES.
A common carrier, both from the nature of its business and for insistent
reasons of public policy, is burdened by the law with the duty of exercising
extraordinary diligence not only in ensuring the safety of passengers but also
in caring for goods transported by it. The loss or destruction or
deterioration of goods turned over to the common carrier for
conveyance to a designated destination, raises instantly a presumption
of fault or negligence on the part of the carrier, save only where such loss,
destruction or damage arises from extreme circumstances such as a natural
disaster or calamity or act of the public enemy in time of war, or from an act
or omission of the shipper himself or from the character of the goods or their
packaging or container. This presumption may be overcome only by proof of
extraordinary diligence on the part of the carrier.
There is no dispute that Benedicto has been holding herself out to the public
as engaged in the business of hauling or transporting goods for hire or
compensation. Benedicto is, in brief, a common carrier. The prevailing
doctrine on common carriers makes the registered owner liable for
consequences flowing from the operations of the carrier, even though
the specific vehicle involved may already have been transferred to
another person. Thus, contrary to Greenhills’ claim, Greenhills is not
required to go beyond the vehicle's certificate of registration to
ascertain the owner of the carrier. The loss or destruction or deterioration
of goods turned over to the common carrier for conveyance to a designated
destination, raises instantly a presumption of fault or negligence on the part
of the carrier. This presumption may be overcome only by proof of
extraordinary diligence on the part of the carrier. Thus, Benedicto is held
liable.
II. Facts of the case
Greenhills (operates in Madella, Quirino) bound itself to sell and deliver to
Blue Star (operates in Valenzuela, Bulacan) 100,000 board feet of sawn
lumber with the understanding that an initial delivery would be made on 15
May 1980.
To effect its delivery, Greenhill’s resident manager in Madella (Cruz)
contracted Licuden, the driver of a cargo truck, to transport its sawn lumber
to Blue Star. This cargo truck was registered in the name of Benedicto, the
proprietor of Macoven Trucking, a business enterprise engaged in hauling
freight.
On 15 May 1980, Cruz in the presence and with the consent of driver Licuden,
supervised the loading of 7,690 board feet of sawn lumber aboard the cargo
truck. Before the cargo truck left Maddela for Valenzuela Cruz issued to
Licuden Charge Invoices Nos. 3259 and 3260 both of which were initialed by
the latter at the bottom left corner. Cruz instructed Licuden to give the
original copies of the two (2) invoices to the consignee upon arrival in
Valenzuela, Bulacan 3 and to retain the duplicate copies in order that he
could afterwards claim the freightage from Greenhills’ Manila office.
In a letter dated 18 May 1980, Blue Star's administrative and personnel
manager formally informed Greenhills' president and general manager that
Blue Star still had not received the sawn lumber and because of this delay,
"they were constrained to look for other suppliers."
Greenhills filed a criminal case against driver Licuden for estafa. Greenhills
also filed a case for recovery of the value of the lost sawn lumber plus
damages against petitioner Benedicto.
Benedicto’s claim: denied liability alleging that she was a complete
stranger to the contract of carriage, the subject truck having been
earlier sold by her to Benjamin Tee, on 28 February 1980 as evidenced by a
deed of sale. She claimed that the truck had remained registered in her name
notwithstanding its earlier sale to Tee because the latter had paid her only
P50,000.00 out of the total agreed price of P68,000.00 However, she averred
that Tee had been operating the said truck in Central Luzon from that date
(28 February 1980) onwards, and that, therefore, Licuden was Tee's employee
and not hers.
III. Issue/s
Whether or not Benedicto, being the registered owner of the carrier, should
be held liable for the value of the undelivered or lost sawn lumber. YES.
IV. Ratio/Legal Basis
Benedicto’s claim: Benedicto urges that she could not be held answerable for
the loss of the cargo, because the doctrine which makes the registered
owner of a common carrier vehicle answerable to the public for the
negligence of the driver despite the sale of the vehicle to another
person, applies only to cases involving death of or injury to passengers.
What applies in the present case, according to Benedicto, is the rule that a
contract of carriage requires proper delivery of the goods to and acceptance
by the carrier. Thus, Benedicto contends that the delivery to a person
falsely representing himself to be an agent of the carrier prevents
liability from attaching to the registered owner.
DOCTRINE: The prevailing doctrine on common carriers makes the
registered owner liable for consequences flowing from the operations of
the carrier, even though the specific vehicle involved may already have
been transferred to another person. This doctrine rests upon the principle
that in dealing with vehicles registered under the Public Service Law, the
public has the right to assume that the registered owner is the actual or
lawful owner thereof. It would be very difficult and often impossible as a
practical matter, for members of the general public to enforce the rights of
action that they may have for injuries inflicted by the vehicles being
negligently operated if they should be required to prove who the actual
owner is. The registered owner is not allowed to deny liability by proving the
identity of the alleged transferee.
SC Ruling: There is no dispute that Benedicto has been holding herself out to
the public as engaged in the business of hauling or transporting goods for
hire or compensation. Benedicto is, in brief, a common carrier. Thus, contrary
to Benedicto's claim, Greenhills is not required to go beyond the vehicle's
certificate of registration to ascertain the owner of the carrier. In this regard,
the letter presented by Benedicto allegedly written by Benjamin Tee
admitting that Licuden was his driver, had no evidentiary value not only
because Benjamin Tee was not presented in court to testify on this matter but
also because of the aforementioned doctrine. To permit the ostensible or
registered owner to prove who the actual owner is, would be to set at naught
the purpose or public policy which infuses that doctrine. In fact, Greenhills
had no reason at all to doubt the authority of Licuden to enter into a contract
of carriage on behalf of the registered owner. It appears that, earlier, in the
first week of May 1980, Greenhills had contracted Licuden who was then
driving the same cargo truck to transport and carry a load of sawn lumber
from the Maddela sawmill to Dagupan City. No one came forward to
question that contract or the authority of Licuden to represent the owner of
the carrier truck.
Benedicto’s claim: Benedicto insists that the said principle should apply
only to cases involving negligence and resulting injury to or death of
passengers, and not to cases involving merely carriage of good
DOCTRINE: A common carrier, both from the nature of its business and for
insistent reasons of public policy, is burdened by the law with the duty of
exercising extraordinary diligence not only in ensuring the safety of
passengers but also in caring for goods transported by it. The loss or
destruction or deterioration of goods turned over to the common carrier
for conveyance to a designated destination, raises instantly a
presumption of fault or negligence on the part of the carrier, save only
where such loss, destruction or damage arises from extreme
circumstances such as a natural disaster or calamity or act of the public
enemy in time of war, or from an act or omission of the shipper himself
or from the character of the goods or their packaging or container. This
presumption may be overcome only by proof of extraordinary diligence
on the part of the carrier. Clearly, to permit a common carrier to escape its
responsibility for the passengers or goods transported by it by proving a
prior sale of the vehicle or means of transportation to an alleged vendee
would be to attenuate drastically the carrier's duty of extraordinary diligence.
SC Ruling: The thrust of the public policy here involved is as sharp and real in
the case of carriage of goods as it is in the transporting of human beings.
Thus, to sustain Benedicto's contention, that is, to require the shipper to go
behind a certificate of registration of a public utility vehicle, would be utterly
subversive of the purpose of the law and doctrine.
Benedicto’s claim: Benedicto further insists that there was no perfected
contract of carriage for the reason that there was no proof that her consent
or that of Tee had been obtained; no proof that the driver, Licuden, was
authorized to bind the registered owner; and no proof that the parties had
agreed on the freightage to be paid.
SC Ruling: Once more, we are not persuaded. Driver Licuden was entrusted
with possession and control of the freight truck by the registered owner (and
by the alleged secret owner, for that matter). Driver Licuden, under the
circumstances, was clothed with at least implied authority to contract to carry
goods and to accept delivery of such goods for carriage to a specified
destination. That the freight to be paid may not have been fixed before
loading and carriage, did not prevent the contract of carriage from arising,
since the freight was at least determinable if not fixed by the tariff schedules
in petitioner's main business office.
V. Disposition

WHEREFORE, the Petition for Review is DENIED for lack of merit and the
Decision of the former Intermediate Appellate Court dated 30 January 1985 is
hereby AFFIRMED. Costs against petitioner.
Equitable v Suyon
- Road Tractor crashed into a store, causing multiple deaths and
injuries. Tutor was the driver, an employee of Ecatine, but the
registered owner of the vehicle is Equitable Leasing. Equitable is
liable it being the registered owner of the car at the time of the
accident.
I. Recit-ready summary
On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into
the house cum store of Myrna Tamayo in Tondo, Manila. A portion of the
house was destroyed which caused death and injury. Tutor was charged
with and later convicted of reckless imprudence resulting in multiple
homicide and multiple physical injuries.
Upon verification with the Land Transportation Office, it was
known that the registered owner of the tractor was Equitable Leasing
Corporation/leased to Edwin Lim. On April 15, 1995, respondents filed
against Raul Tutor, Ecatine Corporation (Ecatine) and Equitable Leasing
Corporation (Equitable) a Complaint for damages.
The petitioner alleged that the vehicle had already been sold to Ecatine
and that the former was no longer in possession and control thereof at the
time of the incident. It also claimed that Tutor was an employee, not of
Equitable, but of Ecatine.
Whether or not the petitioner was liable for damages based on
quasi delict for the negligent acts. Yes
The Lease Agreement between petitioner and Edwin Lim stipulated that it is
the intention of the parties to enter into a finance lease agreement.
Ownership of the subject tractor was to be registered in the name of
petitioner, until the value of the vehicle has been fully paid by Edwin Lim.
Lim completed the payments to cover the full price of the tractor. Thus, a
Deed of Sale over the tractor was executed by petitioner in favor of Ecatine
represented by Edwin Lim. However, the Deed was not registered with the
LTO. Petitioner is liable for the deaths and the injuries complained of,
because it was the registered owner of the tractor at the time of the
accident. The Court has consistently ruled that, regardless of sales made of
a motor vehicle, the registered owner is the lawful operator insofar as
the public and third persons are concerned. Since Equitable remained the
registered owner of the tractor, it could not escape primary liability for the
deaths and the injuries arising from the negligence of the driver.
II. Facts of the case
On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into the
house cum store of Myrna Tamayo located at Pier 18, Vitas, Tondo, Manila. A
portion of the house was destroyed. Pinned to death under the engine of the
tractor were Respondent Myrna Tamayo's son, Reniel Tamayo, and
Respondent Felix Oledan's daughter, Felmarie Oledan. Injured were
Respondent Oledan himself, Respondent Marissa Enano, and two sons of
Respondent Lucita Suyom.
Tutor was charged with and later convicted of reckless imprudence resulting
in multiple homicide and multiple physical injuries
Registered owner of the tractor was "Equitable Leasing Corporation/leased to
Edwin Lim." On April 15, 1995, respondents filed against Raul Tutor, Ecatine
Corporation ("Ecatine") and Equitable Leasing Corporation ("Equitable") a
Complaint for damages docketed as Civil Case No. 95-73522 in the RTC of
Manila, Branch 14.
RTC rendered its Decision ordering petitioner to pay actual and moral
damages and attorney's fees to respondents. It held that since the Deed of
Sale between petitioner and Ecatine had not been registered with the Land
Transportation Office (LTO), the legal owner was still Equitable. Thus,
petitioner was liable to respondents.
Sustaining the RTC, the CA held that petitioner was still to be legally deemed
the owner/operator of the tractor, even if that vehicle had been the subject of
a Deed of Sale in favor of Ecatine on December 9, 1992. The reason cited by
the CA was that the Certificate of Registration on file with the LTO still
remained in petitioner's name.
 Issue/s
Whether or not the petitioner was liable for damages based on quasi delict for
the negligent acts.
Ratio/Legal Basis
In negligence cases, the aggrieved party may sue the negligent party under
(1) Article 10 of the Revised Penal Code, for civil liability ex delicto; or under
Article 2176 of the Civil Code, for civil liability ex quasi delicto.
Furthermore, under Article 103 of the Revised Penal Code, employers may be
held subsidiarily liable for felonies committed by their employees in the
discharge of the latter's duties. This liability attaches when the employees
who are convicted of crimes committed in the performance of their work are
found to be insolvent and are thus unable to satisfy the civil liability
adjudged.
On the other hand, under Article 2176 in relation to Article 2180 of the Civil
Code, an action predicated on quasi delict may be instituted against the
employer for an employee's act or omission. The liability for the negligent
conduct of the subordinate is direct and primary, but is subject to the
defense of due diligence in the selection and supervision of the employee.
The enforcement of the judgment against the employer for an action based
on Article 2176 does not require the employee to be insolvent, since the
liability of the former is solidary -- the latter being statutorily considered a
joint tortfeasor. To sustain a claim based on quasi delict, the following
requisites must be proven:
(a) damage suffered by the plaintiff,
(b) fault or negligence of the defendant, and
(c) connection of cause and effect between the fault or negligence of
the defendant and the damage incurred by the plaintiff.
In this case, respondents -- having failed to recover anything in
the criminal case -- elected to file a separate civil action for damages,
based on quasi delict under Article 2176 of the Civil Code. The evidence is
clear that the deaths and the injuries suffered by respondents and their kins
were due to the fault of the driver of the Fuso tractor.
Ownership of the subject tractor was to be registered in the name of
petitioner, until the value of the vehicle has been fully paid by Edwin Lim.[34]
Further, in the "Lease Schedule," the monthly rental for the tractor was
stipulated, and the term of the Lease was scheduled to expire on December
4, 1992. After a few months, Lim completed the payments to cover the full
price of the tractor. Thus, on December 9, 1992, a Deed of Sale over the
tractor was executed by petitioner in favor of Ecatine represented by Edwin
Lim. However, the Deed was not registered with the LTO.
The Court has consistently ruled that, regardless of sales made of
a motor vehicle, the registered owner is the lawful operator insofar as
the public and third persons are concerned; consequently, it is directly
and primarily responsible for the consequences of its operation. In
contemplation of law, the owner/operator of record is the employer of the
driver, the actual operator and employer being considered as merely its
agent. The same principle applies even if the registered owner of any
vehicle does not use it for public service
Since Equitable remained the registered owner of the tractor, it
could not escape primary liability for the deaths and the injuries arising
from the negligence of the driver
True, the LTO Certificate of Registration, dated "5/31/91," qualifies
the name of the registered owner as "EQUITABLE LEASING
CORPORATION/Leased to Edwin Lim." But the lease agreement between
Equitable and Lim has been overtaken by the Deed of Sale on December 9,
1992, between petitioner and Ecatine. While this Deed does not affect
respondents in this quasi delict suit, it definitely binds petitioner because,
unlike them, it is a party to it.
We must stress that the failure of Equitable and/or Ecatine to register
the sale with the LTO should not prejudice respondents, who have the legal
right to rely on the legal principle that the registered vehicle owner is liable
for the damages caused by the negligence of the driver. Petitioner cannot
hide behind its allegation that Tutor was the employee of Ecatine. This will outside the cases mentioned in Article 1734, if the goods are lost,
effectively prevent respondents from recovering their losses on the basis of destroyed or deteriorated, common carriers are presumed to have been
the inaction or fault of petitioner in failing to register the sale. The non- at fault or to have acted negligently, unless they prove that they
registration is the fault of petitioner, which should thus face the legal observed extraordinary diligence. Since Eastern Shipping has failed to
consequences thereof. establish any caso fortuito, the presumption by law of fault or
negligence applies to it. Here, Easter Shipping failed to give evidence
WHEREFORE, the Petition is DENIED and the assailed Decision that it observed extraordinary diligence. Thus it is liable for the
AFFIRMED. Costs against petitioner. damaged cargo.
Facts 1. On September 4, 1978, thirteen coils of uncoated 7-wire stress
Eastern Shipping v CA relieved wire strand for prestressed concrete were shipped on board the
vessel "Japri Venture," owned and operated by Eastern Shipping Lines, Inc.
(Eastern Shipping), at Kobe, Japan, for delivery to Stresstek Post-Tensioning
Thirteen coils of uncoated 7-wire stress relieved wire strand for
Phils., Inc. (Stresstek) in Manila.
prestressed concrete were shipped on board the vessel "Japri Venture,"
2. It was insured by First Nationwide Assurance Corporation (FNAC) for
owned and operated by Eastern Shipping Lines, Inc. (Eastern Shipping),
P171,923.
at Kobe, Japan, for delivery to Stresstek Post-Tensioning Phils., Inc.
3. On September 16, 1978, Japri Venture arrived in Manila and discharged the
(Stresstek) in Manila. It was insured by First Nationwide Assurance
cargo to the custody of E. Razon, Inc. Then it was received by the consignee’s
Corporation (FNAC) for P171,923. It was found out that while enroute: (1) the
custom broker.
vessel encountered "very rough seas and stormy weather"; (2) that lower
4. On February 19, 1979, FNAC indemnified the consignee in the amount of
hatch of the vessel where the coils were stored was flooded with water
P171,923.00 for damage and loss to the insured cargo, whereupon the FNAC
and; (3) that upon survey it was discovered that coils were extremely rusty
was subrogated for the latter.
and totally unsuitable for the intended purpose because of getting wet
• It appears that while enroute from Kobe to Manila, Japri Venture
by the fresh water. So, FNAC indemnified the consignee for the damage and
"encountered very rough seas and stormy weather" for three days. The coils
sought for reimbursement against Eastern Shipping. RTC dismissed the case,
wrapped in burlap cloth and cardboard paper were stored in the lower hold
but CA reversed the decision and held Eastern Shipping liable.
of the hatch of the vessel which was flooded with water about one foot deep.
The issue in this case is W/N Eastern Shipping should be held liable for
That upon survey conducted was found that the "wetting (of the cargo) was
the damaged cargo? YES
caused by fresh water" that entered the hatch when the vessel encountered
The heavy seas and rains were not caso fortuito, but normal occurrences
heavy weather enroute to Manila. And that all thirteen coils were extremely
that an ocean-going vessel, particularly in the month of September which, in
rusty and totally unsuitable for the intended purpose.
our area, is a month of rains and heavy seas would encounter as a matter of
5. FNAC sought to recover from Eastern Shipping the amount it paid to the
routine. These are conditions that ocean-going vessels would encounter and
consignee less P48,293.70 (salvage value of the cargo).
provide for, in the ordinary course of a voyage. That rain water (not sea
Procedural History 1. RTC Manila dismissed the case. 2. CA reversed the RTC
water) found its way into the holds of the Jupri Venture is a clear
decision and ordered Eastern Shipping and E. Razon to pay the damages. ALS
indication that care and foresight did not attend the closing of the ship's
B2021 2 3. Thus, this petition for review filed by Eastern Shipping.
hatches so that rain water would not find its way into the cargo holds of
Points of Contention Eastern Shipping: It should not be held liable as the
the ship.
shipment was discharged and delivered complete into the custody of the
Under the Civil Code, common carriers are bound to observe extra-ordinary
arrastre operator under clean tally sheets.
vigilance over goods, according to all circumstances of each case. And
Issues
1. W/N Eastern Shipping should be held liable for the damaged cargo?
Yes
Rationale 1. Eastern Shipping is liable for the damaged cargo. • While it is
true that the cargo was delivered to the arrastre operator in apparent good
order condition, it is also undisputed that while en route from Kobe to
Manila: (1) the vessel encountered "very rough seas and stormy weather"; (2)
that lower hatch of the vessel where the coils were stored was flooded with
water and; (3) that upon survey it was discovered that coils were extremely
rusty and totally unsuitable for the intended purpose because of getting wet
by the fresh water.
• From the above facts the CA concluded that: o The heavy seas and rains
were not caso fortuito, but normal occurrences that an ocean-going vessel,
particularly in the month of September which, in our area, is a month of rains
and heavy seas would encounter as a matter of routine. o These are
conditions that ocean-going vessels would encounter and provide for, in the
ordinary course of a voyage. o That rain water (not sea water) found its way
into the holds of the Jupri Venture is a clear indication that care and foresight
did not attend the closing of the ship's hatches so that rain water would not
find its way into the cargo holds of the ship. o Under Article 1733 of the Civil
Code, common carriers are bound to observe "extraordinary vigilance over
goods . . . .according to all circumstances of each case. o Also under
Article 1735, it provides that, “In all cases other than those mentioned in
Nos. 1, 2, 3, 4, and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they psrove that they
observed extraordinary diligence as required in article 1733.”
o Since the carrier has failed to establish any caso fortuito, the
presumption by law of fault or negligence on the part of the carrier
applies. Here, Eastern Shipping failed to give evidence that it observed
extraordinary diligence.
The SC adopted the CA conclusion and stated that the contention that the
cargo was in apparent good condition when it was delivered by the vessel to
the arrastre operator by the clean tally sheets has been overturned and
traversed. The evidence is clear to the effect that the damage to the cargo
was suffered while aboard petitioner's vessel. Disposition Petition is
DISMISSED, with costs against petitioner.
Delsan Transport v CA (369 SCRA 24)
Oil from Batangas- Zamboanga City. Ship sank near the Panay Gulf. Liable?
Yes. In the event of loss, destruction or deterioration of the insured
goods, common carriers shall be responsible unless the same is brought
about, among others, by flood, storm, earthquake, lightning or other
natural disaster or calamity. In all other cases, 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.
Their claim was effectively belied by PAGASA. The ship was not seaworthy.
I. Summary
Caltex entered into a contract of affreightment with the petitioner, Delsan
Transport Lines, Inc., for a period of one year whereby the said common
carrier agreed to transport Caltex’s industrial fuel oil from the Batangas-
Bataan Refinery to different parts of the country. Under the contract,
petitioner took on board its vessel, MT Maysun 2,277.314 kiloliters of
industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in
Zamboanga City. The shipment was insured with the private respondent,
American Home Assurance Corporation. Then MT Maysum set sail from
Batangas for Zamboanga City. Unfortunately, the vessel sank in the early
morning of August 16, 1986 near Panay Gulf in the Visayas taking with it
the entire cargo of fuel oil. Subsequently, American Home paid Caltex the
sum of P5,096,635.67 representing the insured value of the lost cargo.
Exercising its right of subrogation under Article 2207 of the New Civil Code, it
demanded of the petitioner the same amount it paid to Caltex. The RTC
dismissed the case on the basis of force majeure. The CA reversed the
said decision.
Is Delsan Transport liable? YES
From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of passengers transported by them, according to all
the circumstance of each case. In the event of loss, destruction or
deterioration of the insured goods, common carriers shall be responsible
unless the same is brought about, among others, by flood, storm,
earthquake, lightning or other natural disaster or calamity. In all other
cases, 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.
In this case, the tale of strong winds and big waves by the said officers of the
petitioner however, was effectively rebutted and belied by the weather
report from PAGASA showing that from 2:00 o’clock to 8:00 o’clock in the
morning on August 16, 1986, the wind speed remained at 10 to twenty 20
knots per hour while the height of the waves ranged from .7 to 2 meters in
the vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank.
Thus, as the appellate court correctly ruled, petitioner’s vessel, MT Maysun,
sank with its entire cargo for the reason that it was not seaworthy. There
was no squall or bad weather or extremely poor sea condition in the
vicinity when the said vessel sank.
II. Facts of the case
Caltex entered into a contract of affreightment with the petitioner,
Delsan Transport Lines, Inc., for a period of one year whereby the said
common carrier agreed to transport Caltex’s industrial fuel oil from the
Batangas-Bataan Refinery to different parts of the country. Under the
contract, petitioner took on board its vessel, MT Maysun 2,277.314 kiloliters
of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in
Zamboanga City. The shipment was insured with the private respondent,
American Home Assurance Corporation.
On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga
City. Unfortunately, the vessel sank in the early morning of August 16, 1986
near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of P5,096,635.67
representing the insured value of the lost cargo. Exercising its right of
subrogation under Article 2207 of the New Civil Code, the private respondent
demanded of the petitioner the same amount it paid to Caltex.
Due to its failure to collect from the petitioner despite prior demand, private
respondent filed a complaint with the RTC, for collection of a sum of money,
which was dismissed. The trial court found that the vessel, MT Maysum,
was seaworthy to undertake the voyage as determined by the Philippine
Coast Guard per Survey Certificate Report upon inspection during its
annual dry-docking and that the incident was caused by unexpected
inclement weather condition or force majeure, thus exempting the
common carrier from liability for the loss of its cargo.
The decision of the trial court, however, was reversed, on appeal, by the CA.
The appellate court gave credence to the weather report issued by PAGASA
which showed that from 2:00 o’clock to 8:oo o’clock in the morning on
August 16, 1986, the wind speed remained at 10 to 20 knots per hour
while the waves measured from .7 to 2 meters in height only in the
vicinity of the Panay Gulf where the subject vessel sank, in contrast to herein
petitioner’s allegation that the waves were 20 feet high. In the absence of any
explanation as to what may have caused the sinking of the vessel coupled
with the finding that the same was improperly manned, the appellate court
ruled that the petitioner is liable on its obligation as common carrier to
herein private respondent insurance company as subrogate of Caltex.
III. Issue/s
Whether or not the payment made by the private respondent to Caltex
for the insured value of the lost cargo amounted to an admission that
the vessel was seaworthy, thus precluding any action for recovery
against the petitioner? NO
Is Delsan Transport liable? YES
3. Whether or not the non-presentation of the marine insurance policy bars
the complaint for recovery of sum of money for lack of cause of action? No
IV. Held

1. The fact of payment grants the private respondent subrogatory right which
enables it to exercise legal remedies that would otherwise be available to
Caltex as owner of the lost cargo against the petitioner common carrier. The
right of subrogation has its roots in equity. It is designed to promote and to
accomplish justice and is the mode which equity adopts to compel the
ultimate payment of a debt by one who in justice and good conscience ought
to pay. Consequently, the payment made by the private respondent to Caltex
operates as an equitable assignment to the former of all the remedies which
the latter may have against the petitioner.
2. From the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of passengers transported by
them, according to all the circumstances of each case. In the event of loss,
destruction or deterioration of the insured goods, common carriers shall be
responsible unless the same is brought about, among others, by flood, storm,
earthquake, lightning or other natural disaster or calamity. In all other cases,
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.
In order to escape liability for the loss of its cargo of industrial fuel oil
belonging to Caltex, petitioner attributes the sinking of MT Maysun to
fortuitous event or force majeure. From the testimonies of Jaime Jarabe and
Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it
appears that a sudden and unexpected change of weather condition
occurred in the early morning of August 16, 1986; that at around 3:15 o’clock
in the morning a squall carrying strong winds with an approximate velocity of
30 knots per hour and big waves averaging 18 to 20 feet high, repeatedly
buffeted MT Maysun causing it to tilt, take in water and eventually sink with
its cargo. This tale of strong winds and big waves by the said officers of
the petitioner however, was effectively rebutted and belied by the
weather report from PAGASA showing that from 2:00 o’clock to 8:00
o’clock in the morning on August 16, 1986, the wind speed remained at 10 to
twenty 20 knots per hour while the height of the waves ranged from .7 to 2
meters in the vicinity of Cuyo East Pass and Panay Gulf where the subject
vessel sank. Thus, as the appellate court correctly ruled, petitioner’s vessel,
MT Maysun, sank with its entire cargo for the reason that it was not
seaworthy. There was no squall or bad weather or extremely poor sea
condition in the vicinity when the said vessel sank.
3. It is our view and so hold that the presentation in evidence of the marine
insurance policy is not indispensable in this case before the insurer may
recover from the common carrier the insured value of the lost cargo in the
exercise of its subrogatory right. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of herein private respondent
as insurer and Caltex, as the assured shipper of the lost cargo of industrial
fuel oil, but also the amount paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by the insurance company of the
insurance claim
V. Dispositive Portion
WHEREFORE, the instant petition is DENIED. The Decision dated June 17,
1996 of the Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs
against the petitioner. SO ORDERED.
eyPhil Charter v Chemoil
Two crates. Crate 1 broke because of the defect in the packaging.
Arrastre liable? No. The character of the goods or defects in the
packing or in the containers; To exculpate itself from liability for
the loss/damage to the cargo under any of the causes, the common
carrier is burdened to prove any of the aforecited causes claimed
by it by a preponderance of evidence. If the carrier succeeds, the
burden of evidence is shifted to the shipper to prove that the carrier is
negligent.
-
I. Recit-ready summary
J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of
parts and accessories, in the port of Pusan, Korea, on board the vessel MN
"National Honor," represented in the Philippines by its agent, National
Shipping Corporation of the Philippines (NSCP). The shipment was for
delivery to ultimate consignee Blue Mono International Company,
Incorporated (BMICI), in Binondo, Manila. The shipment was contained in
two wooden crates, namely, Crate No. 1 and Crate No. 2, complete and in
good order condition.
The M/V "National Honor" arrived at the Manila International Container
Terminal (MICT). The ICTSI, the arrestre operator, was furnished with a copy
of the bill of lading, it knew the contents of the crate. The following day, the
vessel started discharging its cargoes using its winch crane. NSCP and
ICTSI inspected the hatches, checked the cargo and found it in apparent
good condition. ICTSI’s stevedore placed 2 sling cables on each end of
Crate No. 1. No sling cable was fastened on the mid-portion of the crate.
This was a normal procedure.
As the crate was being hoisted from the vessel’s hatch, the mid-portion
of the wooden flooring suddenly snapped in the air, about 5ft high from
the vessel’s twin deck, sending all its contents crashing down hard,
resulting in extensive damage to the shipment.
The ICTSI adduced in evidence that the damage to the cargo could be
attributed to insufficient packing and unbalanced weight distribution of
the cargo inside the crate as evidenced by the types and shapes of items
found. The lower court held that the loss of the shipment contained in Crate
No. 1 was due to the internal defect and weakness of the materials used in
the fabrication of the crates. The middle wooden batten had a hole (bukong-
bukong).
The issue in this case is whether the respondents (Unknown Owner of the
Vessel M/V NH, NSCP, and ICTSI) are liable for the damage sustained by
the shipment – NO
The SC agrees with the findings of the lower court.
Under Article 1734 of the NCC, the presumption of negligence does not
apply to any of the following causes:
1. Flood, storm, earthquake, lightning or other natural disaster or
calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the
containers;
5. Order or act of competent public authority
To exculpate itself from liability for the loss/damage to the cargo under
any of the causes, the common carrier is burdened to prove any of the
aforecited causes claimed by it by a preponderance of evidence. If the
carrier succeeds, the burden of evidence is shifted to the shipper to prove
that the carrier is negligent.
The petitioner failed to adduce any evidence to counter that of
respondent ICTSI. The petitioner failed to rebut the testimony of Dauz, that
the crates were sealed and that the contents thereof could not be seen from
the outside
Therefore, the respondents are not liable because the damage was due to
weakness of the materials used in the fabrication of the crate.
II. Facts of the case
J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of parts
and accessories, in the port of Pusan, Korea, on board the vessel MN
"National Honor," represented in the Philippines by its agent, National
Shipping Corporation of the Philippines (NSCP). The shipment was for
delivery to the ultimate consignee Blue Mono International Company,
Incorporated (BMICI), Binondo, Manila. The shipment was contained in two
wooden crates, namely, Crate No. 1 and Crate No. 2, complete and in good
order condition.
Crate No. 1 measured 24 cubic meters and weighed 3,620 kgs. It contained
the following articles:
- one (1) unit Lathe Machine complete with parts and accessories;
- one (1) unit Surface Grinder complete with parts and accessories;
and
- one (1) unit Milling Machine complete with parts and accessories.
On the flooring of the wooden crates were three wooden battens placed side
by side to support the weight of the cargo.
Crate No. 2, on the other hand, measured 10 cubic meters and weighed
2,060 kgs. The Lathe Machine was stuffed in the crate.
The M/V "National Honor" arrived at the Manila International Container
Terminal (MICT) The International Container Terminal Services, Incorporated
(ICTSI) was furnished with a copy of the crate cargo list and bill of lading, and
it knew the contents of the crate. The following day, the vessel started
discharging its cargoes using its winch crane. The crane was operated by
Olegario Balsa, a winchman from the ICTSI, the exclusive arrastre operator of
MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew
and the surveyor of the ICTSI, conducted an inspection of the cargo. They
inspected the hatches, checked the cargo and found it in apparent good
condition.
Claudio Cansino, the stevedore of the ICTSI, placed two sling cables on each
end of Crate No. 1. No sling cable was fastened on the mid-portion of the
crate. In Dauz's experience, this was a normal procedure. As the crate was
being hoisted from the vessel's hatch, the mid-portion of the wooden
flooring suddenly snapped in the air, about five feet high from the
vessel's twin deck, sending all its contents crashing down hard, resulting
in extensive damage to the shipment.
BMICI's customs broker, JRM Incorporated, took delivery of the cargo in
such damaged condition. Upon receipt of the damaged shipment, BMICI
found that the same could no longer be used for the intended purpose. The
Mariners' Adjustment Corporation hired by PCIC conducted a survey and
declared that the packing of the shipment was considered insufficient. It
ruled out the possibility of taxes due to insufficiency of packing. It opined
that three to four pieces of cable or wire rope slings, held in all equal
setting, never by-passing the center of the crate, should have been used,
considering that the crate contained heavy machinery.
BMICI subsequently filed separate claims against the NSCP, the ICTSI,
and its insurer, the PCIC, for US$61,500.00. When the other companies
denied liability, PCIC paid the claim and was issued a Subrogation Receipt
for P1,740,634.50.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the
wooden battens placed on the wooden flooring of the crate was of good
material but was not strong enough to support the weight of the
machines inside the crate. He averred that most stevedores did not know
how to read and write; hence, he placed the sling cables only on those
portions of the crate where the arrow signs were placed, as in the case of
fragile cargo. He said that unless otherwise indicated by arrow signs, the
ICTSI used only two cable slings on each side of the crate and would not
place a sling cable in the mid- section. He declared that the crate fell from
the cranes because the wooden batten in the mid-portion was broken as it
was being lifted. He concluded that the loss/damage was caused by the
failure of the shipper or its packer to place wooden battens of strong
materials under the flooring of the crate, and to place a sign in its mid-
term section where the sling cables would be placed.
The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that
the damage to the cargo could be attributed to insufficient packing and
unbalanced weight distribution of the cargo inside the crate as
evidenced by the types and shapes of items found.
The trial court rendered judgment for PCIC, the trial court held that the
loss of the shipment contained in Crate No. 1 was due to the internal defect
and weakness of the materials used in the fabrication of the crates. The
middle wooden batten had a hole (bukong-bukong). The trial court rejected
the certification of the shipper, stating that the shipment was properly
packed and secured, as mere hearsay and devoid of any evidentiary
weight, the affiant not having testified.
CA affirmed the RTC’s ruling. Hence, this petition.
III. Issue/s
Whether or not the respondents (Unknown Owner of the Vessel M/V NH,
NSCP, and ICTSI) are liable for the damage sustained by the shipment –
NO
IV. Ratio/Legal Basis
Under Article 1734 of the New Civil Code, the presumption of negligence
does not apply to any of the following causes:
1. Flood, storm, earthquake, lightning or other natural disaster or calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the
containers;
5. Order or act of competent public authority.
It bears stressing that the enumeration in Article 1734 of the New Civil Code
which exempts the common carrier for the loss or damage to the cargo is a
closed list.To exculpate itself from liability for the loss/damage to the cargo
under any of the causes, the common carrier is burdened to prove any of
the aforecited causes claimed by it by a preponderance of evidence. If
the carrier succeeds, the burden of evidence is shifted to the shipper to
prove that the carrier is negligent.
"Defect" is the want or absence of something necessary for
completeness or perfection; a lack or absence of something essential to
completeness; a deficiency in something essential to the proper use for
the purpose for which a thing is to be used.
On the other hand, inferior means of poor quality, mediocre, or second
rate. A thing may be of inferior quality but not necessarily defective. In other
words, "defectiveness" is not synonymous with "inferiority."
In the present case, the trial court declared that based on the record, the loss
of the shipment was caused by the negligence of the petitioner as the
shipper. The SC agrees with the trial and appellate courts.
The petitioner failed to adduce any evidence to counter that of respondent
ICTSI. The petitioner failed to rebut the testimony of Dauz, that the crates
were sealed and that the contents thereof could not be seen from the
outside. While it is true that the crate contained machineries and spare parts,
it cannot thereby be concluded that the respondents knew or should have
known that the middle wooden batten had a hole, or that it was not strong
enough to bear the weight of the shipment.
There is no showing in the Bill of Lading that the shipment was in good order
or condition when the carrier received the cargo, or that the three wooden
battens under the flooring of the cargo were not defective or insufficient or
inadequate.
On the other hand, under Bill of Lading No. NSGPBSML512565 issued by the
respondent NSCP and accepted by the petitioner, the latter represented and
warranted that the goods were properly packed and disclosed in writing the
"condition, nature, quality or characteristic that may cause damage, injury or
detriment to the goods." Absent any signs on the shipment requiring the
placement of a sling cable in the mid-portion of the crate, the respondent
ICTSI was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in apparent good
condition, is sufficient to sustain a finding of absence of defects in the
merchandise. Case law has it that such a statement will create a prima facie
presumption only as to the external condition and not to that not open to
inspection.
V. Disposition
DENIED for lack of merit.
Philamgen v PKS Shipping
- PKS had a limited clientele. Is it a common carrier? Yes. Is it liable for
the loss of the cement? No. It exercised the proper diligence
demanded of a common carrier.
I. Recit-ready summary
Davao Union Marketing Corporation (DUMC) contracted the services
of respondent PKS shipping company (PKS) to transport its 75,000
bags of cement. DUMC insured the full amount of the goods with the
petitioner insurance company (Philamgen). Ironically, the barge sank
bringing down the entire cargo of 75,000 bags of cement. DUMC filed a
formal claim for the entire amount of insurance, to which Philamgen
promptly paid. Philamgen then sought a reimbursement of the amount
it paid to DUMC but the PKS refused to pay, which prompted Philamgen
to file a suit against PKS. The trial court, finding the cause of the loss to be
through a fortuitous event, in which case the ship owner is not liable
dismissed the complaint filed. Philamgen interposed an appeal to the Court
of Appeals which affirmed in toto the decision of the trial court. CA also
held that PKS is not a common carrier since the carrying of goods for
others was not generally held out as a business but as a casual
occupation.
In this appeal before the Supreme Court, Philamgen contended that the
appellate court committed patent error in ruling that PKS is not a
common carrier and it is not liable for the loss of the subject cargo.
According to the Supreme Court, the issue of whether a carrier is private or
common carrier on the basis of facts found by the trial court or the
appellate court can be a valid and reviewable question of law. Contrary to
the conclusion made by the appellate court, its factual findings indicated
that PKS engaged itself in the business of carrying goods for others,
although for a limited clientele, undertaking to carry such goods for a
fee. Hence, the Court found PKS to be a common carrier.
However, the Court also found that PKS exercised the proper diligence
demanded of a common carrier. There was no way by which the barge’s
or the tugboat’s crew could have prevented the sinking of Limar I. The
vessel was suddenly tossed by waves of extraordinary height of six (6) to
eight (8) feet and buffeted by strong winds of 1.5 knots resulting in the
entry of water into the barge’s hatches. The official Certificate of Inspection
of the barge issued by the Philippine Coastguard and the Coastwise Load
Line Certificate would attest to the seaworthiness of Limar I and should
strengthen the factual findings of the appellate court.
Hence, the Court found no error in the judgment made by the appellate
court in absolving PKS from liability for the loss of the DUMC cargo.
II. Facts of the case
Davao Union Marketing Corporation (DUMC) contracted the services of
respondent PKS Shipping Company (PKS Shipping) for the shipment to
Tacloban City of 75,000 bags of cement worth P3.375m. DUMC insured the
goods for its full value with Philippine General Insurance Co. (Philamgen). PKS
Shipping loaded the goods with their Limar 1 vessel, and while Limar 1 was
being towed by PKS Shipping’s tugboat MT Iron Eagle (no mention why) the
entire barge sank along with the 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the
insurance. Philamgen promptly made payment; it then sought
reimbursement from PKS Shipping of the sum paid to DUMC but the
shipping company refused to pay, prompting Philamgen to file suit
against PKS Shipping with the Makati RTC.
RTC: Complaint dismissed because it’s a fortuitous event IN WHICH CASE
THE SHIP OWNER IS NOT LIABLE.
CA: Affirmed RTC decision, held PKS is not a common carrier and the
incident was a fortuitous event. CA held that PKS is not a common carrier
since the carrying of goods for others was not generally held out as a
business but as a casual occupation.
Philamgen appeal to SC: In the instant appeal, Philamgen contends that the
appellate court has committed a patent error in ruling that PKS Shipping is
not a common carrier and that it is not liable for the loss of the subject
cargo.
III. Issue/s
WN PKS is a common carrier? (YES)
WN PKS exercised the proper diligence required for a common carrier?
(YES)
IV. Ratio/Legal Basis
PKS is a common carrier. First the court discussed the definition of a
Common Carrier as found in Article 1732 and Section 13 of the Public Service
Act( y’all should know this na). The court then applied the ruling in De
Guzman v. CA which held that:
The above article makes no distinction between one
whose  principal  business activity is the carrying of persons or
goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as 'a sideline'). Article 1732 also
carefully avoids making any distinction between a person or
enterprise offering transportation service on a regular or scheduled
basis  and 'one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the 'general public,' i.e.,
the general community or population, and one who offers
services or solicits business only from a  narrow segment  of the
general population. We think that Article 1732 deliberately refrained
from making such distinctions.
"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." (De Guzman v. CA)
Much of the distinction between a "common or public carrier" and a
"private or special carrier" lies in the character of the business, such that
if the undertaking is an isolated transaction, not a part of the business
or occupation, and the carrier does not hold itself out to carry the goods
for the general public or to a limited clientele, although involving the
carriage of goods for a fee, the person or corporation providing such
service could very well be just a private carrier. A typical case is that of a
charter party which includes both the vessel and its crew, such as in a
bareboat or demise, where the charterer obtains the use and service of all or
some part of a ship for a period of time or a voyage or voyages and gets the
control of the vessel and its crew. Contrary to the conclusion made by the
appellate court, its factual findings indicate that PKS Shipping has
engaged itself in the business of carrying goods for others, although for
a limited clientele, undertaking to carry such goods for a fee. The
regularity of its activities in this area indicates more than just a casual
activity on its part. Neither can the concept of a common carrier change
merely because individual contracts are executed or entered into with
patrons of the carrier. Such restrictive interpretation would make it easy for a
common carrier to escape liability by the simple expedient of entering into
those distinct agreements with clients.
PKS Shipping Exercised proper diligence.
The appellate court ruled, gathered from the testimonies and sworn marine
protests of the respective vessel masters of Limar I  and MT Iron Eagle, that
there was no way by which the barge's or the tugboat's crew could have
prevented the sinking of Limar I. The vessel was suddenly tossed by waves of
extraordinary height of six (6) to eight (8) feet and buffeted by strong winds
of 1.5 knots resulting in the entry of water into the barge's hatches. The
official Certificate of Inspection of the barge issued by the Philippine
Coastguard and the Coastwise Load Line Certificate would attest to the
seaworthiness of Limar I  and should strengthen the factual findings of
the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none
of the recognized exceptions from the rule — (1) when the factual findings of
the Court of Appeals and the trial court are contradictory; (2) when the
conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the Court of Appeals from its
findings of fact is manifestly mistaken, absurd, or impossible; (4) when there
is a grave abuse of discretion in the appreciation of facts; (5) when the
appellate court, in making its findings, went beyond the issues of the case
and such findings are contrary to the admissions of both appellant and
appellee; (6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice
certain relevant facts which, if properly considered, would justify a different
conclusion; (8) when the findings of fact are themselves conflicting; (9) when disposition of the dead body.
the findings of fact are conclusions without citation of the specific evidence Oct. 26 150 Philippine Vice Consul in Chicago sealed the shipping
on which they are based; and (10) when the findings of fact of the Court of 0 case containing the casket that contained Saludo’s
Appeals are premised on the absence of evidence but such findings are remains.
contradicted by the evidence on record — would appear to be clearly extant Oct. 26 Pomierski brought the remains to Continental Mortuary
in this instance.  Air Service at the airport (Chicago).

V. Disposition CMAS made the necessary arrangements (flights,

PETITION DENIED. transfers, etc.)

Saludo v CA PAL Airway Bill 079-01180454 Ordinary was issued

wherein the requested routing was TWA 131 (Chicago to
Body got transported in the wrong place. Carrier liable? No. rt. 1736 of the San Francisco), PAL 107 (San Francisco to Manila), and
Civil Code provides that the extraordinary responsibility of the common PAL 149 (Manila to Cebu).
carrier begins from the time the goods are delivered to the carrier. It is Oct. 27 At the Chicago airport
only when such fact of delivery has been unequivocally established can
the liability for loss, destruction, or deterioration of goods in the TWA 603 (Chicago to Mexico City) – This is the wrong
custody of the carrier be invoked. flight for Crispina Saludo’s remains.

PAL only took possession and control of Crispina Saludo’s remains on Oct. TWA 131 (Chicago to San Francisco) – This is the correct
28. Any switching prior thereto was not caused by them and subsequent flight for Crispina Saludo’s remains. However, another
events caused thereby, private respondents cannot be held liable. dead person’s body is in here.
140 G. Marcial of PAL signed the Air Cargo Transfer Manifest
A carrier has no obligation to inquire into the correctness or sufficiency 0 of TWA.
of such information. There must exist proof that would justify cause for
apprehension that the baggage is dangerous to warrant an exhaustive This act indicated acknowledgment by PAL of transfer
inspection or refusal to accept carriage of the same. from TWA the erroneous cargo.
180 CMAS withdrawn the erroneous cargo from PAL 107 due
5 to a switching in Chicago.
I. Facts of the case Oct. 28 The remains of Crispina Saludo arrived in San Francisco
from Mexico on board American Airlines.
TIMETABLE Oct. 28 194 PAL received the correct cargo, per American Airlines
Date Tim 5 Interline Freight Transfer Manifest No. AA204312.
(1976) e Oct. 30 Crispina Saludo’s body arrived in Manila. (It arrived late.
Oct. 23 Crispina Saludo died in Chicago, Illinois. The expected date was Oct. 29.)
Oct. 25 Pomierski and Son Funeral Home (Chicago) had the TWA = Trans World Airlines
remains embalmed and secured a permit for the PAL = Philippine Airlines

Petitioners stated that they were holding TWA and PAL liable for the delay in
delivery.
II. Issue/s
Whose fault was it? (CMAS)
Was there contractual breach on the part of TWA and PAL? NO
III. Ratio/Legal Basis
CMAS’ fault
PETITIONERS. Petitioners alleged that TWA and PAL received the remains of
petitioners’ mother as evidenced by the issuance of PAL Air Waybill 079-
01180454 by Air Care International as carrier’s agent. Thus, TWA and PAL are
charged with the responsibility to exercise diligence which they failed to
perform.
COURT. A bill of lading is a written acknowledgement of the receipt of the
goods and an agreement to transport and deliver them at a specified place
to a person named on his order. It is a receipt as to the quantity and
description of the goods shipped and a contract to transport the goods to
the consignee or other person therein designated, on the terms specified in
such instrument.
Logically, since a bill of lading is an acknowledgement, the delivery of
the goods normally precedes the bill. However, there is no law to prevent
the inverse order of events. Receipt, while not essential to a complete
delivery of goods, when issued, is competent and prima facie, but not
conclusive, evidence of delivery to the carrier. The recital of goods
received is not conclusive. It may be contradicted by parol or other evidence.
On Oct. 26, 1976, the cargo containing the remains of Crispina Saludo was
booked for PAL FN PR-107 leaving San Francisco for Manila on Oct. 27, 1976.
PAL Airway Bill No. 079-01180454 was issued, not as evidence of receipt of
delivery of the cargo on Oct. 26, but merely as a confirmation of the booking
made for the San Francisco-Manila flight for Oct. 27. It was not until Oct. 28
that PAL received the body at San Francisco as evidenced by the manifest.
Art. 1736 of the Civil Code provides that the extraordinary responsibility of
the common carrier begins from the time the goods are delivered to the
carrier. It is only when such fact of delivery has been unequivocally
established can the liability for loss, destruction, or deterioration of
goods in the custody of the carrier be invoked.
PAL only took possession and control of Crispina Saludo’s remains on Oct.
28. Any switching prior thereto was not caused by them and subsequent
events caused thereby, private respondents cannot be held liable.
PETITIONERS. TWA’s statement that it had relied on the information
furnished by the shipper is a lame excuse and that its failure to prove that its
personnel verified and identified the contents before loading the same is
negligence on the part of TWA.
COURT. A common carrier is entitled to fair representation of the nature and
value of the goods to be carried, with the concomitant right to rely thereon,
and further noting at this juncture that a carrier has no obligation to
inquire into the correctness or sufficiency of such information. There
must exist proof that would justify cause for apprehension that the
baggage is dangerous to warrant an exhaustive inspection or refusal to
accept carriage of the same.
TWA and PAL had no reason to doubt the shipper’s representations. The
airway bill expressly provided that “carrier certifies goods received below
were received for carriage,” and such cargo contained the “casketed human
remains of Crispina Saludo.”
PETITIONERS. Whoever brought the cargo to the airport or loaded it into the
plane did so as agent of respondents.
COURT. To hold that CMAS acted as TWAS and PAL’s agent is inaccurate.
CMAS was hired to handle the shipping arrangements. CMAS may be
classified as a forwarder which, by accepted commercial practice, is regarded
as agent of shipper, Pomierski & Son Funeral Home, not the carrier. It merely
contracts for the transportation of goods by carriers, and has no interest in
the freight but receives compensation from the shipper as his agent.
THE FACTS OF THE CASE POINT TO CMAS AS THE CULPRIT.
Petitioners had doubts as to CMAS’ possibility of liability as seen in
petitioners’ letter demanding explanation from CMAS.
The Court did not rule on the possible liability of CMAS as it was not an issue
presented.
No contractual breach
PETITIONER. By agreeing to transport the remains on TWA 131, TWA made
itself a party to the contract of carriage and was bound by the terms of the
airway bill. By shipping the remains earlier than scheduled, it violated the
agreement in the airway bill.
There is also no evidence as to who placed the body on TWA 603, that CMAS
actually put the cargo on the flight, that the bodies were transported by the
same airline, or that the bodies were received by CMAS.
COURT. TWA faithfully complied with its obligation under the airway bill. The
carrier did not undertake to carry the cargo aboard any specified aircraft.
There was no fixed time for completion of carriage stipulated on. The Court
found no ambiguity in the contract when TWA stated these terms.
A common carrier undertaking to transport property has the implicit duty to
carry and deliver it within a reasonable time, absent any particular stipulation
regarding time of delivery, and to guard against delay. In case of any
unreasonable delay, the carrier shall be liable for damages immediately and
proximately resulting from such neglect of duty. The TWA could not have
contributed to the fault in this case as it was the error with CMAS. The fact
that TWA transported the remains earlier given the notation “Please return
bag first available flight to SFO.”
IV. Disposition
WHEREFORE, with the modification that an award of P40,000.00 as and
by way of nominal damages is hereby granted in favor of petitioners to be
paid by respondent Trans World Airlines, the appealed decision is AFFIRMED
in all other respects.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Nocon, JJ., concur.
V. Notes
Lorenzo Shipping v BJ Marthel
- There is no delay constituting a breach of contract when the time of
delivery is not stipulated and time is not of the essence. In such
cases, the delivery must be made within reasonable time.
I. Recit-ready summary
Lorenzo Shipping Corporation purchased cylinder liners worth from BJ
Marthel International, Inc. covered by two purchase orders on different dates.
Prior to this, a QUOTATION was sent by Marthel to Lorenzo indicating that
delivery will be two months after receipt of the firm order. The
PURCHASE ORDER did not indicate the dates of delivery. Lorenzo issued
in favor of Marthel ten postdated checks which were dishonored by the bank
when it was being deposited. The items were paid, except for 2 cylinder
liners. A statement of account was sent to Lorenzo demanding the payment
of the 2 cylinder liners. Lorenzo sent a letter offering to pay only P150,000 for
the cylinder liners. It claimed that as the cylinder liners were delivered late
and due to the scrapping of the M/V Dadiangas Express, petitioner would
have to sell the cylinder liners in Singapore and pay the balance from the
proceeds of said sale. It claimed that Marthel should abide by the term of
delivery appearing on the quotation it submitted to Lorenzo.
The issue is WON Marthel incurred delay in performing its obligation
under the contract of sale - No.
The formal quotation provided by respondent represented the negotiation
phase of the subject contract of sale between the parties. As of that time, the
parties had not yet reached an agreement as regards the terms and
conditions of the contract of sale of the cylinder liners. When the time of
delivery is not fixed or is stated in general and indefinite terms, time is
not of the essence of the contract. In such cases, the delivery must be
made within a reasonable time. While Lorenzo alleges that the cylinder
liners were to be used for dry dock repair and maintenance of its M/V
Dadiangas Express and time was of the essence, the record is bereft of any
indication that Marthel was aware of such fact. The failure of petitioner to
notify respondent of said date is fatal to its claim that time was of the
essence in the subject contracts of sale.
Order was placed: January 1990
Received: April 1990
II. Facts of the case
Lorenzo Shipping Corporation (Lorenzo) is a domestic corporation
engaged in coastwise shipping. It used to own the cargo vessel M/V
Dadiangas Express. BJ Marthel International, Inc. (Marthel) is a business entity
engaged in trading, marketing, and selling of various industrial commodities.
It is also an importer and distributor of different brands of engines and spare
parts.
From 1987 up to the institution of this case, Marthel supplied Lorenzo
with spare parts for marine engines. In 1989, a quotation was sent by
Marthel to Lorenzo indicating that delivery will be two months after receipt of
the firm order. Lorenzo sent a purchase order for one set of cylinder liner
valued at P477,000, to be used for M/V Dadiangas Express.
Instead of paying the 25% down payment for the first cylinder liner,
Lorenzo issued in favor of Marthel ten postdated checks to be drawn against
the former's account with Allied Banking Corporation. The checks were
supposed to represent the full payment of the aforementioned cylinder liner.
Subsequently, Loreenzo purchased another unit of cylinder liner. The
purchase order stated the term of payment to be "25% upon delivery,
balance payable in 5 bi-monthly equal installment[s]." Like the first purchase
order, the second purchase order did not state the date of the cylinder
liner's delivery.
Subsequently, Marthel deposited the postdated check it received from
Lorenzo. However, the same was dishonored by the drawee bank due to
insufficiency of funds. The parties presented disparate accounts of what
happened to the check which was previously dishonored. Lorenzo claimed
that it replaced said check with a good one, the proceeds of which were
applied to its other obligation to respondent. For its part, Marthel insisted
that it returned said postdated check to petitioner.
Marthel thereafter placed the order for the two cylinder liners with its
principal in Japan, Daiei Sangyo Co. Ltd.,by opening a letter of credit under its
own name with the First Interstate Bank of Tokyo.
Pajarillo delivered the two cylinder liners at Lorenzo's warehouse in
North Harbor, Manila. The sales invoices evidencing the delivery of the
cylinder liners both contain the notation "subject to verification" under which
the signature of Eric Go, petitioner's warehouseman, appeared.
A statement of account was then sent to Lorenzo. While the other items
listed in said statement of account were fully paid, the two cylinder liners
delivered remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr.,
respondent's vice-president, sent a demand letter to petitioner requiring the
latter to pay the value of the cylinder liners subjects of this case.
Instead of heeding the demand of respondent for the full payment of
the value of the cylinder liners, petitioner sent a letter offering to pay only
P150,000 for the cylinder liners. In said letter, Lorenzo claimed that as the
cylinder liners were delivered late and due to the scrapping of the M/V
Dadiangas Express, petitioner would have to sell the cylinder liners in
Singapore and pay the balance from the proceeds of said sale.
Shortly thereafter, another demand letter was furnished petitioner by
respondent's counsel requiring the former to settle its obligation to
respondent together with accrued interest and attorney's fees.
 Due to the failure of the parties to settle the matter, Marthel filed an
action for sum of money and damages before the Regional Trial Court (RTC)
of Makati City.
Lorenzo alleged that time was of the essence in the delivery of the
cylinder liners and that the delivery of said items was late as respondent
committed to deliver said items "within two (2) months after receipt of firm
order" from petitioner.
The trial court held Marthel bound to the quotation it submitted to
Lorenzo particularly with respect to the terms of payment and delivery of the
cylinder liners. It also declared that respondent had agreed to the
cancellation of the contract of sale when it returned the postdated checks
issued by petitioner. The Court of Appeals brushed aside petitioner's claim
that time was of the essence in the contract of sale between the parties
herein considering the fact that a significant period of time had lapsed
between respondent's offer and the issuance by petitioner of its purchase
orders.
III. Issue/s
1. WON Marthel incurred delay in performing its obligation under the
contract of sale? -- NO
IV. Ratio/Legal Basis
In determining whether time is of the essence in a contract, the ultimate
criterion is the actual or apparent intention of the parties and before time
may be so regarded by a court, there must be a sufficient manifestation,
either in the contract itself or the surrounding circumstances of that
intention. Petitioner insists that although its purchase orders did not
specify the dates when the cylinder liners were supposed to be
delivered, nevertheless, respondent should abide by the term of delivery
appearing on the quotation it submitted to petitioner. Petitioner
theorizes that the quotation embodied the offer from respondent while the
purchase order represented its (petitioner's) acceptance of the proposed
terms of the contract of sale. Thus, petitioner is of the view that these two
documents "cannot be taken separately as if there were two distinct
contracts."
It is a cardinal rule in interpretation of contracts that if the terms thereof
are clear and leave no doubt as to the intention of the contracting parties,
the literal meaning shall control. However, in order to ascertain the intention
of the parties, their contemporaneous and subsequent acts should be
considered. While this Court recognizes the principle that contracts are
respected as the law between the contracting parties, this principle is
tempered by the rule that the intention of the parties is primordial and "once
the intention of the parties has been ascertained, that element is deemed as
an integral part of the contract as though it has been originally expressed in
unequivocal terms."
In the present case, we cannot subscribe to the position of petitioner
that the documents, by themselves, embody the terms of the sale of the
cylinder liners. One can easily glean the significant differences in the terms as
stated in the formal quotation and first purchase order with regard to the due
date of the down payment for the first cylinder liner and the date of its
delivery as well as the second purchase order with respect to the date of
delivery of the second cylinder liner. While the quotation provided by
respondent evidently stated that the cylinder liners were supposed to be
delivered within two months from receipt of the firm order of petitioner and
that the 25% down payment was due upon the cylinder liners' delivery, the
purchase orders prepared by petitioner clearly omitted these significant
items. The petitioner's first purchase order made no mention at all of the due
dates of delivery of the first cylinder liner and of the payment of 25% down
payment. The second purchase order likewise did not indicate the due date
of delivery of the second cylinder liner.
A contract undergoes three distinct stages — preparation or
negotiation, its perfection, and finally, its consummation. Negotiation begins
from the time the prospective contracting parties manifest their interest in
the contract and ends at the moment of agreement of the parties. The
perfection or birth of the contract takes place when the parties agree upon
the essential elements of the contract. The last stage is the consummation of
the contract wherein the parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof."
 In the instant case, the formal quotation provided by respondent
represented the negotiation phase of the subject contract of sale
between the parties. As of that time, the parties had not yet reached an
agreement as regards the terms and conditions of the contract of sale of the
cylinder liners. Petitioner could very well have ignored the offer or tendered a
counter-offer to respondent while the latter could have, under the pertinent
provision of the Civil Code, withdrawn or modified the same. The parties were
at liberty to discuss the provisions of the contract of sale prior to its
perfection..
Notably, petitioner was the one who caused the preparation of the
purchase orders yet it utterly failed to adduce any justification as to why
said documents contained terms which are at variance with those stated
in the quotation provided by respondent. The only plausible reason for
such failure on the part of petitioner is that the parties had, in fact,
renegotiated the proposed terms of the contract of sale. Moreover, as the
obscurity in the terms of the contract between respondent and petitioner was
caused by the latter when it omitted the date of delivery of the cylinder liners
in the purchase orders and varied the term with respect to the due date of
the down payment, said obscurity must be resolved against it.
When the time of delivery is not fixed or is stated in general and
indefinite terms, time is not of the essence of the contract. In such cases,
the delivery must be made within a reasonable time. The law implies,
however, that if no time is fixed, delivery shall be made within a reasonable
time, in the absence of anything to show that an immediate delivery
intended.
We also find significant the fact that while petitioner alleges that the
cylinder liners were to be used for dry dock repair and maintenance of its
M/V Dadiangas Express between the later part of December 1989 to early
January 1990, the record is bereft of any indication that respondent was
aware of such fact. The failure of petitioner to notify respondent of said date
is fatal to its claim that time was of the essence in the subject contracts of
sale.
It must be noted that in the purchase orders issued by Lorenzo, no
specific date of delivery was indicated therein. If time was really of the
essence as claimed by it, they should have stated the same in the said
purchase orders, and not merely relied on the quotation issued by
Marthel considering the lapse of time between the quotation issued by
the appellant and the purchase orders of the appellee.
In the instant case, Lorenzo should have provided for an allowance of
time and made the purchase order earlier if indeed the said cylinder liner was
necessary for the repair of the vessel scheduled on the first week of January,
1990. In fact, the Lorenzoshould have cancelled the first purchase order when
the cylinder liner was not delivered on the date it now says was necessary.
Instead it issued another purchase order for the second set of cylinder liner.
This fact negates its claim that time was indeed of the essence in the
consummation of the contract of sale between the parties.
As an aside, let it be underscored that "[e]ven where time is of the
essence, a breach of the contract in that respect by one of the parties may be
waived by the other party's subsequently treating the contract as still in
force." Petitioner's receipt of the cylinder liners when they were delivered to
its warehouse on 20 April 1990 clearly indicates that it considered the
contract of sale to be still subsisting up to that time.
We, therefore, hold that in the subject contracts, time was not of the essence.
The delivery of the cylinder liners was made within a reasonable period of
time considering that respondent had to place the order for the cylinder
liners with its principal in Japan and that the latter was, at that time, beset by
heavy volume of work. There having been no failure on the part of the
respondent to perform its obligation, the power to rescind the contract is
unavailing to the petitioner.
V. Disposition
WHEREFORE, premises considered, the instant Petition for Review on
Certiorari is DENIED. The Decision of the Court of Appeals, dated 28
April 2000, and its Resolution, dated 06 October 2000, are hereby
AFFIRMED. No costs.
 Sealoader Shipping Corporation (Sealoader) is a domestic corporation
SO ORDERED. engaged in the business of shipping and hauling cargo from one point to
Sealoader Shipping v Grand Cement Manufacturing another using sea-going inter-island barges/ Grand Cement Manufacturing
Corporation (now Taiheiyo Cement Philippines, Inc.) is a domestic
corporation engaged in the business of manufacturing and selling cement
through its authorized distributors and, for which purposes, it maintains its
I. Recit-ready summary
own private wharf in San Fernando, Cebu, Philippines.

Sealoader Shipping Corporation, who was engaged in the business of

Sealoader executed a Time Charter Party Agreement with Joyce Launch
shipping and hauling cargo, entered into a contract with Joyce Launch, owner
and Tug Co., Inc. (Joyce Launch), a domestic corporation, which owned and
and operator of M/T Viper, where the latter would tow Sealoader’s
operated the motor tugboat M/T Viper. Sealoader chartered the M/T Viper
unpropelled barges. Sealoader also entered into a contract with Grand
in order to tow Sealoader’s unpropelled barges for a minimum period of
Cement, which was engaged in the business of manufacturing and selling
fifteen days from the date of acceptance, renewable on a fifteen-day basis
cement, for the loading of cement clinkers and the delivery thereof to
upon mutual agreement of the parties.
Manila. Sealoader’s Barge arrived at the wharf of Grand Cement, tugged by
M/T Viper. The cargo was not immediately loaded, hence the barge remained
Sealoader entered into a contract with Grand Cement for the loading of
at sea. Due to Typhoon Bising’s heavy rains and waves, the barge of
cement clinkers and the delivery thereof to Manila. Sealoader’s barge, the
Sealoader rammed the wharf of Grand Cement causing significant
D/B Toploader, arrived at the wharf of Grand Cement tugged by the M/T
damage thereto. Grand Cement filed a complaint for damages against
Viper.
Sealoader and Joyce Launch. Sealoader contends that there was contributory
negligence on the part of Grand Cement as they did not inform Sealoader of
The D/B Toploader, however, was not immediately loaded with its
the weather and because of their late loading of cargo. Sealoader asserts that
intended cargo as the employees of Grand Cement were still loading
if the cargo was loaded earlier, the barge would not have suffered under the
another vessel, the Cargo Lift Tres.
storm, eventually ramming on the wharf. The issue in this case is who,
● Typhoon Bising struck the Visayas area. Public storm signal
among the parties in this case, should be liable for the damage sustained by
number 3 was raised over the province of Cebu.
the wharf of Grand Cement. The SC held that Sealoader was negligent in
● The D/B Toploader was, at that time, still docked at the wharf of
its operations. It did not have a radio device in its barge, their crew were lax
Grand Cement.
in their duties and failed to inform themselves of the approaching storm. ● As the winds blew stronger and the waves grew higher, the M/T
Grand Central timely informed the crew of the weather conditions, but the Viper tried to tow the D/B Toploader away from the wharf. The
crew refused to acknowledge the same. The doctrine of last clear chance, efforts of the tugboat were foiled, however, as the towing line
which states that where both parties are negligent but the negligent act of connecting the two vessels snapped.
one is appreciably later than that of the other, or where it is impossible to ● This occurred as the mooring lines securing the D/B Toploader to the
determine whose fault or negligence caused the loss, the one who had the wharf were not cast off.
last clear opportunity to avoid the loss but failed to do so, is chargeable with ● The following day, the employees of Grand Cement discovered the
the loss, does not apply to this case. D/B Toploader situated on top of the wharf, apparently having
rammed the same and causing significant damage thereto.
II. Facts of the case
Grand Cement filed a Complaint for Damages against Sealoader; Romulo
Diantan, the Captain of the M/T Viper; and Johnny Ponce, the Barge Patron of
the D/B Toploader.
● Grand Cement claimed, among others, that when the D/B Toploader
arrived at its wharf on March 31, 1994, the same was not properly
secured.
● Storm warnings for Typhoon Rising were already circled to the public
through radio and print media.
● Grand Cement stated that after it received the weather updates for
that day, it immediately advised Romulo Diantan and Johnny Ponce
to move their respective vessels away from the wharf to a safer
berthing area.
● Both men allegedly refused to do so, with Romulo Diantan even
abandoning the D/B Toploader in the critical hours in the afternoon.
Because of the strong winds of Typhoon Bising, the D/B Toploader
was forced to smash against the wharf of Grand Cement.
Sealoader filed a motion to dismiss the complaint.
● Sealoader insisted that Joyce Launch should have been sued in its
stead, as the latter was the owner and operator of the M/T Viper.
● Having complete physical control of the M/T Viper, as well as the
towing, docking, mooring and berthing of the D/B Toploader,
Sealoader maintained that Joyce Launch should be held liable for the
negligent acts of the latter’s employees who were manning the M/T
Viper.
[Dec 14, 1994] Before the RTC could hear the above motion, Grand Cement
filed an Amended Complaint, impleading Joyce Launch as one of the party
defendants.
● Sealoader instituted a cross-claim against Joyce Launch and Romulo
Diantan.
● Sealoader pleaded that, should it be adjudged liable to pay the
damages sought by Grand Cement, Joyce Launch should likewise be
ordered to reimburse Sealoader any and all amounts that the latter is
ordered to pay.
Joyce Launch claimed that the damage sustained by the wharf of Grand
Cement was not due to the gross negligence of the M/T Viper crew but due
to the force majeure that was Typhoon Bising.
● When the typhoon struck, the employees of Grand Cement allegedly
abandoned the wharf, thus, leaving the crew of the M/T Viper
helpless in preventing the D/B Toploader from ramming the wharf.
● Joyce Launch likewise faulted Grand Cement’s employees for not
warning the crew of the M/T Viper early on to seek refuge from the
typhoon.
RTC declared that Sealoader was negligent
● They did not take any precautionary measure as demanded or
required of them in complete disregard of the public storm
signal or warning;
● the master or captain or the responsible crew member of the vessel
was not in the vessel, hence, nobody could make any move or action
for the safety of the vessel at such time of emergency or catastrophe;
● and the vessel was not equipped with a radio or any navigational
communication facility, which is a mandatory requirement for all
navigational vessels.
● Grand Cement is entitled to recover damages
The CA affirmed the decision of the RTC.
● MR: CA acknowledged that like Sealoader, Grand Cement did not
take any precaution to avoid the damages wrought by the storm.
Grand Cement waited until the last possible moment before
informing Sealoader and Joyce about the impending storm.
● Grand Cement also did not exercise due diligence in this case and
that its conduct contributed to the damages that it suffered.
● CA reduced the amount of recoverable damages.
III. Issue/s
Who should be liable for the damage sustained by the wharf of Grand
Cement- SEALOADER IS GUILTY OF NEGLIGENCE. The acts of its crew in
not appraising themselves on current weather situations caused the accident.
IV. Ratio/Legal Basis
Sealoader contends that Grand Cement had the last clear chance to prevent
the damage to the latter’s wharf.
 ● Had Grand Cement cast off the mooring lines attached to the D/B
Toploader early on, the barge could have been towed away from the
wharf and the damage thereto could have been avoided.
● As Grand Cement failed to act accordingly, Sealoader argues that the
former was barred from recovering damages.
● Grand Cement counters that the determination as to who among the
parties had the last clear chance to avoid an impending harm or
accident calls for a re-examination of the evidence adduced by the
parties.
As this Court is not a trier of facts, Grand Cement posits that Sealoader’s
petition may already be dismissed.
● Furthermore, Grand Cement asserts that the doctrine of last clear
chance cannot aid Sealoader since the doctrine presumes that
Sealoader’s negligence had ceased and the alleged negligence of
Grand Cement came at a later time.
● Thus, an appreciable time must have intervened, which effectively
severed the negligence of Sealoader. Contrarily, Grand Cement
maintains that the negligence of Sealoader did not cease, while its
own negligence was not proven.
The doctrine of last clear chance states that where both parties are
negligent but the negligent act of one is appreciably later than that of
the other, or where it is impossible to determine whose fault or
negligence caused the loss, the one who had the last clear opportunity
to avoid the loss but failed to do so, is chargeable with the loss.
(Philippine National Railways v Brunty)
● Stated differently, the antecedent negligence of plaintiff does not
preclude him from recovering damages caused by the supervening
negligence of defendant, who had the last fair chance to prevent
the impending harm by the e diligence
The Court finds that Sealoader was guilty of negligence in the conduct of
its affairs during the incident in question
● The lack of a radio navigational communication facility aboard
the D/B Toploader was negligent of Sealoader.
● There is manifest laxity of the crew in monitoring the weather
● The crew failed to keep a watchful eye not the prevailing
weather conditions.
● Sealoader cannot merely rely on other vessels for weather
updates and warnings on approaching storms, as what
apparently happened in this case. Common sense and reason
dictates this.
● To do so would be to gamble with the safety of its own
vessel, putting the lives of its crew under the mercy of the sea,
as well as running the risk of causing damage to the property
o for which it would necessarily be liable
● Contributory negligence of Grand Cement was not
established in this case
● Grand Cement timely informed the D/B Toploader of the
impending typhoon.
● The Court finds that the evidence proffered by Sealoader to
prove the negligence of Grand Cement was marred by
contradictions and are, thus, weak at best.
V. Disposition
● The Petition for Review in G.R. No. 167363 is DENIED DENIED;
● The Petition for Review in G.R. No. 177466 is GRANTED
● The Amended Decision dated March 3, 2005 of the Court of
Appeals in CA-G.R. CV No. 65083 is REVERSED and SET ASIDE;
and
● The Decision dated November 12, 2004 of the Court of
Appeals in CA-G.R. CV No. 65083 is REINSTATED REINSTATED.
Mitsui Lines v CA
- Loss or damage under the COGSA S3(6) requires physical loss or
damage – loss being a situation wherein there is no delivery of goods
at all or the same have gone out of commerce or they have
disappeared. Mitsui Lines is liable under breach of contract under the
Civil Code though.
I. Recit- ready summary
Mitsui is a foreign corporation represented by its agent, Magsaysay
Agencies. It entered into a contract of carriage with private respondent
Lavine Mfg. Co. to transport goods of the latter from Manila to France.
Petitioner failed in its undertaking to transport the goods in 28 days
from initial loading [arrived 3 months after], hence, the private
respondent filed a case for the recovery of damages before the RTC.
Petitioner moved for the dismissal of the complaint alleging that private
respondent cause of action had prescribed under the Carriage of Goods by
Sea Act (COGSA), which provides only for a period of 1 year. It was denied by
the RTC. On petition for certiorari, the Court of Appeals sustained the
trial court's order.
Hence this petition raising the issue  of  whether or not private
respondent's action is for "loss or damage" to goods shipped, within the
meaning  of  COGSA.  prescribed under the Carriage of Goods by Sea Act.
Precisely, the question before the trial court is not the particular
scene of "damages" as it refers to the physical loss or damage of a
shipper's goods as specifically covered by §3(6) of COGSA. Within the
context of COGSA, loss" contemplates merely a situation where no
delivery at all was made by the shipper  of the goods because the same
had perished, gone out of commerce, or disappeared in such a way that
their existence is unknown or they cannot be recovered.  IV. Ratio/Legal Basis
But petitioner's potential liability for the damages it has caused in the
general sense and, as such, the matter is governed by the Civil Code, the
Code of Commerce and COGSA, for the breach of its contract of carriage with
private respondent.
Supreme Court concluded by holding that as the suit below is not for
"loss or damage" to goods contemplated in §3(6), the
question of prescription of action is governed not by the COGSA but by Art.
1144 of the Civil Code which provides for a prescriptive period of ten years.
Hence, the filing has not prescribed.
II. Facts of the case
Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the
Philippines by its agent, Magsaysay Agencies. It entered into a
contract of carriage through Meister Transport, Inc., an international freight
forwarder, with private respondent Lavine Loungewear Manufacturing
Corporation to transport goods of the latter from Manila to Le Havre,
France. Petitioner undertook to deliver the goods to France 28 days from
initial loading. On July 24, 1991, petitioner's vessel loaded private
respondent's container van for carriage at the said port of origin.||| 
The goods at some point were not transhipped immediately so the goods
only arrived in Le Havre in November 14 of the same year. The consignee
allegedly paid only half the value of the said goods on the ground that
they did not arrive in France until the "off season" in that country. The
remaining half was allegedly charged to the account of private respondent
which in turn demanded payment from petitioner through its agent.
Respondent filed a case against the petitioner on April 14, 1992 but
Petitioner filed a motion to dismiss alleging that the claim against it had
III. Issue/s
Whether or not private respondent's action is for "loss or damage" to goods
shipped, within the meaning of §3(6) of the Carriage of Goods by
Sea Act (COGSA)? No.
The court held no. It was held in Ang  v.  American Steamship Agencies, Inc.,
the question was whether an action for the value of goods which had been
delivered to a party other than the consignee is for "loss or damage" within
the meaning of §3(6) of the COGSA. It was held that there was no loss
because the goods had simply been misdelivered. "Loss" refers to the
deterioration or disappearance of goods.
The court held that as the suit below is not for "loss or damage" to goods
contemplated in §3(6), the question of prescription of action is governed not
by the COGSA but by Art. 1144 of the Civil Code which provides for a
prescriptive period of ten years.
As defined in the Civil Code and as applied to Section 3(6), paragraph
4 of the Carriage of Goods by Sea Act, "loss" contemplates merely a
situation where no delivery at all was made by the shipper  of the goods
because the same had perished, gone out  of commerce, or disappeared
in such a way that their existence is unknown or they cannot be
recovered. 
Conformably with this concept of what constitutes "loss" or "damage,"
this Court held in another case  that the deterioration of goods due to delay
in their transportation constitutes "loss" or "damage" within the
meaning of 3(6), so that as suit was not brought within one year the action
was barred:
Whatever damage or injury is suffered by the goods while in transit would
result in loss or damage to either the shipper or the consignee. As long as it
is claimed, therefore, as it is done here, that the losses or damages suffered
by the shipper or consignee were due to the arrival of the goods in damaged
or deteriorated condition, the action is still basically one for damage to the
goods, and must be filed within the period of one year from delivery or
receipt, under the above-quoted provision of the Carriage of Goods by
Sea Act.  its contract of carriage with private respondent as covered by
But the Court allowed that —
There would be some merit in appellant's insistence that the damages
suffered by him as a result of the delay in the shipment of his cargo are
not covered by the prescriptive provision of the Carriage of Goods by
Sea Act above referred to, if such damages were due, not to the
deterioration and decay of the goods while in transit, but to other
causes independent of the condition of the cargo upon arrival, like a
drop in their market value.
The reason for limiting the definitions as held in Ang: Said one-year
period of limitation is designed to meet the exigencies of maritime hazards.
In a case where the goods shipped were neither lost nor damaged in transit
but were, on the contrary, delivered in port to someone who claimed to be
entitled thereto, the situation is different, and the special need for the short
period of limitation in cases of loss or damage caused by maritime perils
does not obtain.
As applied in this case, there’s no deterioration, disappearance not
destruction of goods caused by the carrier's breach of contract. Whatever
reduction there may have been in the value of the goods is not due to their
deterioration or disappearance because they had been damaged in transit.
Petitioner contends:
Although we agree that there are places in the section (Article III) in which the
phrase need have no broader meaning than loss or physical damage to the
goods, we disagree with the conclusion that it must so be limited wherever it
is used. We take it that the phrase has a uniform meaning, not merely in
Section 3, but throughout the Act; and there are a number of places in which
the restricted interpretation suggested would be inappropriate. For example
Section 4(2) [Article IV(2) (sic) exempts exempts (sic) the carrier, the ship (sic),
from liability "loss or damage" (sic) resulting from certain courses beyond
their control. 
Indeed, what is in issue in this petition is not the liability of petitioner for its
handling of goods as provided by 3(6) of the COGSA, but its liability under
laws of more general application.
Precisely, the question before the trial court is not the particular
sense of "damages" as it refers to the physical loss or damage of a shipper's
goods as specifically covered by §3(6) of COGSA but petitioner's potential
liability for the damages it has caused in the general sense and, as such, the
matter is governed by the Civil Code, the Code of Commerce and COGSA, for
the breach of its contract of carriage with private respondent.
V. Disposition
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Regalado, Melo, Puno and Martinez, JJ  .,concur.
VI. Notes
Section 3 provides:
(6) Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge
or at the time of the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage, such removal shall
be prima facie evidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not apparent, the
notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the
goods given by the person taking delivery thereof. The notice in writing need
not be given if the state of the goods has at the time of their receipt been the
subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been
delivered: Provided, that, if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not
affect or prejudice the right of the shipper to bring suit within one year after
the delivery of the goods or the date when the goods should have been
delivered.
In the case of any actual or apprehended loss or damage, the carrier and the
receiver shall give all reasonable facilities to each other for inspecting and
tallying the goods.
Sulpicio v First Lepanto
- Three wooden crates containing cartons of inductors were
transported from Cebu to Singapore. One of the crates dropped from
the cargo hatch to the pier apron. Is carrier liable? Yes, because it
failed to show evidence of extraordinary diligence on its part.
I. Recit-ready summary
Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc.
(shipper) entered into a contract to transport shipment of goods. Delbros
engaged the services of a vessel owned and operated by Sulpicio Lines,
Inc. (carrier). During the unloading of the shipment, one crate dropped
from the cargo hatch to the pier apron and were no longer usable for
their intended purpose. Taiyo filed a claim against Sulpicio for the recovery
of the value of the rejected cargo which was refused by the latter. Thereafter,
Taiyo sought payment from First Lepanto-Taisho Insurance Corporation
(insurer) under a marine insurance policy. First Lepanto then filed claims
for reimbursement from Delbros, Inc. and Sulpicio Lines, Inc. which were
subsequently denied.
Whether or not, based on the evidence presented during the trial, Taiyo
incurred damages, and if so, whether Sulpicio Lines is liable for the
same? YES.
It cannot be denied that the shipment sustained damage while in the custody
of Sulpicio Lines. It is not disputed that one of the three (3) crates did fall
from the cargo hatch to the pier apron while Sulpicio was unloading the
cargo from its vessel. The falling of the crate during the unloading is evidence
of Sulpicio’s negligence in handling the cargo. As a common carrier, it is
expected to observe extraordinary diligence in the handling of goods
placed in its possession for transport. Thus, when the shipment suffered
damages as it was being unloaded, Sulpicio is presumed to have been
negligent in the handling of the damaged cargo.
Sulpicio miserably failed to adduce any shred of evidence of the
required extraordinary diligence to overcome the presumption that it
was negligent in transporting the cargo.
SC upholds the ruling of CA that Sulpicio is liable to pay the amount paid by
First Lepanto for the damages sustained by Taiyo. However, First Lepanto had
already been paid the full amount, thus, it will be tantamount to unjust
enrichment for it to again recover damages from Sulpicio.
II. Facts of the case
Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc.
(shipper) entered into a contract, evidenced by Bill of Lading issued by the
latter in favor of the owner of the goods, to transport a shipment of goods
consisting of three (3) wooden crates containing one hundred thirty-six (136)
cartons of inductors from Cebu City to Singapore.
For the carriage of said shipment from Cebu City to Manila, Delbros, Inc.
engaged the services of the vessel M/V Philippine Princess, owned and
operated by Sulpicio Lines, Inc. (carrier).
During the unloading of the shipment, one crate containing forty-two (42)
cartons dropped from the cargo hatch to the pier apron. Taiyo examined the
dropped cargo, and upon an alleged finding that the contents of the crate
were no longer usable for their intended purpose, they were rejected as a
total loss and returned to Cebu City.
Taiyo filed a claim against Sulpicio for the recovery of the value of the
rejected cargo which was refused by the latter. Thereafter, Taiyo sought
payment from First Lepanto-Taisho Insurance Corporation (insurer) under
a marine insurance policy issued to the former. First Lepanto paid the claim
less thirty-five percent (35%) salvage value or P194, 220.31.
The payment of the insurance claim by the First Lepanto subrogated
whatever right or legal action Taiyo may have against Delbros, Inc. and
Sulpicio Lines, Inc. Thus, First Lepanto then filed claims for reimbursement
from Delbros, Inc. and Sulpicio Lines, Inc. which were subsequently denied.
First Lepanto filed a suit for damages against Delbros, Inc. and Sulpicio. The
trial court dismissed the complaint for damages while the Court of Appeals
reversed the dismissal of the complaint by the lower court. During the
pendency of the appeal before the SC, Delbros, Inc. paid in full the amount of
the damages awarded by the appellate court to the First Lepanto.
III. Issue/s
Whether or not, based on the evidence presented during the trial, Taiyo
incurred damages, and if so, whether Sulpicio Lines is liable for the same?
YES.
IV. Ratio/Legal Basis
It cannot be denied that the shipment sustained damage while in the custody
of Sulpicio Lines. It is not disputed that one of the three (3) crates did fall
from the cargo hatch to the pier apron while Sulpicio was unloading the
cargo from its vessel. Neither is it impugned that upon inspection, it was
found that two (2) cartons were torn on the side and the top flaps were open
and that two (2) cello bags, each of 50 pieces ferri inductors, were missing
from the cargo.
Sulpicio contends that its liability, if any, is only to the extent of the cargo
damage or loss and should not include the lack of fitness of the shipment for
transport to Singapore due to the damaged packing. This is erroneous.
According to it, damage to the packaging is not tantamount to damage to
the cargo. It must be stressed that in the case at bar, the damage sustained
by the packaging of the cargo while in its custody resulted in unfitness to be
transported to the consignee in Singapore. Such failure to ship the cargo to
its final destination because of the ruined packaging, indeed, resulted in
damages on the part of the owner of the goods.
The falling of the crate during the unloading is evidence of Sulpicio’s
negligence in handling the cargo. As a common carrier, it is expected to
observe extraordinary diligence in the handling of goods placed in its
possession for transport. The standard of extraordinary diligence imposed
upon common carriers is considerably more demanding than the standard of
ordinary diligence. A common carrier is bound to transport its cargo and its
passengers safely "as far as human care and foresight can provide, using the
utmost diligence of a very cautious person, with due regard to all
circumstances." The extraordinary diligence in the vigilance over the goods
tendered for shipment requires the common carrier to know and to follow
the required precaution for avoiding the damage to, or destruction of, the
goods entrusted to it for safe carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all
reasonable means to ascertain the nature and characteristic of goods
tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires."
Thus, when the shipment suffered damages as it was being unloaded,
Sulpicio is presumed to have been negligent in the handling of the damaged
cargo. Under Articles 1735 and 1752 of the Civil Code, common carriers
are presumed to have been at fault or to have acted negligently in case
the goods transported by them are lost, destroyed or had deteriorated.
To overcome the presumption of liability for loss, destruction or deterioration
of goods, the common carrier must prove that they observed extraordinary
diligence as required in Article 1733 of the Civil Code.
Sulpicio miserably failed to adduce any shred of evidence of the required
extraordinary diligence to overcome the presumption that it was negligent in
transporting the cargo.
The question then is: To what extent is Sulpicio Lines, Inc., as common carrier,
liable for the damages suffered by the owner of the goods?
Upon First Lepanto’s payment of the alleged amount of loss suffered by the
insured, the insurer is entitled to be subrogated pro tanto to any right of
action which the insured may have against the common carrier whose
negligence or wrongful act caused the loss.
The falling of the crate was negligence on the part of Sulpicio Lines, Inc. for
which it cannot exculpate itself from liability because it failed to prove that it
exercised extraordinary diligence. Hence, SC uphold the ruling of the
appellate court that Sulpicio is liable to pay the amount paid by First Lepanto
for the damages sustained by Taiyo.
However, as stated in the manifestation filed by Delbros, Inc, First Lepanto
had already been paid the full amount, thus, it will be tantamount to unjust
enrichment for First Lepanto to again recover damages from Sulpicio.
V. Disposition
WHEREFORE, premises considered, the assailed Decision of the Court of
Appeals dated 26 May 1999 and its Resolution dated 13 October 1999 are
hereby AFFIRMED. No costs.
Coastwise Lighterage v CA
- Molasses from Cebu to Manila. Molasses were contaminated.
Petitioner argues that under its charter agreement with pag-asa
sales, it became a private carrier. Correct? No.
- A contract of affreightment is one in which the owner of the vessel
leases part or all of its space to haul goods for others. It is a
contract for special service to be rendered by the owner of the
vessel and under such contract the general owner retains the
possession, command and navigation of the ship, the charterer
or freighter merely having use of the space in the vessel in
return for his payment of the charter hire. . .
- An owner who retains possession of the ship though the hold is the
property of the charterer, remains liable as carrier and must answer
for any breach of duty as to the care, loading and unloading of the
cargo.
- Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order
to carry cargo from one point to another, but the possession,
command and navigation of the vessels remained with petitioner
Coastwise Lighterage.
- It also claims that it was not liable because the PH Coastguard failed
to indicate where the derelicts are located which was the proximate
cause of the accident. Valid? No, because the patron navigating the
ship was unlicensed. It cannot claim extraordinary diligence when it
placed someone unlicensed at the helm.
I. Recit-ready summary
Pag-asa Sales, Inc. entered into a contract to transport with Coastwise
Lighterage using the latter's dumb barges to transport molasses to Cebu. The
barges were towed in tandem by the tugboat MT Marica, which is likewise
owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges,
"Coastwise 9," struck an unknown sunken object. The forward buoyancy
compartment was damaged, and water gushed in through a hole "two
inches wide and twenty-two inches long." As a consequence, the molasses
at the cargo tanks were contaminated and rendered unfit for the use it
was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the
shipment of molasses as a total loss.
Coastwise Lighterage contends that the RTC and the Court of Appeals
erred in finding that it was a common carrier. It stresses the fact that it
contracted with Pag-asa Sales, Inc. to transport the shipment of molasses
from Negros Oriental to Manila and refers to this contract as a "charter
agreement." It then proceeds to cite the case of Home Insurance Company
vs. American Steamship Agencies, Inc. where the Supreme Court held: ". . . a
common carrier undertaking to carry a special cargo or chartered to a special
person only becomes a private carrier.”
Issue: Whether Coastwise Lighterage was transformed into a private carrier by
virtue of the contract of affreightment which it entered into with Pag-asa sales?
NO
Under Puromines, Inc. vs. Court of Appeals, wherein we ruled:
"Under the demise or bareboat charter of the vessel, the charterer
will generally be regarded as the owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes the owner
pro hac vice, subject to liability to others for damages caused by negligence.
To create a demise, the owner of a vessel must completely and exclusively
relinquish possession, command and navigation thereof to the charterer,
anything short of such a complete transfer is a contract of affreightment
(time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the
owner of the vessel leases part or all of its space to haul goods for others.
It is a contract for special service to be rendered by the owner of the
vessel and under such contract the general owner retains the possession,
command and navigation of the ship, the charterer or freighter merely
having use of the space in the vessel in return for his payment of the
charter hire. . .
An owner who retains possession of the ship though the hold is the
property of the charterer, remains liable as carrier and must answer for any
breach of duty as to the care, loading and unloading of the cargo.
Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order
to carry cargo from one point to another, but the possession, command
and navigation of the vessels remained with petitioner Coastwise
Lighterage.
Pursuant therefore to the ruling in the Puromines case, Coastwise
Lighterage, by the contract of affreightment, was not converted into a
private carrier, but remained a common carrier and was still liable as
such.
It follows then that the presumption of negligence that attaches to
common carriers, once the goods it transports are lost, destroyed or
deteriorated, applies to the petitioner
The records show that the damage to the barge which carried the
cargo of molasses was caused by its hitting an unknown sunken object as it
was heading for Pier 18. The object turned out to be a submerged derelict
vessel. Petitioner contends that this navigational hazard was the efficient
cause of the accident. Further, it asserts that the fact that the Philippine
Coastguard "has not exerted any effort to prepare a chart to indicate the
location of sunken derelicts within Manila North Harbor to avoid navigational
accidents" effectively contributed to the happening of this mishap. Thus,
being unaware of the hidden danger that lies in its path, it became
impossible for the petitioner to avoid the same. Nothing could have
prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence. However, the patron that it hired was
unlicensed.
Clearly, petitioner Coastwise Lighterage's embarking on a voyage
with an unlicensed patron violates this rule. It cannot safely claim to have
exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which
eventually met the fateful accident.
II. Facts of the case
Pag-asa Sales, Inc. entered into a contract to transport molasses from
the province of Negros to Manila with Coastwise Lighterage Corporation
(Coastwise for brevity), using the latter's dumb barges. The barges were
towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges,
"Coastwise 9," struck an unknown sunken object. The forward buoyancy
compartment was damaged, and water gushed in through a hole "two inches
wide and twenty-two inches long." As a consequence, the molasses at the
cargo tanks were contaminated and rendered unfit for the use it was
intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the
shipment of molasses as a total loss.
Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its
lost cargo, herein private respondent, Philippine General Insurance Company
and against the carrier, Coastwise Lighterage. Coastwise Lighterage denied
the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc.
 In turn, PhilGen then filed an action against Coastwise Lighterage,
seeking to recover the amount which it paid to Pag-asa Sales, Inc. for the
latter's lost cargo.
Petitioner contends that the RTC and the Court of Appeals erred in
finding that it was a common carrier. It stresses the fact that it contracted
with Pag-asa Sales, Inc. to transport the shipment of molasses from Negros
Oriental to Manila and refers to this contract as a "charter agreement." It then
proceeds to cite the case of Home Insurance Company vs. American
Steamship Agencies, Inc. where the Supreme Court held: ". . . a common
carrier undertaking to carry a special cargo or chartered to a special person
only becomes a private carrier.”
III. Issue/s
Whether Coastwise Lighterage was transformed into a private carrier, by
virtue of the contract of affreightment which it entered into with the
consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a
private carrier, did it exercise the ordinary diligence to which a private carrier
is in turn bound?
IV. Ratio/Legal Basis
Petitioner's reliance on the aforementioned case is misplaced. In its entirety,
the conclusions of the Court are as follows:
"Accordingly, the charter party contract is one of
affreightment over the whole vessel, rather than a demise. As such,
the liability of the shipowner for acts or negligence of its captain and
crew, would remain in the absence of stipulation."
The distinction between the two kinds of charter parties (i.e. bareboat
or demise and contract of affreightment) is more clearly set out in the case of
Puromines, Inc. vs. Court of Appeals, wherein we ruled:
"Under the demise or bareboat charter of the vessel, the
charterer will generally be regarded as the owner for the voyage
or service stipulated. The charterer mans the vessel with his own
people and becomes the owner pro hac vice, subject to liability to
others for damages caused by negligence. To create a demise, the
owner of a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the charterer,
anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at
all.
On the other hand a contract of affreightment is one in
which the owner of the vessel leases part or all of its space to haul
goods for others. It is a contract for special service to be rendered by
the owner of the vessel and under such contract the general owner
retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in
return for his payment of the charter hire. . .
An owner who retains possession of the ship though the
hold is the property of the charterer, remains liable as carrier and
must answer for any breach of duty as to the care, loading and
unloading of the cargo. . . ."
Although a charter party may transform a common carrier into a
private one, the same however is not true in a contract of affreightment on
account of the aforementioned distinctions between the two.
Petitioner admits that the contract it entered into with the consignee
was one of affreightment. The Court agrees. Pag-asa Sales, Inc. only leased
three of petitioner's vessels, in order to carry cargo from one point to
another, but the possession, command and navigation of the vessels
remained with petitioner Coastwise Lighterage.
Pursuant therefore to the ruling in the Puromines case, Coastwise
Lighterage, by the contract of affreightment, was not converted into a private
carrier, but remained a common carrier and was still liable as such.
The law and jurisprudence on common carriers both hold that the
mere proof of delivery of goods in good order to a carrier and the
subsequent arrival of the same goods at the place of destination in bad order
makes for a prima facie case against the carrier.
It follows then that the presumption of negligence that attaches
to common carriers, once the goods it transports are lost, destroyed or
deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence,
remained unrebutted in this case.

The records show that the damage to the barge which carried the
cargo of molasses was caused by its hitting an unknown sunken object as it
was heading for Pier 18. The object turned out to be a submerged derelict
vessel. Petitioner contends that this navigational hazard was the efficient
cause of the accident. Further, it asserts that the fact that the Philippine
Coastguard "has not exerted any effort to prepare a chart to indicate the
location of sunken derelicts within Manila North Harbor to avoid navigational
accidents" effectively contributed to the happening of this mishap. Thus,
being unaware of the hidden danger that lies in its path, it became
impossible for the petitioner to avoid the same. Nothing could have
prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record
where it appeared that far from having rendered service with the greatest
skill and outmost foresight, and being free from fault, the carrier was culpably
remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted
that he was not licensed.
Clearly, petitioner Coastwise Lighterage's embarking on a voyage
with an unlicensed patron violates this rule. It cannot safely claim to
have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which
eventually met the fateful accident. It may also logically, follow that a
person without license to navigate, lacks not just the skill to do so, but also
the utmost familiarity with the usual and safe routes taken by seasoned and
legally authorized ones. Had the patron been licensed, he could be presumed
to have both the skill and the knowledge that would have prevented the
vessel's hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of
carriage, having failed to overcome the presumption of negligence with the
loss and destruction of goods it transported, by proof of its exercise of
extraordinary diligence.
V. Disposition
WHEREFORE, premises considered, this petition is DENIED and the appealed
decision affirming the order of Branch 35 of the Regional Trial Court of
Manila for petitioner Coastwise Lighterage to pay respondent Philippine
General Insurance Company the "principal amount of P700,000.00 plus
interest thereon at the legal rate computed from March 29, 1989, the date
the complaint was filed until fully paid and another sum of P100,000.00 as
attorney's fees and costs" is likewise hereby AFFIRMED.
Philippine First Insurance v Wallem First Shipping
- Shipment of Na2SO4 in bad condition. Is the carrier liable until the
shipment is safely discharged from the ship? Yes.
- The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until
the same are delivered, actually or constructively, by the carrier
to the consignee, or to the person who has a right to receive
them.
-
- The responsibility of the carrier shall commence from the time
when the goods are loaded on board the vessel and shall cease
when they are discharged from the vessel.
-
-
I. Recit-ready summary
Anhui Chemicals Import & Export Corporation loaded on board a
shipment of 10,000 bags of sodium sulphate anhydrous 99 PCT Min. to be
delivered to the port of Manila for consignee, L.G. Atkimson Import-Export,
Inc. The shipper of the shipment is Shanghai Fareast Ship Business
Company. Both are foreign firms doing business in the PH, through its local
ship agent, Wallem Philippines Shipping, Inc. (Wallem). It was disclosed
during the discharge of the shipment from the carrier that 2,426 poly bags
were in bad order and condition. Consignee filed a formal claim with Wallem
for the value of the damaged shipment, to no avail. Consignee filed a formal
claim with petitioner insurer for the damage and losses sustained by the
shipment. Petitioner paid the consignee the sum of almost 400k and the
latter signed a subrogation receipt. Petitioner, in the exercise of its right of
subrogation, sent a demand letter to Wallem for the recovery of the amount
paid by petitioner to the consignee but despite receipt of the letter, Wallem
did not settle nor even send a response. Petitioner instituted an action before
the RTC for damages against respondents for the recovery of the actual
damages suffered by petitioner. The RTC granted the petition and held the
arrastre operator and the shipping company solidarily liable, but the CA
reversed because the damage was due to the mishandling of the arrastre
operator.
WON as a common carrier, the carrier’s duties extend to the obligation to
safely discharge the cargo from the vessel? - YES!
The responsibility of the carrier shall commence from the time when the
goods are loaded on board the vessel and shall cease when they are
discharged from the vessel.
It is settled in maritime law jurisprudence that cargoes while being unloaded
generally remain under the custody of the carrier. In the instant case, the
damage or losses were incurred during the discharge of the shipment
while under the supervision of the carrier. Consequently, the carrier is
liable for the damage or losses caused to the shipment.
II. Facts of the case
Anhui Chemicals Import & Export Corporation loaded on board M/S Offshore
Master a shipment consisting of 10,000 bags of sodium sulphate
anhydrous 99 PCT Min. (shipment) to be delivered to the port of Manila for
consignee, L.G. Atkimson Import-Export, Inc., covered by a Clean Bill of
Lading. The shipper of the shipment is Shanghai Fareast Ship Business
Company. Both are foreign firms doing business in the Philippines, through
its local ship agent, respondent Wallem Philippines Shipping, Inc. (Wallem).
It was disclosed during the discharge of the shipment from the carrier
that 2,426 poly bags were in bad order and condition.
The consignee filed a formal claim with Wallem for the value of the damaged
shipment, to no avail. The consignee filed a formal claim with petitioner
insurer for the damage and losses sustained by the shipment. Consequently,
petitioner paid the consignee the sum of P397,879.69 and the latter signed a
subrogation receipt. Petitioner, in the exercise of its right of subrogation, sent
a demand letter to Wallem for the recovery of the amount paid by petitioner
to the consignee. However, despite receipt of the letter, Wallem did not settle
nor even send a response to petitioner's claim.
Consequently, petitioner instituted an action before the RTC for damages
against respondents for the recovery of P397,879.69 representing the actual
damages suffered by petitioner. RTC ordered respondents to pay petitioner
P397,879.69 with 6% interest plus attorney's fees and costs of the suit
The Court of Appeals reversed and set aside the RTC's decision. According to
CA, there is no solidary liability between the carrier and the arrastre
operator because it was clearly established by the court a quo that the
damage and losses of the shipment were attributed to the mishandling
by the arrastre operator in the discharge of the shipment.
III. Issue/s
WON as a common carrier, the carrier’s duties extend to the obligation to
safely discharge the cargo from the vessel? - YES!
IV. Ratio/Legal Basis
Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the
goods transported by them. Subject to certain exceptions enumerated under
Article 1734 of the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods. The extraordinary responsibility
of the common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively,
by the carrier to the consignee, or to the person who has a right to
receive them.
The responsibility of the carrier shall commence from the time when the
goods are loaded on board the vessel and shall cease when they are
discharged from the vessel.
The Carrier shall not be liable of loss of or damage to the goods before
loading and after discharging from the vessel, howsoever such loss or
damage arises.
On the other hand, the functions of an arrastre operator involve the
handling of cargo deposited on the wharf or between the establishment
of the consignee or shipper and the ship's tackle. Being the custodian of
the goods discharged from a vessel, an arrastre operator's duty is to
take good care of the goods and to turn them over to the party entitled
to their possession.
Handling cargo is mainly the arrastre operator's principal work so its
drivers/operators or employees should observe the standards and measures
necessary to prevent losses and damage to shipments under its custody.
The records are replete with evidence which show that the damage to the
bags happened before and after their discharge and it was caused by the
stevedores of the arrastre operator who were then under the supervision
of Wallem.
It is settled in maritime law jurisprudence that cargoes while being unloaded
generally remain under the custody of the carrier. In the instant case, the
damage or losses were incurred during the discharge of the shipment while
under the supervision of the carrier. Consequently, the carrier is liable for the
damage or losses caused to the shipment.
V. Disposition
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
dated 22 June 2004 and its Resolution dated 11 October 2004 are REVERSED
and SET ASIDE. Wallem is ordered to pay petitioner the sum of P397,879.69,
with interest thereon at 6% per annum from the filing of the complaint on 7
October 1996 until the judgment becomes final and executory. Thereafter, an
interest rate of 12% per annum shall be imposed.48 Respondents are also
ordered to pay petitioner the amount of P20,000.00 for and as attorney's
fees, together with the costs of the suit.
SO ORDERED.
VI. Notes
Wildvalley Shipping v CA
- Petitioner seeks to claim damages from unearned profits due to the
PH Roxas’ obstruction of the Orinoco River.
What is the diligence required of the owners of the vessel? Diligence of a
good father of a family. Why? There is no pre-existing contractual obligation
between the parties. PPL exercised this diligence:
● when the vessel sailed only after the main engine, machineries, and
other auxiliaries were checked and found to be in good running
condition
● when the master left a competent officer, the officer on watch on the
bridge with a pilot who is experienced in navigating the Orinoco
River
● when the master ordered the inspection of the vessel's double
bottom tanks when the vibrations occurred anew.
Who is liable? The Pilot. Licensed pilots are in a different class from
ordinary employees, for they assume to have a skill and a knowledge of
navigation in the particular waters over which their licenses extend
superior to that of the master; pilots are bound to use due diligence and
reasonable care and skill. A pilot's ordinary skill is in proportion to the pilot's
responsibilities, and implies a knowledge and observance of the usual rules of
navigation, acquaintance with the waters piloted in their ordinary condition,
and nautical skill in avoiding all known obstructions.
-
I. Recit-ready summary
The Philippine Roxas is a vessel owned by PH President Lines (PPL).
Vasquez was the official pilot designated to navigate the ship. Later on, the
Philippine Roxas ran aground in the Orinoco River, thereby obstructing the
ingress and egress of vessels. As a result of the blockage, the Malandrinon, a
vessel owned by Wildvalley was unable to sail out on that day.
Accordingly, it filed a suit against PPL in the form of unearned profits
amounting $400,000.
The issue in this case is whether there is negligence on the part PPL.
The Court held that there was none;
in fact, the negligence in the case at bar is attributable to Pilot Vasquez and
not to PPL. There being no contractual obligation between PPL and
Wildvalley, PPL is obliged to give only the diligence required of a good
father of a family. This degree of diligence was manifested by PPL when:
● the vessel sailed only after the main engine and were found to be in
good running condition
● when the master left a competent officer, the pilot who is
experienced in navigating the river
● when the master ordered the inspection of the vessel's tanks
On the other hand, Pilot Vasquez was negligent as should have been
aware of the portions which are shallow and which are not. His failure to
determine the depth of the said river and his decision to plod on his set
course caused damage to the vessel. Thus, he is responsible for the
shipwreck.
Philippine Roxas, a vessel owned by PH President Lines (PPL) arrived in
Venezuela to load iron ore. Mr. Vasquez, an official pilot, was designated to
navigate the Philippine Roxas through the Orinoco River. The master
(captain) was at the bridge together with the third mate and a helmsman
when the vessel left the port.
The Philippine Roxas experienced some vibrations when it entered the San
Roque Channel. The vessel proceeded on its way, with the pilot assuring the
watch officer that the vibration was a result of the shallowness of the
channel. The vessel again experienced some vibrations. It was then that the
watch officer called the master, Capt. Colon, to the bridge.
Capt. Colon checked the position of the vessel and verified that it was in the
centre of the channel. He then ordered the Chief Officer to check all the
double bottom tanks.
Later on, Philippine Roxas ran aground in the Orinoco River, thus
obstructing the ingress and egress of vessels. As a result of the blockage,
the Malandrinon, a vessel owned by Wildvalley was unable to sail out on that
day.

Further, the doctrine of res ipsa loquitur does not apply (the occurrence of

Subsequently, Wildvalley filed a suit against PPL and Pioneer Insurance for
an accident implies negligence). For this to apply, the ff. conditions must be
damages in the form of unearned profits, and interest amounting $400,000.
met:
1) the accident was of such character as to warrant an inference that it
The trial court rendered its decision in favor of Wildvalley.
would not have happened except for defendant's negligence
2) the accident must have been caused by an agency or instrumentality
within the exclusive management or control of the person charged
with the negligence complained of III. Issue/s
3) the accident must not have been due to any voluntary action or
contribution on the part of the person injured. Whether there is negligence on the part PPL that would warrant the award of
damages?
In the present case, there was a temporary shift of control over the ship
from the master of the vessel to the pilot on a compulsory pilotage IV. Ratio/Legal Basis
channel. Thus, 2 of the requisites i.e., negligence and control are absent.

II. Facts of the case

There being no contractual obligation, PPL is obliged to give only the
diligence required of a good father of a family in accordance with the Art.
1173 of the New Civil Code
"Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons,
of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required."
The diligence of a good father of a family requires only that diligence which
an ordinary prudent man would exercise with regard to his own property. In
the case at bar, PPL exercised this diligence:
● when the vessel sailed only after the main engine, machineries, and
other auxiliaries were checked and found to be in good running
condition
● when the master left a competent officer, the officer on watch on the
bridge with a pilot who is experienced in navigating the Orinoco
River
● when the master ordered the inspection of the vessel's double
bottom tanks when the vibrations occurred anew.
The Philippine rules on pilotage, embodied in Philippine Ports Authority AO
No. 03-85, otherwise known as the Rules and Regulations Governing Pilotage
Services, the Conduct of Pilots and Pilotage Fees in Philippine Ports enunciate
the duties and responsibilities of a master of a vessel and its pilot.
Under this law,  the master remains the overall commander of the vessel even
when there is a pilot on board. He remains in control of the ship as he can
still perform the duties conferred upon him by law despite the presence of a
pilot who is temporarily in charge of the vessel.
The Orinoco River, being a compulsory pilotage channel, necessitated the
engaging of a pilot who was presumed to be knowledgeable of every shoal,
bank, deep and shallow ends of the river. In his deposition, pilot Vasquez
testified that he is an official pilot in the Harbour at Port Ordaz, Venezuela,
and that he had been a pilot for 12 years. He also had experience in
navigating the waters of the Orinoco River.
The law does provide that the master can overrule the of the harbor pilot on
board. The master of the Philippine Roxas deemed it best not to order the
pilot to stop the vessel because the latter had assured him that they were
navigating normally before the grounding of the vessel.
Based on these declarations, it comes as no surprise to us that the master
chose not to regain control of the ship. Admitting his limited knowledge of
the Orinoco River, Captain Colon relied on the knowledge and experience of
pilot Vasquez to guide the vessel safely.
Licensed pilots are in a different class from ordinary employees, for they
assume to have a skill and a knowledge of navigation in the particular
waters over which their licenses extend superior to that of the master;
pilots are bound to use due diligence and reasonable care and skill. A pilot's
ordinary skill is in proportion to the pilot's responsibilities, and implies a
knowledge and observance of the usual rules of navigation, acquaintance
with the waters piloted in their ordinary condition, and nautical skill in
avoiding all known obstructions.
The grounding of the vessel is attributable to the pilot, not PPL. When
the vibrations were first felt, the watch officer asked him what was going on,
and pilot Vasquez replied that it was merely a result of the shallowness of the
channel. However, Pilot Vasquez should have been aware of the portions
which are shallow and which are not. His failure to determine the depth of
the said river and his decision to plod on his set course caused damage to
the vessel. Thus, we hold him as negligent and liable for its grounding.
If it is compulsive upon the master to take a pilot, and, a fortiori, if he is
bound to do so under penalty, then, and in such case, neither he nor the
owner will be liable for injuries occasioned by the negligence of the pilot.
The doctrine of res ipsa loquitur does not apply to the case at bar because
the circumstances surrounding the injury do not clearly indicate negligence
on the part of PPL. For the said doctrine to apply, the ff. conditions must be
met:
1. the accident was of such character as to warrant an inference that it
would not have happened except for defendant's negligence
2. the accident must have been caused by an agency or instrumentality
within the exclusive management or control of the person charged
with the negligence complained of
3. the accident must not have been due to any voluntary action or
contribution on the part of the person injured.
In the present case, there was a temporary shift of control over the ship from
the master of the vessel to the pilot on a compulsory pilotage channel. Thus,
two of the requisites necessary for the doctrine to apply, i.e., negligence and
control, to render the respondent liable, are absent.
As to the claim that the ship was unseaworthy, we hold that it is not. The
Lloyd’s Register of Shipping confirmed the vessel’s seaworthiness.
V. Disposition
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DENIED.
Maersk Lines v CA
- There was a two month delay on the part of the carrier to deliver
gelatin capsules. It says that it is not liable because of a stipulation
under the Bill of Lading which states that the Carrier does not
undertake the delivery of goods at any particular time. Valid? No.
- The Court ruled that although generally, contracts of adhesion are
valid, the questioned provision in the subject bill of lading has the
effect of practically leaving the date of arrival of the subject
shipment on the sole determination and will of the carrier. While
it is true that common carriers are not obligated by law to carry and
to deliver merchandise, and persons are not vested with the right to
prompt delivery, unless such common carriers previously assume
the obligation to deliver at a given date or time, delivery of
shipment or cargo should at least be made within a reasonable
time.
- It is a long standing jurisprudential rule that a bill of lading
operates both as a receipt and as contract to transport and
deliver the same a therein stipulated
I. Recit-ready summary
Maersk is engaged in the transportation of goods by sea. Efren is the
proprietor of Ethegal Laboratories. Efren ordered from Eli Lilly of Puerto Rico
gelatin capsules for the manufacture of his pharmaceutical products.
Through a Memorandum of Shipment (MOS), Eli Lilly advised Efren that
the gelatin capsules were already shipped on board MV Anders Maerskline.
The specified date of arrival in the MOS was April 3, 1977, and the shipment
was to the Philippines via Oakland, California.
For some unknown reason, the capsules were miss-shipped and
diverted to Richmond, Virginia and then transported back to Oakland.
The goods arrived only on June 10, 1977, 2 months from the date specified
in the MOS. Efren alleged that there was gross negligence and undue delay
in the delivery of goods, and filed an action for damages against Maersk and
Eli Lilly. Eli Lilly likewise filed a cross-claim against Maersk. The case against
Eli Lilly was dismissed on its motion and it withdrew its cross-claim against
Maersk.
ISSUE: WoN Maersk can be held liable despite the stipulation written in
the bill of lading – YES
There was a provision in the bill of lading which states “The Carrier
does not undertake that the goods shall arrive at the port of discharge
or the place of delivery at any particular time or to meet any particular
market…”
The Court ruled that although generally, contracts of adhesion are
valid, the questioned provision in the subject bill of lading has the effect of
practically leaving the date of arrival of the subject shipment on the sole
determination and will of the carrier. While it is true that common carriers
are not obligated by law to carry and to deliver merchandise, and persons are
not vested with the right to prompt delivery, unless such common carriers
previously assume the obligation to deliver at a given date or time, delivery
of shipment or cargo should at least be made within a reasonable time.
DOCTRINE: When a common carrier undertakes to convey goods, the law
implies a contract that they shall be delivered at destination within a
reasonable time, in the absence, of any agreement as to the time of delivery.
But where a carrier has made an express contract to transport and deliver
properly within a specified time, it is bound to fulfill its contract and is liable
for any delay, no
II. Facts of the case
Efren’s Allegations:
There was gross negligence and undue delay in the delivery of the goods. He
filed an action before the court for rescission of contract with damages
against Maersk and Eli Lilly as defendants.
Maersk’s Defence:
Maersk denied that it committed breach of contract. It alleged in its answer
that the subject shipment was transported in accordance with the provisions
of the covering bill of lading, and that its liability under the law on
transportation of goods attaches only in case of loss, destruction or
deterioration of the goods under Art. 1734 of the Civil Code.

Maersk Line (Maersk) is engaged in the transportation of goods by sea, Elly Lily’s Defense:
doing business in the Philippines through its general agent Compania
General de Tabacos de Filipinas. It filed its answer alleging that the delay in the arrival of the subject
merchandise was due solely on the gross negligence of Maersk.
Private respondent Efren Castillo (Efren), is the proprietor of Ethegal
Laboratories, a firm engaged in the manufacture of pharmaceutical products. III. Issue

On November 12, 1976, Efren ordered from Eli Lilly of Puerto Rico
through its agent in the Philippines, Elanco Products, 600,000 empty gelatin
WoN Maersk can be held liable despite the stipulation written in the bill
capsules for the manufacture of his pharmaceutical products.
of lading?

These were placed in six drums of 100,000 capsules each, valued at

YES. Although generally contracts of adhesion are valid, the questioned
$1,668.71. Through a Memorandum of Shipment, the shipper Eli Lilly of
provision in the subject bill of lading has the effect of practically leaving the
Puerto Rico advised Efren as consignee that the empty gelatin capsules were
date of arrival of the subject shipment on the sole determination and will of
already shipped on board MV “Anders Maerskline” for shipment to the
the carrier.
Philippines via Oakland, California. The specified date of arrival in the
Memorandum was April 3, 1977.

IV. Ratio/Legal Basis

For reasons unknown, the cargo of capsules were miss-shipped and
diverted to Richmond, Virginia and then transported back to Oakland,
California.
MAERSK’S DEFENSE: It maintains that it cannot be held for damages for
The goods finally arrived in the Philippines on June 10, 1977, two damages for the alleged delay in the delivery in the capsules since it acted in
months from the date specified in the Memorandum. Because of this, Efren good faith and there was no special contract under which it undertook to
as consignee refused to take delivery of the goods on account of its failure to deliver the shipment on or before a specific date.
arrive on time.
EFREN’S CLAIM: Efren claims that during the period before the specified
date of arrival of the goods, he had made several commitments and contract
of adhesion. Therefore, Maersk can be held liable for the damages suffered
by Efren for the cancellation of the contracts he entered into.
Both of the decisions of the CA and trial court show that, in finding
Maersk liable for damages for the delay in the delivery of goods, reliance was
made on the rule that contracts of adhesion are void.
The bill of lading covering the shipment reads:
The Carrier does not undertake that the goods shall arrive at the port of
discharge or the place of delivery at any particular time or to meet any
particular market or use and save as is provided in clause 4 the Carrier shall in
no circumstances be liable for any direct, indirect or consequential loss or
damage caused by delay. If the Carrier should nevertheless be held legally
liable for any such direct or indirect or consequential loss or damage caused by
delay, such liability shall in no event exceed the freight paid for the transport
covered by this Bill of Lading.
It is undisputed that such provision at the back of the bill of
lading is a contract of adhesion. Generally, contracts of adhesion are
considered void since almost all the provisions of these types of contracts are
prepared and drafted only by one party, usually the carrier. The only
participation left of the other party in such a contract is the affixing of his
signature thereto, hence the term "Adhesion"
However, settled is the rule that bills of lading are contracts not
entirely prohibited. One who adheres to the contract is in reality free to
reject it in its entirety; if he adheres, he gives his consent.
In the case of Magellan, the Court ruled: It is a long standing
jurisprudential rule that a bill of lading operates both as a receipt and as
contract to transport and deliver the same a therein stipulated. As a
contract, it names the parties, which includes the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and
obligations assumed by the parties. Being a contract, it is the law between
the parties who are bound by its terms and conditions provided that these
are not contrary to law, morals, good customs, public order and public policy.
A bill of lading usually becomes effective upon its delivery to and acceptance
by the shipper. It is presumed that the stipulations of the bill were, in the
absence of fraud, concealment or improper conduct, known to the
shipper, and he is generally bound by his acceptance whether he reads
the bill or not.
The ruling applies only if such contracts will not create an absurd situation as
in the case at bar. The questioned provision in the subject bill of lading
has the effect of practically leaving the date of arrival of the subject
shipment on the sole determination and will of the carrier.
While it is true that common carriers are not obligated by law to carry and to
deliver merchandise, and persons are not vested with the right to prompt
delivery, unless such common carriers previously assume the obligation
to deliver at a given date or time, delivery of shipment or cargo should
at least be made within a reasonable time.
Saludo Jr. v. CA:
The oft-repeated rule regarding a carrier's liability for delay is that in the
absence of a special contract, a carrier is not an insurer against delay in
transportation of goods. When a common carrier undertakes to convey goods,
the law implies a contract that they shall be delivered at destination within a
reasonable time, in the absence, of any agreement as to the time of delivery.
But where a carrier has made an express contract to transport and deliver
properly within a specified time, it is bound to fulfill its contract and is liable for
any delay, no matter from what cause it may have arisen. This result logically
follows from the well-settled rule that where the law creates a duty or charge,
and the default in himself, and has no remedy over, then his own contract
creates a duty or charge upon himself, he is bound to make it good
notwithstanding any accident or delay by inevitable necessity because he
might have provided against it by contract. Whether or not there has been
such an undertaking on the part of the carrier is to be determined from the
circumstances surrounding the case and by application of the ordinary rules for
the interpretation of contracts.
An examination of the bill of lading shows that the shipment was
estimated to arrive in Manila on April 3, 1977.
While there was no special contract entered into by the parties
indicating the date of arrival of the subject shipment, Maersk nevertheless,
was very well aware of the specific date when the goods were expected to
arrive as indicated in the bill of lading itself. In this regard, there arises no
need to execute another contract for the purpose as it would be a mere
superfluity.
A delay in the delivery of the goods spanning a period of two (2)
months and seven (7) days falls was beyond the realm of reasonableness. The
shipment was delivered to, and left in, the possession and custody of Maersk
for transport to Manila via Oakland, California.
But through petitioner's negligence was mishipped to Richmond,
Virginia. Maersk’s insistence that it cannot be held liable for the delay finds
no merit.
MAERSK’S CONTENTION: It maintains that the award of actual, moral and
exemplary dames and attorney's fees are not valid since there are no
factual findings or legal bases stated in the text of the trial court's
decision to support the award thereof.
It is settled that actual and compensatory damages requires substantial
proof. In this case, Efren was able to sufficiently prove through an invoice,
certification from the issuer of the letter of credit and Memorandum the
amount he paid as costs of the credit line for the goods.
As to the propriety of the award of moral damages, Article 2220 of
the Civil Code provides that moral damages may be awarded in "breaches of
contract where the defendant acted fraudulently or in bad faith"
Only the testimony of Mr. Ramirez was presented by Maersk. Maersk
did not even bother to explain the cause for the delay in the delivery of the
shipment.
Under the circumstances, the Court holds that Maersk is liable for
breach of contract of carriage through gross negligence amounting to bad
faith. Thus, the award of moral damages if therefore proper in this case. Gross
carelessness or negligence constitutes wanton misconduct, hence, exemplary
damages may be awarded to the aggrieved party.
V. Disposition
WHEREFORE, with the modification regarding the deletion of item 4 of
respondent court`s decision, the appealed decision is is hereby AFFIRMED in
all respects.
FGU Insurance v CA
- ANCO claims that the storm is a force majeure which relieved it from
liability from damages because of its failure to deliver the cases of
beer to Antique. Correct? No.
- SC held that force majeure are extraordinary events not
foreseeable or avoidable, events that could not be foreseen, or
which though foreseen, were inevitable. It is not enough that the
event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or
to avoid. While the loss of the cargoes was admittedly caused by the
typhoon Sisang, a natural disaster, ANCO could not escape liability.
The records show the failure of its representatives to exercise the
extraordinary degree of diligence mandated by law. To be
exempted, the natural disaster should have been the proximate
and only cause of the loss. There must have been no contributory
negligence on the part of the common carrier
I. Recit-ready summary
ANCO was engaged in the shipping business and owned M/T ANCO,
tugboat, and the D/B Lucio, barge. D/B Lucio had no engine of its own and
so it could not maneuver by itself and had to be towed by M/T ANCO for it
to move. SMC contracted ANCO to deliver 40,550 cases of beer to San
Jose, Antique from Mandaue City, Cebu. Upon arrival of the vessels in the
port of San Jose, Antique, M/T ANCO immediately left despite the fact
that there was an incoming typhoon. Only 10,790 cases of beer were
discharged from D/B Lucio since the waves were getting bigger. SMC’s
District Sales Supervisor requested ANCO’s representative to transfer the
barge to a safer place because the vessel might not be able to withstand
the big waves but it remained unheeded. Eventually, the barge's rope
attached to the wharf was cut off by the big waves causing the barge to run
aground and the cargoes of beer to be swept away. As a result, SMC filed a
complaint for breach of contract of carriage and damages against ANCO
and the latter implemented FGU Insurance as 3rd party defendant. ANCO
claimed that the cases of beer were lost by reason of Typhoon Sisang,
fortuitous event, which battered and sank the vessel, hence it should not be
held liable.
Whether or not ANCO, through its representatives, is negligent in handling the
cargoes of SMC, thus, held liable to pay damages. — YES.
SC held that force majeure are extraordinary events not foreseeable
or avoidable, events that could not be foreseen, or which though
foreseen, were inevitable. It is not enough that the event should not
have been foreseen or anticipated, as is commonly believed but it must
be one impossible to foresee or to avoid. While the loss of the cargoes was
admittedly caused by the typhoon Sisang, a natural disaster, ANCO could not
escape liability. The records show the failure of its representatives to
exercise the extraordinary degree of diligence mandated by law. To be
exempted, the natural disaster should have been the proximate and only
cause of the loss. There must have been no contributory negligence on
the part of the common carrier. In this case, there was blatant negligence
on the part of crewmembers: (1) in leaving the engine-less D/B Lucio at the
mercy of the storm without the assistance of the tug- boat, and (2) in failing
to heed the request of SMC’s representatives to have the barge transferred to
a safer place, as was done by the other vessels in the port. This makes the
blatant negligence the proximate cause of the loss of the cargoes.
II. Facts of the case
Evidence shows that Anco Enterprises Company (ANCO), a partnership
between Ang Gui and Co To, was engaged in the shipping business. It owned
the M/T ANCO tugboat and the D/B Lucio barge, which were operated as
common carriers. Since the D/B Lucio had no engine of its own, it could not
maneuver by itself and had to be towed by a tugboat for it to move from one
place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from
Mandaue City, Cebu, on board the D/B Lucio, for towage by M/T ANCO, the
following cargoes:
● Bill of Lading No. Shipment Destination
1 — 25,000 cases Pale Pilsen Estancia, Iloilo, and 350 cases Cerveza Negra
Estancia, Iloilo
2 — 15,000 cases Pale Pilsen San Jose, Antique, and 200 cases Cerveza Negra
San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMC's Beer
Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the
consignee for the cargoes covered by Bill of Lading No. 2 was SMC's BMD-
San Jose Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to
San Jose, Antique. The vessels arrived at San Jose, Antique, at about one
o'clock in the afternoon of 30 September 1979. The tugboat M/T ANCO left
the barge immediately after reaching San Jose, Antique.
ANCO's representative did not heed the request because he was confident
that the barge could withstand the waves.  This, notwithstanding the fact that
at that time, only the M/T ANCO was left at the wharf of San Jose, Antique, as
all other vessels already left the wharf to seek shelter. With the waves
growing bigger and bigger, only Ten Thousand Seven Hundred Ninety
(10,790) cases of beer were discharged into the custody of the arrastre
operator.
At about ten to eleven o'clock in the evening of 01 October 1979, the crew of
D/B Lucio abandoned the vessel because the barge's rope attached to the
wharf was cut off by the big waves.  At around midnight, the barge
ran aground and was broken and the cargoes of beer in the barge were
swept away.
As a result, ANCO failed to deliver to SMC's consignee Twenty-Nine
Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred
Fifty (550) cases of Cerveza Negra. 
As a consequence of the incident, SMC filed a complaint for Breach of
Contract of Carriage and Damages against ANCO for the amount of One
Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos
(P1,346,197.00) plus interest, litigation expenses and Twenty-Five Percent
(25%) of the total claim as attorney's fees.
Upon Ang Gui's death, ANCO, as a partnership, was dissolved hence, on 26
January 1993, SMC filed a second amended complaint which was admitted by
the Court impleading the surviving partner, Co To and the Estate of Ang Gui
represented by Lucio, Julian and Jaime, all surnamed Ang.  The substituted
defendants adopted the original answer with counterclaim of ANCO "since
the substantial allegations of the original complaint and the amended
complaint are practically the same."
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra
mentioned in the complaint were indeed loaded on the vessel belonging to
ANCO.  It claimed however that it had an agreement with SMC that ANCO
would not be liable for any losses or damages resulting to the cargoes by
reason of fortuitous event.  Since the cases of beer Pale Pilsen and Cerveza
Negra were lost by reason of a storm, a fortuitous event which battered and
sunk the vessel in which they were loaded, they should not be held liable.   Civil Code provides:
ANCO further asserted that there was an agreement between them and SMC
to insure the cargoes in order to recover indemnity in case of loss.
III. Issue/s
Whether or not ANCO, through its representatives, is negligent in
handling the cargoes of SMC, thus, held liable to pay damages. – YES,
since they are blatantly negligent and they failed to exercise extraordinary
degree of diligence required by the law.
IV. Ratio/Legal Basis
● ANCO’s liability over the cargoes
ANCO alleged that CA committed error in concluding that the negligence of
ANCO’s representative was the proximate cause of the loss. This issue is a
question of fact, which SC cannot review, especially since they are borne out
by the records or are supported by substantial evidence. A careful study of
the records shows that ANCO’s representatives failed to exercise the
extraordinary degree of diligence required by the law to exculpate them
from liability for the loss of the cargoes.
ANCO admitted that they failed to deliver to the consignee the 29,210
cases of Pale Pilsen and 550 cases of Cerveza Negra. A witness testified
that D/B Lucio had no engine of its own and could not maneuver by
itself. Despite this, the tugboat’s captain left D/B Lucio (barge) to fend
for itself notwithstanding the signs of the impending storm were
already manifest upon the arrival of the 2 vessels at the port of San Jose,
Antique. There were already big waves and the area was already dark.
This was corroborated by ANCO’s own witness.
D/B Lucio was the only vessel left at San Jose, Antique during said time
as other vessels transferred and temporarily moved to Malandong, 5 km
from where the barge remained. The transferred vessels were definitely
safer, which ANCO failed to dispute.
● ANCO’s Claim: Loss of cargoes was due to typhoon Sisang, a
fortuitous event
ANCO argues tehre was no fault or negligence on their party as they claim
that their crewmembers exercised due diligence to prevent or minimize the
loss but their efforts were not match to the forces of the typhoon, an act of
God, the consequences of which they could not be held liable.
1. Art. 1733 – Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over the goods and safety of passengers...
2. Art. 1734 (1) – Common carriers are responsible for the loss, destruction
or deterioration of goods unless the same is due to any of the following
causes: (1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity.
3. Art. 1739 – In order that the common carrier may be exempted from
responsibility, the natural disaster must have been the proximate
and only cause of the loss. However, the common carrier must
exercise due diligence to prevent or minimize loss before, during
and after the occurrence of flood, storm, or other natural disaster in
order that the common carrier may be exempted from liability for
the loss, destruction, or deterioration of the goods...
Caso fortuito or force majeure are extraordinary events not foreseeable or
avoidable (events that could not be foreseen, or which though foreseen, were
inevitable). It is not enough that the event should not have been foreseen or
anticipated. It must be one IMPOSSIBLE to foresee or to avoid.
In this case, calamity which caused the loss of the cargoes was not
unforeseen nor was it unavoidable. In fact, other vessels managed to transfer
to a safer place.
D/B Lucio had no engine and could not maneuver by itself. Even if the
crewmembers wanted to transfer it, they no longer had any means to do so.
The captain of the tugboat should have had the foresight not to leave the
barge alone considering the pending storm.
While the loss of cargoes was admittedly caused by a natural disaster
(typhoon Sisang), ANCO could not escape liability as the records show its
failure to exercise the extraordinary degree of diligence mandated by law.
To be exempted from responsibility, the natural disaster should have
been the proximate and only cause of the loss. There must have been
NO contributory negligence.
As correctly pointed out by CA, there was blatant negligence on the part
of M/T ANCO’s crew, which was the proximate cause of the loss of the
cargoes. The blatant negligence was established by the ff: Leaving the
engine-less barge D/B Lucio at the mercy of the storm without the
assistance of the tug-boat. Failing to heed the request of SMC’s
representatives to have the barge transferred to a safer place.
V. Disposition
WHEREFORE, premises considered, the Decision of the Court of Appeals
dated 24 February 1999 is hereby AFFIRMED with MODIFICATION dismissing
the third-party complaint.
SO ORDERED.
DSR Senator v Federal
- Shipment of artificial trees to Saudi Arabia. While in transit, the ship
caught fire and sunk. Is the carrier liable? Yes/
- Fire is not one of those enumerated under Article 1734, which
exempts a carrier from liability for loss or destruction of the
cargo. Since the peril of fire is not comprehended within the
exceptions in Article 1734, then the common carrier shall be
presumed to have been at fault or to have acted negligently,
unless it proves that it has observed the extraordinary diligence
required by law
- Respondent Federal Phoenix Assurance raised the presumption of
negligence against petitioners. However, they failed to overcome it
by sufficient proof of extraordinary diligence
I. Recit-ready summary
Berde Plants delivered a shipment of artificial trees to C.F. Sharp and
Company, the General Ship Agent of DSR-Senator Lines. C.F. Sharp was
tasked with the transport and delivery of the cargo to Al-Mohr
International Group in Riyadh, Saudi Arabia. The cargo had an invoice
value of P941,429.16 and was insured against all risks by Federal Phoenix
Assurance Co. However, while in transit, the ship caught fire and sunk.
Federal Phoenix Assurance paid Berde Plants the P941,429.61 pursuant to the
insurance policy and received a “Subrogation Receipt” that permitted the
insurer to subrogate the insured in its rights. Federal Phoenix Assurance
demanded that C.F. Sharp pay P941,429 by virtue of the “Subrogation
Receipt”, but C.F. Sharp denied any liability on the ground that such liability
was extinguished when the vessel carrying the cargo was gutted by fire.
ISSUE: Are DSR-Senator Lines and C.F. Sharp liable to pay the insurance
company? Yes
Fire is not one of those enumerated under Article 1734, which
exempts a carrier from liability for loss or destruction of the cargo. Since
the peril of fire is not comprehended within the exceptions in Article
1734, then the common carrier shall be presumed to have been at fault
or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law. Even if fire were to be considered
a natural disaster within the purview of Article 1734, it is required under
Article 1739 of the same Code that the natural disaster must have been the
proximate and only cause of the loss, and that the carrier has exercised due
diligence to prevent or minimize the loss before, during or after the
occurrence of the disaster. A common carrier’s duty to observe the requisite
diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and received
by, the carrier for transportation until delivered to or until the lapse of a
reasonable time for their acceptance by the person entitled to receive them.
When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence,
and there need not be an express finding of negligence to hold it liable.
Respondent Federal Phoenix Assurance raised the presumption of
negligence against petitioners. However, they failed to overcome it by
sufficient proof of extraordinary diligence
II. Facts of the case
Berde Plants, Inc. delivered a cargo of 632 units of artificial trees to C.F.
Sharp and Company, which was the General Ship Agent of DSR-Senator
Lines, a foreign shipping corporation. C.F. Sharp was to transport and deliver
the trees to the consignee, Al-Mohr International Group, in Riyadh, Saudi IV. Ratio/Legal Basis
Arabia.
Article 1734 of the Civil Code provides:
Under the Bill of Lading, the cargo had an invoice value of $34,579.60.
Federal Phoenix Assurance Company, Inc. insured the cargo against all risks Art. 1734. Common carriers are responsible for the loss, destruction, or
in the amount of P941,429.61. deterioration of the goods, unless the same is due to any of the following
causes only:
The cargo was loaded in the M/S “Arabian Senator.” When the ship
arrived in the port of discharge at Fhor Fakkan Port, the cargo was reloaded 1) Flood, storm, earthquake, lighting, or other natural disaster or
on board DSR-Senator Lines’ feeder vessel, the M/V “Kapitan Sakharov,” calamity;
which would take the cargo to the port of delivery in Port Dammam, Saudi 2) Act of the public enemy in war, whether international or civil;
Arabia. However, while in transit, its cargo caught fire and the vessel sunk. 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;
Consequently, Federal Phoenix Assurance paid Berde Plants the
5) Order or act of competent public authority.
P941,419.61 pursuant to the insurance policy. Berde Plants executed a
“Subrogation Receipt” in favor of Federal Phoenix Assurance, which would
Fire is not one of those enumerated under Article 1734, which exempts a
allow the insurance company to subrogate it in its rights and remedies.
carrier from liability for loss or destruction of the cargo.

Federal Phoenix Assurance demanded that C.F. Sharp pay P941,429 by

In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court, we ruled
virtue of the “Subrogation Receipt”, but C.F. Sharp denied any liability on the
that since the peril of fire is not comprehended within the exceptions in
ground that such liability was extinguished when the vessel carrying the
Article 1734, then the common carrier shall be presumed to have been at
cargo was gutted by fire. Federal Phoenix Assurance then filed a complaint
fault or to have acted negligently, unless it proves that it has observed the
for damages against DSR-Senator Lines and C.F. Sharp with the Regional Trial
extraordinary diligence required by law.
Court of Manila, who awarded judgment in favor of the insurance company.

Even if fire were to be considered a natural disaster within the purview of

The appellant carrier was presumed to have acted negligently for the fire
Article 1734, it is required under Article 1739 of the same Code that the
that gutted the feeder vessel and the consequent loss or destruction of the
natural disaster must have been the proximate and only cause of the loss,
cargo. Contrary to C.F. Sharp’s argument, its liability as a ship agent
and that the carrier has exercised due diligence to prevent or minimize the
continued and remained until the cargo was delivered to the consignee. The
loss before, during or after the occurrence of the disaster.
status of the appellant as ship agent subsisted and its liability as a ship agent
was co-terminous with and subsisted as long as the cargo was not delivered
A common carrier’s duty to observe the requisite diligence in the
to the consignee under the terms of the Bill of Lading.
shipment of goods lasts from the time the articles are surrendered to or
unconditionally placed in the possession of, and received by, the carrier for
III. Issue/s
transportation until delivered to or until the lapse of a reasonable time for
their acceptance by the person entitled to receive them. When the goods
Were DSR-Senator Lines and C.F. Sharp liable to the insurance company? Yes.
shipped either are lost or arrive in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not
be an express finding of negligence to hold it liable.
Common carriers are obliged to observe extraordinary diligence in the
vigilance over the goods transported by them. Accordingly, they are
presumed to have been at fault or to have acted negligently if the goods are
lost, destroyed or deteriorated. There are very few instances when the
presumption of negligence does not attach and these instances are
enumerated in Article 1734. In those cases where the presumption is applied,
the common carrier must prove that it exercised extraordinary diligence in
order to overcome the presumption.
Respondent Federal Phoenix Assurance raised the presumption of
negligence against petitioners. However, they failed to overcome it by
sufficient proof of extraordinary diligence.
V. Disposition
WHEREFORE, the instant petition is DENIED.
Central Shipping v Insurance
I. Recit-ready summary
Sometime in July, Central Shipping, owner of the vessel M/V Central Bohol,
agreed to transport a shipment of 376 round logs from Puerto Princesa to
Manila for delivery to Alaska Lumber. The cargo was insured by the
Insurance Company. During the voyage, the vessel encountered a habagat
that caused the loaded logs to shift their positions, resulting in the
tilting of the ship by 10 degrees and later by 15 degrees. Eventually, the
vessel completely sank, causing the total loss of the cargo.
Insurance Company paid the insurance claim of Alaska. Now, the former is
going against Central Shipping to claim the value of the shipment. Central
Shipping raised the defense that the proximate and only cause of the
sinking and loss of the cargo was a natural disaster, a storm which could
not have been foreseen.
The RTC decided against Central Shipping, decreeing its liability for the loss
of the cargo as monsoons (or the habagat) were common occurrences during
the said period and it could have been foreseen by an ocean-going vessel.
This was affirmed by the CA. It also denied the application of the doctrine of
limited liability. Hence, this petition before the Supreme Court.
The Court ruled against Central Shipping and adjudged its liability for
the loss of the cargo and reiterated the non-applicability of the doctrine
of limited liability.
Even if the weather encountered by the ship is to be deemed a natural
disaster under Article 1739 of the Civil Code, Central Shipping failed to show
that such natural disaster or calamity was the proximate and only cause of
the loss. As a rule, the damaging effects blamed on the event or
phenomenon must not have been caused, contributed to, or worsened
by the presence of human participation. The defense of fortuitous event
or natural disaster cannot be successfully made when the injury could
have been avoided by human precaution.
In the case, loss of the vessel was caused not only by the southwestern
monsoon, but also by the shifting of the logs for being improperly loaded.
The logs stored in the lower hold were not secured by cable wire,
because they fitted exactly from floor to ceiling. It is obvious, as a matter of
common sense, that this manner of stowage was not sufficient to secure the
logs in the event the ship should roll in heavy weather.
The evidence indicated that strong southwest monsoons were common
occurrences during the month of July. Thus, the officers and crew of M/V
Central Bohol should have reasonably anticipated heavy rains, strong winds
and rough seas. They should then have taken extra precaution in stowing the
logs in the hold, in consonance with their duty of observing extraordinary
diligence in safeguarding the goods. But the carrier took a calculated risk in
improperly securing the cargo. Having lost that risk, it cannot now escape
responsibility for the loss.
The doctrine of limited liability under Article 587 of the Code of
Commerce does not apply to situations in which the loss or the injury is
due to the concurrent negligence of the shipowner and the captain.
II. Facts of the case
Central Shipping disclaims responsibility for the loss of the cargo by claiming
the occurrence of a “storm” under Article 1734(1). It attributes the sinking of
its vessel solely to the weather condition at the time of the incident. It further
alleges that it was impossible for the logs to have shifted, because they had
fitted exactly in the hold.

In July 1990, petitioner Central Shipping, at Puerto Princesa, received on III. Issue
board its vessel, M/V Central Bohol, 376 pieces of Philippine Apitong Round
Logs and undertook to transport said shipment to Manila for delivery to 1. Whether or not Central Shipping is liable for the loss of the
Alaska Lumber Co., Inc. The cargo was insured by respondent Insurance shipment? Yes.
Company of North America for P3,000,000. 2. Whether or not the doctrine of limited liability is applicable? No.

During its voyage, the vessel encountered southwestern monsoon (habagat).

IV. Ratio/Legal Basis
The loaded logs therein shifted their positions and caused the ship to tilt
From the nature of their business and for reasons of public policy, common
about 10 degrees. When the tilting increased to 15 degrees, the ship captain
carriers are bound to observe extraordinary diligence over the goods they
ordered his men to abandon the ship. Shortly thereafter, the vessel
transport, according to all the circumstances of each case. In the event of
completely sank, causing the total loss of the cargo.
loss, destruction or deterioration of the insured goods, common carriers are
Alaska presented a claim for the value of the shipment against Central
responsible; that is, unless they can prove that such loss, destruction or
Shipping, but the latter refused. As the insurer, Insurance Company paid
deterioration was brought about—among others—by “flood, storm,
Alaska its claim; and sought to be subrogated to all the rights and actions
earthquake, lightning or other natural disaster or calamity.” In all other cases
against Central Shipping. Central Shipping raised as its main defense that the
not specified under Article 1734 of the Civil Code, common carriers are
proximate and only cause of the sinking of its vessel and the loss of its cargo
presumed to have been at fault or to have acted negligently, unless they
was a natural disaster, a tropical storm which neither petitioner nor the
prove that they observed extraordinary diligence.
captain of its vessel could have foreseen.
In the case, Central Shipping failed to prove that the weather encountered
The RTC found Central Shipping liable for the loss of the cargo. It was not
by the vessel was a “storm” as contemplated by Art. 1734 (1). What the vessel
convinced that the sinking of the vessel had been caused by the weather or
encountered was southwestern monsoon (habagat), as admitted by both
any other fortuitous cause. It noted that monsoons, which were common
Central Shipping and the captain of the vessel. Having made such factual
occurrences during the months of July to December, could have been
representation, it cannot now be allowed to retreat and claim that the
foreseen and provided for by an ocean-going vessel.
southwestern monsoon was a “storm” to escape liability.
The CA affirmed the RTC decision. It ruled that given the season of rains and
Even if the weather encountered by the ship is to be deemed a natural
monsoons, the ship captain and his crew should have anticipated the perils of
disaster under Article 1739 of the Civil Code, Central Shipping failed to show
the sea; and that the weather disturbance was not the sole and proximate
that such natural disaster or calamity was the proximate and only cause of
cause of the sinking of the vessel, which was also due to the concurrent
the loss. As a rule, the damaging effects blamed on the event or
shifting of the logs in the hold that could have resulted from the improper
phenomenon must not have been caused, contributed to, or worsened by the
stowage. It concluded that the doctrine of limited liability was not applicable.
presence of human participation. The defense of fortuitous event or natural
Hence, the present petition.
disaster cannot be successfully made when the injury could have been
avoided by human precaution.
Hence, if a common carrier fails to exercise due diligence—or that ordinary
care that the circumstances of the particular case demand—to prevent or
minimize the loss before, during and after the occurrence of the natural
disaster, the carrier shall be deemed to have been negligent. The loss or
injury is not, in a legal sense, due to a natural disaster under Article 1734(1).
In the case, loss of the vessel was caused not only by the southwestern
monsoon, but also by the shifting of the logs for being improperly loaded.
The logs stored in the lower hold were not secured by cable wire, because
they fitted exactly from floor to ceiling. It is obvious, as a matter of common
sense, that this manner of stowage was not sufficient to secure the logs in the
event the ship should roll in heavy weather.
The evidence indicated that strong southwest monsoons were common
occurrences during the month of July. Thus, the officers and crew of M/V
Central Bohol should have reasonably anticipated heavy rains, strong winds
and rough seas. They should then have taken extra precaution in stowing the
logs in the hold, in consonance with their duty of observing extraordinary
diligence in safeguarding the goods. But the carrier took a calculated risk in
improperly securing the cargo. Having lost that risk, it cannot now escape
responsibility for the loss.
The doctrine of limited liability under Article 587 of the Code of Commerce
does not apply to situations in which the loss or the injury is due to the
concurrent negligence of the shipowner and the captain.
In the case, the sinking of M/V Central Bohol had been caused by the fault or
negligence of the ship captain and the crew, as shown by the improper
stowage of the cargo of logs. Closer supervision on the part of the shipowner
could have prevented this fatal miscalculation. As such, the shipowner was
equally negligent. It cannot escape liability by virtue of the limited liability
rule.
V. Disposition
WHEREFORE, the Petition is DENIED, and the assailed Decision and
Resolution AFFIRMED. Costs against petitioner.
SO ORDERED.
Citadel Lines v CA
I. Recit-ready summary
Manila Wine Merchants shipped Dunhill cigarettes from England
to Manila thru vessel Cardigan Bay/Straight enterprise whose agent is
Citadel Lines. The shipment arrived at the Port of Manila and was received
by E. Razon under a Cargo Receipt. Due to lack of space at the Special
Cargo Coral, the good were placed in two containers with two pallets in
the original container, and four pallets in another container with both
containers duly padlocked and sealed by the representative of Citadel
Lines. The next day, however, they found out that the padlock was different
and the seal was tampered. 90 cases of cigarettes went missing. Manila
Wine filed a formal claim against Citadel asking for the market value of the
cigarettes.
WON the value asked for is correct—NO
No doubt, Citadel was liable because the shipment was lost while its
with Citadel’s custody.
The award of damages in the amount of P312,800.00 for the value of
the goods lost, based on the alleged market value is erroneous. It is clearly
and expressly provided under Clause 6 of the aforementioned bills of lading
issued by the Citadel Lines that its liability is limited to $2.00 per kilo.
A stipulation limiting the liability of the carrier to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.
II. Facts of the case
Citadel Lines—general agent of the vessel Cardigan Bay/Strait
Enterprise
Manila Wine Merchants—importer of the shipment
Cardigan Bay/Strait Enterprise loaded on board at Southamptom,
England, for carriage to Manila, 180 Filbrite cartons of British manufactured
cigarettes called “Dunhill International Filter” and “Dunhill International
Menthol” as evidenced by 2 bills of lading. The shipment arrived at the Port
of Manila and was received by E. Razon under a Cargo Receipt.
The container van, which contained two shipments was stripped. One
shipment was delivered and the other shipment consisting of the imported
British manufactured cigarettes was palletized. Due to lack of space at the
Special Cargo Coral, the aforesaid cigarettes were placed in two containers
with two pallets in the original container, and four pallets in another
container with both containers duly padlocked and sealed by the
representative of Citadel Lines.
Citadel Lines’ headchecker discovered that one of the container vans
had a different padlock and the seal was tampered with.
The matter was reported to Jose G. Sibucao, Pier Superintendent, Pier
13, and upon verification, it was found that 90 cases of imported British
manufactured cigarettes were missing which was confirmed in the report of
said Superintendent Sibucao to Ricardo Cosme, Assistant Operations
Manager and the Official Report/Notice of Claim of Citadel Lines, Inc. to E.
Razon, Inc.
Per investigation conducted by the ARRASTRE, it was revealed that
the cargo in question was not formally turned over to it by the Citadel Lines
but was kept inside container van which was padlocked and sealed by the
representatives of Citadel Lines without any participation of the ARRASTRE.
Manila Wine filed a claim against Citadel Citadel Lines, demanding
the payment of P315,000.00 representing the market value of the missing
cargoes. Citadel admitted the loss but alleged that the incident occurred
in the area controlled by the Arrastre. Manila wine field a claim against
arrastre but said claim was denied/
III. Issue/s
WON Citaldel is should pay Manila Merchants—YES
How much would that be—determined in accordance with their
agreement
IV. Ratio/Legal Basis
Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case.
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 extra ordinary diligence as required in Article 1733
of the Civil Code.
The duty of the consignee is to prove merely that the goods were
lost. Thereafter, the burden is shifted to the carrier to prove that it has
exercised the extraordinary diligence required by law. And, its
extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier
for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee or to the person who has
the right to receive them.
The subject shipment was lost while it was still in the custody of herein
petitioner Citadel Lines, and considering further that it failed to prove
that the loss was occasioned by an excepted cause, the inescapable
conclusion is that Citadel Lines was negligent and should be held liable
therefor.
But the award of damages in the amount of P312,800.00 for the value of
the goods lost, based on the alleged market value is erroneous. It is clearly
and expressly provided under Clause 6 of the aforementioned bills of lading
issued by the Citadel Lines that its liability is limited to $2.00 per kilo.
A stipulation limiting the liability of the carrier to the value of the
goods appearing in the bill of lading, unless the shipper or owner
declares a greater value, is binding.
A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction or deterioration of the goods is valid, if
it is reasonable and just under the circumstances, and has been fairly
and freely agreed upon.
The bill of lading shows that 120 cartons weigh 2,978kilos or 24.82
kilos per carton. Since 90 cartons were lost and the weight of said
cartons is 2,233.80 kilos, at $2.00 per kilo Citadel Lines' liability amounts
to only US$4,467.60.
V. Disposition
WHEREFORE, the judgment of respondent court is hereby MODIFIED and
petitioner Citadel Lines, Inc. is ordered to pay private respondent Manila
Wine Merchants, Inc. the sum of US$4,465.60 or its equivalent in Philippine
currency at the exchange rate obtaining at the time of payment thereof. In all Hernandez Trading, as consignee is bound by the stipulations
other respects, said judgment of respondent Court is AFFIRMED thereof

Everett Steamship v CA Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court
(supra), the Court held that even if the consignee was not a
signatory to the contract of carriage between the shipper and
I. Recit-ready summary
the carrier, the consignee can still be bound by the contract.
When Hernandez Trading formally claimed reimbursement for
Hernandez Trading Co. Inc, private respondent, imported three crates of
the missing goods from Everett and subsequently filed a case
bus spare parts, from its supplier, Maruman Trading Company, Ltd. The
against the latter based on the very same bill of lading, it
crates were shipped from Nagoya, Japan to Manila on board "ADELFA
(Hernandez) accepted the provisions of the contract and thereby
EVERETTE," a vessel owned by Everett Steamship's principal, Everett Orient
made itself a party thereto, or at least has come to court to
Lines. The crates were covered by a Bill of Lading. Upon arrival in Manila, one
enforce it.
crate was missing. Hernandez Trading demanded Everett to pay the full
Thus, Hernandez Trading cannot now reject or disregard the
amount of the lost cargo. Everett offered to pay only 100,000 yen, the
carrier's limited liability stipulation in the bill of lading.
maximum amount stipulated under the bill of lading which limits the
liability of Everett.
To defeat the carrier's limited liability, the aforecited Clause 18 of the bill of
lading requires that the shipper should have declared in writing a higher
hether or not Everett Steamship liable for the whole amount of the lost
valuation of its goods before receipt thereof by the carrier and insert the said
cargo or just the amount stipulated under the bill of lading?
declaration in the bill of lading , with the extra freight paid. These
Limited Liability Clause in the Bill of Lading valid
requirements in the bill of lading were never complied with by the shipper,
hence, the liability of the carrier under the limited liability clause stands. In
A stipulation in the bill of lading limiting the common carrier's liability
fine, the liability of Everett for the loss of the cargo is limited to 100,000
for loss or destruction of a cargo to a certain sum, unless the shipper or
Yen, pursuant to Clause 18 of the bill of lading.
owner declares a greater value, is sanctioned by law, particularly Articles
1749 and 1750 of the Civil Code. Pursuant to the aforequoted provisions of
II. Facts of the case
law, it is required that the stipulation limiting the common carrier's
liability for loss must be "reasonable and just under the circumstances
 Hernandez Trading Co. Inc, private respondent, imported three crates
and has been freely and fairly agreed upon .”
of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13
and MARCO C/No. 14, from its supplier, Maruman Trading Company,
The Bill of Lading states that “the carrier shall not be liable of any loss of or
Ltd. (Maruman Trading) based in Japan.
any damage to or in any connection with, goods in an amount exceeding
 The crates were shipped from Nagoya, Japan to Manila on board
100,000 yen unless the value of the goods higher than this amount is
"ADELFAEVERETTE," a vessel owned by Everett Steamship's principal,
declared in writing the by shipper before receipt of the goods by the
Everett Orient Lines.
carrier and inserted in the Bill of Lading. This is held reasonable by the
 The crates were covered by a Bill of Lading
court
 Upon arrival at the port of Manila, it was discovered that the crate
marked MARCO C/No. 14 was missing.
  The loss was confirmed and admitted by Everett Steamship in its
letter addressed to Hernandez Trading Co., which thereafter made a
formal claim upon Everett for the value of the lost cargo
amounting to 1,552,500 yen.
 Everett offered to pay only 100,000 yen, the maximum amount
stipulated under the bill of lading which limits the liability of Everett.
 Hernandez Trading rejected the offer and instituted a suit of
collection against Everett Steamship.
 Trial Court ruled in favor of Hernandez Trading and made Everett pay
the actual value of the lost cargo and the material and packaging
cost. CA affirmed
 Everett is now arguing that the CA erred in ruling that
o the consent of the consignee to the terms and conditions of
the bill of lading is necessary to make such stipulations
binding upon it;
o in holding that the carrier's limited package liability as
stipulated in the bill of lading does not apply in the instant
case;
o in allowing private respondent to fully recover the full
alleged value of its lost cargo.
III. Issue
Whether or not Everett Steamship liable for the whole amount of the lost
cargo or just the amount stipulated under the bill of lading?
1. Is the Limited Liability Clause in the Bill of Lading valid? YES
2. Is Hernandez Trading, as consignee and not a signatory to the bill of
lading, bound by the stipulations thereof? YES
IV. Ratio/Legal Basis
1. Validity of the Limited Liability Clause in the Bill of Lading
 A stipulation in the bill of lading limiting the common carrier's
liability for loss or destruction of a cargo to a certain sum, unless the
shipper or owner declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code (See Notes)
 It has also been consistently upheld in a number of cases.
 Pursuant to the aforequoted provisions of law, it is required that the
stipulation limiting the common carrier's liability for loss must be
"reasonable and just under the circumstances and has been freely
and fairly agreed upon."
 The bill of lading subject of the present controversy speci􀁈cally
provides, among others:
o 18. All claims for which the carrier may be liable shall be
adjusted and settled on the basis of the shipper's net invoice
cost plus freight and insurance premiums, if paid, and in no
event shall the carrier be liable for any loss of possible profits
or any consequential loss.
o The carrier shall not be liable for any loss of or any damage
to or in any connection with, goods in an amount exceeding
One Hundred Thousand Yen in Japanese Currency
(Y100,000.00) or its equivalent in any other currency per
package or customary freight unit (whichever is least) unless
the value of the goods higher than this amount is declared in
writing by the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra freight is
paid as required.
 The above stipulations are, to our mind, reasonable and just. In
the bill of lading, the carrier made it clear that its liability would
only be up to One Hundred Thousand (Y100,000.00) Yen.
 However, the shipper, Maruman Trading, had the option to
declare a higher valuation if the value of its cargo was higher
than the limited liability of the carrier. Considering that the
shipper did not declare a higher valuation, it had itself to blame
for not complying with the stipulations.
 The trial court's ratiocination that private respondent could not have
"fairly and freely" agreed to the limited liability clause in the bill of
lading because the said conditions were printed in small letters
does not make the bill of lading invalid.
 The Court ruled in PAL, Inc vs. Court of Appeals 5 that the
"jurisprudence on the matter reveals the consistent holding of the
court that contracts of adhesion are not invalid per se and that it
has on numerous occasions upheld the binding effect thereof.
 Greater vigilance, however, is required of the courts when dealing
with contracts of adhesion in that the said contracts must be carefully
scrutinized "in order to shield the unwary (or weaker party) from
 deceptive schemes contained in ready-made covenants,” such as the
bill of lading in question.
 The stringent requirement which the courts are enjoined to observe
is in recognition of Article 24 of the Civil Code which mandates that "
(i)n all contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age or other
handicap, the courts must be vigilant for his protection.
 The shipper, Maruman Trading, we assume, has been extensively
engaged in the trading business. It cannot be said to be ignorant
of the business transactions it entered into involving the shipment of
its goods to its customers. The shipper could not have known or
should know the stipulations in the bill of lading and there it
should have declared a higher valuation of the goods shipped.
Moreover, Maruman Trading has not been heard to complain that it
has been deceived or rushed into agreeing to ship the cargo in
Everett's vessel. In fact, it was not even impleaded in this case.
2. Hernandez Trading Co., as consignee is bound by the stipulation of
the bill of lading despite not being a signatory to it.
 Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court
(supra), the Court held that even if the consignee was not a signatory
to the contract of carriage between the shipper and the carrier,
the consignee can still be bound by the contract. Speaking
through Mr. Chief Justice Narvasa, the Court ruled:
o "To begin with, there is no question of the right, in principle,
of a consignee in a bill of lading to recover from the carrier
or shipper for loss of, or damage to goods being transported
under said bill, although that document may have been — as
in practice it oftentimes is-drawn up only by the consignor
and the carrier without the intervention of the consignee…
o . . the right of a party in the same situation as respondent
here, to recover for loss of a shipment consigned to him
under a bill of lading drawn up only by and between the
shipper and the carrier, springs from either a relation of
agency that may exist between him and the shipper or
consignor, or his status as stranger in whose favor some
stipulation is made in said contract, and who becomes a
party thereto when he demands fulfillment of that
stipulation, in this case the delivery of the goods or cargo
shipped.
o In neither capacity can he assert personally, in bar to any
provision of the bill of lading, the alleged circumstance that
fair and free agreement to such provision was vitiated by its
being in such fine print as to be hardly readable.
o There can, therefore, be no doubt or equivocation about the
validity and enforceability of freely-agreed-upon stipulations
in a contract of carriage or bill of lading limiting the liability
of the carrier to an agreed valuation unless the shipper
declares a higher value and inserts it into said contract or bill.
 When Hernandez Trading formally claimed reimbursement for
the missing goods from Everett and subsequently filed a case
against the latter based on the very same bill of lading, it
(Hernandez) accepted the provisions of the contract and thereby
made itself a party thereto, or at least has come to court to
enforce it.
 Thus, Hernandez Trading cannot now reject or disregard the
carrier's limited liability stipulation in the bill of lading. In other
words, Hernandez Trading is bound by the whole stipulations in the
bill of lading and must respect the same.
 The bill of lading in question confirms Everett's contention that it did
not know of the contents, quantity and value of "the shipment which
consisted of three pre-packed crates described in Bill of Lading No.
NGO-53MN merely as '3 CASES SPARE PARTS."'
 To defeat the carrier's limited liability, the aforecited Clause 18 of the
bill of lading requires that the shipper should have declared in
writing a higher valuation of its goods before receipt thereof by the
carrier and insert the said declaration in the bill of lading , with the
extra freight paid.
 These requirements in the bill of lading were never complied
with by the shipper, hence, the liability of the carrier under the
limited liability clause stands.
 The commercial Invoice No. MTM-941 does not in itself sufficiently
and convincingly show that Everett has knowledge of the value of the
cargo as contended by Hernandez Trading.
 No other evidence was proffered by private respondent to support is
contention. Thus, the Court is (not) convinced that Everett should be
liable for the full value of the lost cargo.
  In fine, the liability of Everett for the loss of the cargo is limited to
100,000 Yen, pursuant to Clause 18 of the bill of lading.
V. Disposition
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in
C.A.-G.R. CV No. 42803 is hereby REVERSED and SET ASIDE.
VI. Notes
 ART. 1749. A stipulation that the common carrier's liability is limited
to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value, is binding.
 ART. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the circumstances,
and has been freely and fairly agreed upon
Cruz v Sun Holidays
I. Recit-ready summary
Petitioners Sps. Cruz filed a complaint against respondent Sun Holidays Inc.
for damages arising from the death of their son Ruelito. He died with his
wife on board a boat M/B Coco Beach III which capsized when the
couple was on their way to Batangas from Puerto Galera, where the
couple stayed at the Coco Beach Island Resort, owned and operated by
respondent. On the day of the incident, Matute (a scuba diving instructor
who testified) and 25 other resort guests including the deceased spouses
trekked to the other side of the Coco Beach mountan that was sheltered from
the wind. This is where they boarded the boat which was to ferry them to
Batangas. However, shortly after the boat has sailed, it started to rain and as
they moved toward the open seas, the wind and rain got stronger, causing
the boat to tilt from side to side and the captain to step leave the wheel to
one of the crew members.
The waves got more intense; and after being hit by 2 big waves, the
boat capsized putting all the passengers underwater. The newlywed
died.
Petitioner filed a complaint claiming that respondent, as a common carrier,
were guilty of negligence in allowing the boat to travel despite the
storm warning bulletins issued by PAGASA. Respondent denied being a
common carrier claiming that they only ferry resort guests and crew
members. And even if they were common carriers, they have exercised
utmost diligence in ensuring their passengers’ safety since there was no
storm when the left and the coast guard has cleared their voyage. The boat
was not filled to capacity and everyone had life jackets. Moreover, the captain
of the boat averred that the Resort customarily requires 4 conditions to be
met before they sail:
(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. Here, all conditions were met.
ISSUE: WON respondents are common carriers and are to be held liable
for the death of the newlywed spouses — YES
RATIO:
Respondent is a common carrier since its ferry service is so intertwined
with its main business as to be properly considered ancillary thereto.
Their ferry service is so constant and this is underscored by the fact that the
resort having its own Coco Beach boats. Moreover, the tour package it offers
includes ferry service. Thus, these services are available to the public.
SC holds that they are not impressed by respondent’s argument that they
followed their 4 conditions before setting sail. Evidence show that
PAGASA issued a 24-hour forecast advising that there’s a tropical
depression in Northern Luzon which would affect Mindoro, where the
resort is. This was even supported by the testimony of the supervising
weather specialist who claimed that squalls are to be expected.
To be 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.
Here, respondents claim that the squall that happened is the proximate cause
of the incident. But records prove that the occurrence of the squall was for
Sept. 11, 2000 (day of accident). Moreover, it was found that the boat
suffered engine trouble before it capsized and sank. Thus, the incident is
NOT completely free from human intervention.
II. Facts of the case
Petitioners Sps. Cruz filed a complaint against respondent Sun Holidays Inc.
for damages arising from the death of their son Ruelito. He died with his wife
on board a boat M/B Coco Beach III which capsized when the couple was on
their way to Batangas from Puerto Galera, where the couple stayed at the
Coco Beach Island Resort, owned and operated by respondent.
The newlywed stayed at the Resort of respondent in a tour package-contract
that included transportation to and from the resort and the point of
departure in Batangas.
On the day of the incident, Matute (a scuba diving instructor who testified)
and 25 other resort guests including the deceased spouses trekked to the
other side of the Coco Beach mountan that was sheltered from the wind. This
is where they boarded the boat which was to ferry them to Batangas.
However, shortly after the boat has sailed, it started to rain and as they
moved toward the open seas, the wind and rain got stronger, causing the
boat to tilt from side to side and the captain to step leave the wheel to one
of the crew members.
The waves got more intense; and after being hit by 2 big waves, the boat
capsized putting all the 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 about 45 minutes later when 2 boats came. These 2 boats
boarded 22 persons consisting of 18 passengers and 4 crew members who
were brought to Pisa Island. 8 passengers, including the spouses died. Ruelito
was only 28 years old when he died, and employed as a contractual worker
for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.
Petitioner spouses demanded indemnification from respondent for the death
of their son for P4M. Respondents denied any responsibility, claiming that
the incident was a fortuitous event but they still offered P10k to petitioners
as an act of commiseration which the petitioners rejected.
Thus, petitioner filed a complaint claiming that respondent, as a common
carrier, were guilty of negligence in allowing the boat to travel despite the
storm warning bulletins issued by PAGASA.
Respondent denied being a common carrier claiming that they only ferry
resort guests and crew members. And even if they were common carriers,
they have exercised utmost diligence in ensuring their passengers’ safety
since there was no storm when the left and the coast guard has cleared their
voyage. The boat was not filled to capacity and everyone had life jackets.
Moreover, the captain of the boat averred that the Resort customarily
requires 4 conditions to be met before they sail:
(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. Here, all conditions were met.
RTC - held that respondents were private carriers who need only to observe
ordinary diligence. CA - affirmed RTC’s findings and even held that
respondents observed extraordinary diligence and the proximate cause of the
incident was a fortuitous event.
Petitioners are now before the SC claiming 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 also inform that another division of the
appellate court has held respondent liable for damages to the other survivors
of the incident.
III. Issue/s
WON respondents are common carriers and are to be held liable for the
death of the newlywed spouses — YES
IV. Ratio/Legal Basis
ON ART. 1732
SC held that Art. 1732 makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (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.
Respondent is a common carrier since its ferry service is so intertwined with
its main business as to be properly considered ancillary thereto. Their ferry
service is so constant and this is underscored by the fact that the resort
having its own Coco Beach boats. Moreover, the tour package it offers
includes ferry service. Thus, these services are available to the public.
The fact that the respondent doesn’t charge any separate fee for its ferry
service is of no moment since it would be imprudent to claim that the resort
suffers a loss in providing the service. SC is aware of the practice of beach
resort operators to offer tour packages with such transportation fee. Those
who do not avail of it paying the same amount is inconsequential also. These
guests may only deemed to have overpaid.
ON DILIGENCE REQUIRED
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. When a passenger dies or is injured
during the discharge of the contract of carriage, it is presumed that the
common carrier is at fault or negligent. This can be rebutted through
evidence that a carrier has exercised extraordinary diligence.
In this case, SC holds that they are not impressed by respondent’s argument
that they followed their 4 conditions before setting sail. Evidence show that
PAGASA issued a 24-hour forecast advising that there’s a tropical
depression in Northern Luzon which would affect Mindoro, where the resort
is. This was even supported by the testimony of the supervising weather
specialist who claimed that squalls are to be expected.
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.
ON FORTUITOUS EVENT ARGUMENT
Moreover, the case cannot be considered a fortuitous event.
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.
To be 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.
Here, respondents claim that the squall that happened is the proximate cause
of the incident. But records prove that the occurrence of the squall was for
Sept. 11, 2000 (day of accident). Moreover, it was found that the boat
suffered engine trouble before it capsized and sank. Thus, the incident is NOT
completely free from human intervention.
ON THE INDEMNITY
(see notes since it’s not a tranpo topic)
Article 1764 27 vis-à-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.
V. DISPOSITIVE PORTION
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.
VI. Notes
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at
P50,000.
As for damages representing unearned income, the formula for its
computation is:
Net Earning Capacity = life expectancy x (gross annual income - reasonable
and necessary 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 􏰚rst 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
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
Net Earning Capacity
= life expectancy x (gross annual income - reasonable and necessary living
expenses).
= 35 x (P475,200 - P237,600) = 35 x (P237,600)
= 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-à-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.
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 220839 of the Civil Code, attorney's fees may also be
awarded where exemplary damages are awarded. The Court 􏰚nds 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 is made (at which
time the quanti􏰚cation 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 􏰚nal
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
􏰚nality 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 􏰚nality 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.
PAL v CA
Note: Maritime law - A delay in the arrival of the luggage does not per se
bring rise to a cause of action unless such delay is accompanied with bad
faith.
I. Recit Ready
Co and family were arrived at 5:30 am in Manila International Airport
aboard PAL’s airplane. Co tried to claim all his nine checked-in luggages
at the retrieval area. However, one of his luggages is missing. The lost
luggage and its contents were worth collectively around $2000 since it
contained gifts that they were going to gift to their relatives at home. Co
then complained to Willy, one of PAL’s employees at the claim counter. Both
filled up a Property Irregularity Report. Co continued to call within the day, to
complain about his lost luggage. Eventually, Co asked his lawyer to write a
demand to the PAL’s Central Baggage Services. PAL just apologized. PAL
never found the luggage. Co sued PAL. RTC ruled in favor of Co for
P42,766.02 by way of actual damages; P20,000.00 by way of exemplary
damages; P10,000.00 as attorney’s fees. CA affirmed. PAL argues that the
Warsaw Convention, which limits the liability of the aircraft carrier for loss or
damage to checked-in baggage to $20.00 based on weight, should apply
for PAL when it comes to damages.
WoN the Warsaw Convention applies? NO
DOCTRINE: The liability of the common carrier for the loss, destruction or
deterioration of goods transported from a foreign country to the
Philippines is governed primarily by the New Civil Code. In all matters not
regulated by said Code, the rights and obligations of common carriers
shall be governed by the Code of Commerce and by Special Laws. [Art
1753] The law of the country to which the goods are to be transported
shall govern the liability of the common carrier for their loss,
destruction or deterioration. Common carriers practice extraordinary
diligence which presumes that common carriers are negligent if the goods
are lost under their care, unless they prove that extraordinary diligence was
observed.
IN THIS CASE: : Since the passenger’s destination in this case was the
Philippines, Philippine law governs the liability of the carrier for the loss of
the passenger’s luggage. PAL was also not able to refute the evidence of Co
nor prove that PAL exercised due diligence.
II. Facts of the case
Plaintiff [Co], accompanied by his wife and son, arrived at the Manila
International Airport aboard defendant airline’s PAL Flight No. 107 from San
Francisco, California, U.S.A. Soon after his enbarking (sic), plaintiff proceeded
to the baggage retrieval area to claim his nine pieces of checked-in luggage
with the corresponding claim checks in his possession. Plaintiff found eight of
his luggage, but despite diligent search, he failed to locate the ninth luggage,
with claim check number 729113 which is the one in question in this case
Plaintiff then immediately notified defendant company through its employee,
Willy Guevarra, who was then in charge of the PAL claim counter at the
airport. Willy Guevarra filled up a printed form known as a Property
Irregularity Report acknowledging one of the plaintiff’s luggages to be
missing, and signed it after asking plaintiff himself to sign the same
document. Willy Guevarra asked plaintiff to surrender to him the nine claim
checks corresponding to the nine luggages, i.e., including the one that was
missing.
Plaintiff’s lost luggage was a Samsonite suitcase measuring about 62 inches
in length, worth about US$200.00 and containing various personal effects
purchased by plaintiff and his wife during their stay in the United States and
similar other items sent by their friends abroad to be given as presents to
relatives in the Philippines. Plaintiff’s invoices evidences the purchases of the
presents amounting to $1243.01 plus presents given to them by friends
amounting to $600.
Plaintiff on several occasions unrelentingly called at defendant’s office in
order to pursue his complaint about his missing luggage but to no avail.
Plaintiff through his lawyer wrote a demand letter to defendant company
through Rebecca V. Santos, its manager, Central Baggage Services. Rebecca
Santos replied to the demand letter acknowledging ‘that to date we have
been unable to locate your (plaintiff’s) baggage despite our careful search’ and
requesting plaintiff’s counsel to ‘please extend to him our sincere apologies for
the inconvenience he was caused by this unfortunate incident.’ Defendants
never found plaintiff’s missing luggage or paid its corresponding value.
RTC found PAL liable to pay Co: P42,766.02 by way of actual damages;
P20,000.00 by way of exemplary damages; P10,000.00 as attorney’s fees;. CA
affirmed.
Plaintiff claims that Court should have used the Warsaw Convention to limit
the liability of the aircraft carrier for loss or damage to checked-in baggage
to $20.00 based on weight.
III. Issue/s
WoN the Warsaw convention should apply? No
IV. Ratio/Legal Basis
DOCTRINE: The liability of the common carrier for the loss, destruction or
deterioration of goods transported from a foreign country to the Philippines
is governed primarily by the New Civil Code. In all matters not regulated by
said Code, the rights and obligations of common carriers shall be governed
by the Code of Commerce and by Special Laws. [Art 1753] The law of the
country to which the goods are to be transported shall govern the liability of
the common carrier for their loss, destruction or deterioration.
IN THIS CASE: Since the passenger’s destination in this case was the
Philippines, Philippine law governs the liability of the carrier for the loss of
the passenger’s luggage. the petitioner failed to overcome, not only the
presumption, but more importantly, the private respondent’s evidence,
proving that the carrier’s negligence was the proximate cause of the loss of
his luggage. Furthermore, petitioner acted in bad faith in faking a retrieval
receipt to bail itself out of having to pay Co’s claim.
The award of exemplary damages and attorney’s fees to the private
respondent was justified. The appellant was awarded attorney’s fees because
of appellee’s failure to satisfy the former’s just and valid demandable claim
which forced the appellant to litigate. This Court justified the grant of
exemplary damages and attorney’s fees for the petitioner’s failure, even
refusal, to pay the private respondent’s valid claim.
V. Disposition
WHEREFORE, the petition for review is DENIED for lack of merit. Costs
against the petitioner. SO ORDERED
VI. Notes
PANAM v IAC
PETITIONER: Pan American World Airways Inc.
RESPONDENT: INTERMEDIATE APPELLATE COURT, RENE V. PANGAN,
SOTANG BASTOS PRODUCTIONS and ARCHER PRODUCTIONS
(Weird hanapin yung case na ‘to. If I used the SCRA based on the syllabus sa
CD asia, iba lumalabas na case which has no relation with contract of carriage.
This is from google. C2020 digest has the same case herein. Take note also na
mali yung origs na nalagay sa transpo gdrive)
Recit-ready summary:
Pangan entered into a contract with Primo Quesada (in San Francisco
California), and Slutchnick (in Guam), to supply the latter with 3 films for
exhibition in the US. In preparation for his trip abroad, he bought an
economic class airplane ticket from Pan Am’s Manila Office for passage
from Manila to Guam.
Two hours before departure, Pangan was at the ticket counter of Pan Am in
Manila International Airpor. He presented his ticket, checked in two
luggages and was given the baggage claim tickets. These luggages
contained the promotion advertising materials, clutch bags, barong tagalog
and his personal belongings.
When he arrived in Guam, his two luggages did not arrive with his flight,
as a consequence of which his agreements with Slutchnick and Quesada for
the exhibition of the films in Guam and in the United States were cancelled.
Thereafter, he filed a written claim for his missing luggages.
CFI found petitioner liable and order them to pay the plaintiffs for actual
damages in the amount of P83,000 and an additional actual damages
P8,123.34. CA affirmed the decision.
ISSUE: (1) W/N the lower courts were correct in affixing the award of actual
damages beyond the liability set forth in the Warsaw Convention and the
contract of carriage?
(2) W/N the lower courts was correct in awarding consisting of alleged
profits despite the court’s ruling on consequential damages set forth in
Mendoza vs. Philippine Airlines?
RULING: Petitioners liability for the lost baggage is limited to $20.00 per
kilo or $600.00, as stipulated at the back of the ticket. The declaration of
the lower court is based on Northwest Airlines, Inc. v. Cuenca . But the said
did not say that, an air "carrier is liable only" in the event of death of a
passenger or injury suffered by him, or of destruction or loss of, or damages
to any checked baggage or any goods, or of delay in the transportation by air
of passengers, baggage or goods. This pretense is not borne out by the
language of said Articles. Neither said provisions nor others in the
aforementioned Convention regulate or exclude liability for other
breaches of contract by the carrier. Consequently, by no stretch of the
imagination may said quotation from Northwest be considered as supportive
of the appellate court's statement that the provisions of the Warsaw
Convention limited a carrier's liability are against public policy.
(2) Under Art.1107 of the Civil Code, a debtor in good faith like the
defendant herein, may be held liable only for damages that were foreseen
or might have been foreseen at the time the contract of transportation was
entered into. The trial court correctly found that the defendant company
could not have foreseen the damages that would be suffered by
Mendoza upon failure to deliver the can of film on the 17th of September,
1948 for the reason that the plans of Mendoza to exhibit that film during
the town fiesta and his preparations, specially the announcement of said
exhibition by posters and advertisement in the newspaper, were not called
to the defendant's attention.
Thus, applying the foregoing ruling from the Fargo case (see ruling): In the
absence of a showing that petitioner's attention was called to the special
circumstances requiring prompt delivery of private respondent Pangan's
luggages, petitioner cannot be held liable for the cancellation of private
respondents' contracts as it could not have foreseen such an eventuality
when it accepted the luggages for transit.
FACTS:
Plaintiff Rene Pangan is the president and general manager of Sotang Bastos
and Archer Production. While he was in San Francisco, California, he entered
into a contract with California and Primo Quesada of Prime Films where the
former bound himself to supply the latter with 3 films: “Ang Mabait, Masungit
at ang Pangit”, “Big Happening with Chikiting and Iking” and “Kambal
Dragon” for an exhibition in the US. It was also their agreement that plaintiffs
would provide the necessary promotional and advertising materials for said
films on or before May 30, 1978.
On his way home to the Philippines, Pangan visited Guam where he
contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan
likewise entered into a verbal agreement with Slutchnick for the exhibition of
two of the films above-mentioned at the Hafa Adai Theater in Guam for the
consideration of P7,000.00 per picture. Plaintiff Pangan undertook to
provide the necessary promotional and advertising materials for said films on
or before the exhibition date on May 30,1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of
the requisite promotional handbills and still pictures for which he paid the
total sum of P12,900.00 In preparation for his trip abroad to comply with his
contracts, Pangan purchased fourteen clutch bags, four capiz lamps and four
barong tagalog, with a total value of P4,400.00.
Pangan obtained from defendant Pan Am's Manila Office, through the Your
Travel Guide, an economy class airplane ticket) for passage from Manila to
Guam. The Your Travel Guide is a tour and travel office owned and managed
by plaintiffs witness Mila de la Rama.
Two hours before departure time Pangan was at the defendant's ticket
counter at the Manila International Airport and presented his ticket and
checked in his two luggages, for which he was given baggage claim tickets.
The two luggages contained the promotional and advertising materials, the
clutch bags, barong tagalog and his personal belongings. Subsequently,
Pangan was informed that his name was not in the manifest and so he could
not take Flight No. 842 in the economy class. Since there was no space in the
economy class, Pangan took the first class because he wanted to be on time
in Guam to comply with his commitment, paying an additional sum of
$112.00.
When Pangan arrived in Guam on the date of May 27, 1978, his two luggages
did not arrive with his flight, as a consequence of which his agreements with
Slutchnick and Quesada for the exhibition of the films in Guam and in the
United States were cancelled. Thereafter, he filed a written claim for his
missing luggages.
CFI found petitioner liable and order them to pay the plaintiffs for actual
damages in the amount of P83,000 and an additional actual damages
P8,123.34. CA affirmed the decision.
ISSUE: W/N the lower courts were correct in affixing the award of actual
damages beyond the liability set forth in the Warsaw Convention and the
contract of carriage?
W/N the lower courts was correct in awarding consisting of alleged profits
despite the court’s ruling on consequential damages set forth in Mendoza vs.
Philippine Airlines?
RULING:
The airline ticket contains the following conditions:
 NOTICE: If the passenger's journey involves an ultimate
destination or stop in a country other than the country of
departure, the Warsaw Convention may be applicable and the
Convention governs and in most cases limits the liability of
carriers for death or personal injury and in respect of loss of
or damage to baggage….
 CONDITIONS OF CONTRACT:  Carriage hereunder is subject to
the rules and limitations relating to liability established by
the Warsaw Convention unless such carriage is not
"international carriage" as defined by that Convention .
 NOTICE OF BAGGAGE LIABILITY LIMITATIONS: Liability for loss,
delay, or damage to baggage is limited as follows (unless a
higher value is declared in advance and additional charges are
paid):
o (1)For most international travel (including domestic
portions of international journeys) to approximately $9.07
per pound ($20.00 per kilo) for checked baggage and
$400 per passenger for unchecked baggage:
Petitioners liability for the lost baggage is limited to $20.00 per kilo or
$600.00, as stipulated at the back of the ticket. In order to rectify certain
misconceptions the Court finds it necessary to state that the CA’s reliance on
the case of Northwest Airlines, Inc. v. Cuenca  that held the view that "to apply
the Warsaw Convention which limits a carrier's liability to US$9.07 per pound
or US$20.00 per kilo in cases of contractual breach of carriage ** is against
public policy" -- utterly misplaced, to say the least. In said case Northwest
case: Petitioner argues that pursuant to those provisions, an air "carrier is
liable only" in the event of death of a passenger or injury suffered by him, or
of destruction or loss of, or damages to any checked baggage or any goods,
or of delay in the transportation by air of passengers, baggage or goods. This
pretense is not borne out by the language of said Articles. Neither said
provisions nor others in the aforementioned Convention regulate or
exclude liability for other breaches of contract by the carrier.
Under petitioner's theory, an air carrier would be exempt from any liability for
damages in the event of its absolute refusal, in bad faith, to comply with a
contract of carriage, which is absurd. We deem it unnecessary to pass upon
the First assignment of error because the same is the basis of the second
assignment of error, and the latter is devoid of merit, even if we assumed the
former to be well taken.
The Court never intended never did rule against the validity of provisions of
the Warsaw Convention. Consequently, by no stretch of the imagination
may said quotation from Northwest be considered as supportive of the
appellate court's statement that the provisions of the Warsaw
Convention limited a carrier's liability are against public policy.
2. The Court does not agree in awarding private respondents damages as and
for lost profits when their contracts to show the films in Guam and San
Francisco, California were cancelled.
Case of Mendoza applies: Under Art.1107 of the Civil Code, a debtor in
good faith like the defendant herein, may be held liable only for damages
that were foreseen or might have been foreseen at the time the contract of
transportation was entered into.
The trial court correctly found that the defendant company could not have
foreseen the damages that would be suffered by Mendoza upon failure to
deliver the can of film on the 17th of September, 1948 for the reason that the
plans of Mendoza to exhibit that film during the town fiesta and his
preparations, specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the defendant's
attention.
Chapman vs. Fargo does not apply: Plaintiff delivered motion picture films to
Fargo, an express company, consigned and to be delivered to him in Utica.
The attention of the express company was called to the fact that the
shipment involved motion picture films to be exhibited, and that they should
be sent to their destination rush.” The case does not apply because the
attention of the common carrier was called to the nature of the articles
shipped, the purpose, and the desire to rush, circumstances and facts absent
in the present case.
Generally, notice then of any special circumstances which will show that the
damages to be anticipated from a breach would be enhanced has been held
sufficient for this effect.
Thus, applying the foregoing ruling to the facts of the instant case, in the
absence of a showing that petitioner's attention was called to the special
circumstances requiring prompt delivery of private respondent Pangan's
luggages, petitioner cannot be held liable for the cancellation of private
respondents' contracts as it could not have foreseen such an eventuality
when it accepted the luggages for transit.
The evidence reveals that the proximate cause of the cancellation of the
contracts was private respondent Pangan's failure to deliver the
promotional and advertising materials on the dates agreed upon. For this
petitioner cannot be held liable. Private respondent Pangan had not
declared the value of the two luggages he had checked in and paid
additional charges. Neither was petitioner privy to respondents' contracts
nor was its attention called to the condition therein requiring delivery of the
promotional and advertising materials on or before a certain date.
3. With the Court's holding that petitioner's liability is limited to the amount
stated in the ticket, the award of attorney's fees, which is grounded on the
alleged unjustified refusal of petitioner to satisfy private respondent's just
and valid claim, loses support and must be set aside.
Disposition. Petition is GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering
petitioner to pay private respondents damages in the amount of US
$600.00 or its equivalent in Philippine currency at the time of actual payment
Notes
As used in this contract "ticket" means this passenger ticket and baggage
check of which these conditions and the notices form part, "carriage" is
equivalent to "transportation," "carrier" means all air carriers that carry
or undertake to carry the passenger or his baggage hereunder or
perform any other service incidental to such air carriage. "WARSAW
CONVENTION" means the convention for the Unification of Certain
Rules Relating to International Carriage by Air signed at Warsaw, 12th
October 1929, or that Convention as amended at The Hague, 28th
September 1955, whichever may be applicable.
** The Warsaw Convention actually provides: In the transportation of
checked baggage and of goods, the liability of the carrier shall be limited to a
sum of 250 francs per kilogram, unless the consignor has made, at the time
when the package was handed over to the carrier, a special declaration of the
value of delivery and has paid a supplementary sum if the case so requires. In
that case, the carrier will be liable to pay a sum not exceeding the declared
sum, unless he proves that the sum is greater than the actual value to the
consignor at delivery.... The sums mentioned above shall be deemed to refer
to the French franc consisting of 65-1/2 milligrams of gold at the standard of
fineness of nine hundred thousandths. These sums may be converted into
any national currency in round figures.
Cathay Pacific v Ramos
Note: The limited liability provision of the Warsaw Convention cannot be
invoked if the carrier is grossly negligent or at fault>
I. Recit ready
In 19 October 1975, respondent Tomas L. Alcantara was a first class
passenger of petitioner Cathay Pacific Airways, Ltd. on its Flight No. CX-900
from Manila to Hongkong and onward from Hongkong to Jakarta on Flight
No. CX-711. Upon his arrival in Jakarta, Alcantara discovered that his luggage
was missing. When he inquired about his luggage from Cathay's
representative in Jakarta, Alcantara was told that his luggage was left behind
in Hongkong. For this, Alcantara was offered $20.00 as "inconvenience
money" to buy his immediate personal needs until the luggage could be
delivered to him. It arrived one day later, however Alcantara decided to file a
complaint against Cathay Pacific.
W/N Cathay is liable? Yes.
Cathay breached its contract of carriage with Alcantara when it failed to
deliver his luggage at the designated place and time, it being the obligation
of a common carrier to carry its passengers and their luggage safely to their
destination, which includes the duty not to delay their transportation, and the
evidence shows that Cathay acted fraudulently or in bad faith.
DOCTRINE: When Cathay misplaced Alcantara’s luggage and failed to deliver
it to its passenger at the appointed place and time, some special species of
injury must have been caused to him. For sure, the latter underwent profound
distress and anxiety, and the fear of losing the opportunity to fulfill the
purpose of his trip. In fact, for want of appropriate clothings for the occasion
brought about by the delay of the arrival of his luggage, to his
embarrassment and consternation Alcantara had to seek postponement of
his pre-arranged conference with the Director General of Trade of the host
country. He is thus entitled to damages.
II. Facts of the case
October 19 1975 – Tomas Alcantara was a first class passenger of Cathay
Pacific (Flight No. CX-900). His route was from Manila to Jakarta, with Hong
Kong as a layover.
The purpose of his trip was to attend an October 20 conference with the
Director of Trade of Indonesia, Alcantara being the (1) Executive VP and
General Manager of Iligan Cement Corporation; (2) Chairman of the Export
committee of the Philippine Cement Corporation; and (3) representative of
the Cement Industry Authority.
Alcantara included in his checked-in luggage not only his personal effects but
also papers and documents needed for the conference.
Upon arrival in Jakarta, Alcantara learned that his luggage was missing. Upon
inquiry with Cathay’s representatives, he was told that his luggage was left
behind in Hongkong. He was offered $20.00 as “inconvenience money” in
order to buy his immediate personal needs for the time being, until his
luggage can be delivered. His luggage arrived 24 hours later but it was not
delivered to his hotel. Instead, Cathay required him to pick it up at the
Philippine Embassy.
March 1, 1976 – Alcantara filed before the CFI of Lanao del Norte a compliant
for damages against Cathay, praying for temperate, moral, and exemplary
damages, plus atty fees. The CFI ordered Cathay to pay the damages prayed
for. Both parties appealed, hence this petition.
III. Issue/s
Did the CA err in holding Cathay liable to Alcantara for the damages
prayed for? (NO)
IV. Ratio/Legal Basis
The lower and appellate courts found Cathay grossly negligent in failing to
deliver the luggage at the appointed time and place. While mere failure of
Cathay to deliver Alcantara’s luggage at the agreed time and place did not
ipso facto amount to willful misconduct since the luggage was eventually
delivered to Alcantara, albeit belatedly, the SC deems that the employees
acted in bad faith.
 Romula Palma, the Attache the PH Embassy in Jakarta testified that
when he called Cathay’s duty officer, the latter said: “What can we
do, the baggage is missing, I cannot do anything. Anyhow you
can buy anything you need charged to Cathay”
 Palma added that the demeanor of the duty officer was very
indifferent, implying “don’t worry, it can be found”.
The SC finds such testimony relevant in the case. Cathay’s employees shows
the discourteous conduct of Cathay, which warrants the grant of moral
damages. Worse, the conduct can be construed as insulting. The duty officer
simply advised Alcantara to buy anything he wanted.
Moreover, the grant of $20.00 as “inconvenience money” was not even
enough to purchase comfortable clothing appropriate for an executive
conference. Cathay’s employees should have been more solicitous to a
passenger in distress.
To make matters worse, Cathay even refused to have the luggage delivered
to Alcantara’s hotel. Cathay made Alcantara pick it up at the Philippine
Embassy.
In breach of contract of carriage cases, when there is no showing of bad faith,
the award for damages is limited to the natural and probable
consequences of the breach of obligation. In such case, liability does not
include moral and exemplary damage. Conversely, if the airline is
showed to have acted in bad faith, the award of moral and exemplary
damages is proper.
Cathay contends that its liability should be limited according to the
Warsaw Convention. The SC does not agree. Although the Warsaw
Convention has the force of law in this country, it does not operate as an
exclusive enumeration of instances declaring a carrier for breach of
contract of carriage. It must NOT be construed to preclude the
operation of the Civil Code.
It does not regulate, much less exempt, the carrier from liability for damages
for violating the rights of its passengers under the contract of carriage,
especially if willful misconduct on the part of the carrier's employees is
found or established, which is clearly the case before us. For, the Warsaw
Convention itself provides in Art. 25 that:
(1) The carrier shall not be entitled to avail himself of the provisions
of this convention which exclude or limit his liability, if the damage is
caused by his wilfull misconduct or by such default on his part as, in
accordance with the law of the court to which the case is submitted, is
considered to be equivalent to wilfull misconduct."
(2) Similarly the carrier shall not be entitled to avail himself of the
said provisions, if the damage is caused under the same
circumstances by any agent of the carrier acting within the scope of
his employment."
Thus, Cathay is entitled to moral and exemplary damages. We however find
the award by the Court of Appeals of P80,000.00 for moral damages
excessive, hence, We reduce the amount to P30,000.00.
V. Disposition
WHEREFORE, the assailed decision of respondent Court of Appeals is
AFFIRMED with the exception of the award of temperate damages of
P10,000.00 which is deleted, while the award of moral damages of P80,000.00
is reduced to P30,000.00. The award of P20,000.00 for exemplary damages is
maintained as reasonable together with the attorney's fees of P25,000.00. The
moral and exemplary damages shall earn interest at the legal rate from 1
March 1976 when the complaint was filed until full payment.
Trans-Asia Shipping v CA
I. Recit-ready summary
Atty. Renato Arroyo (Private Respondent), a public attorney, bought a ticket
from Trans-Asia Shipping Lines, Inc. (Trans-Asia) for the voyage of M/V Asia
Thailand vessel to Cagayan de Oro from Cebu City on November 12, 1991.
At around 5:30 pm of November 12, 1991, Atty. Arroyo boarded the M/V Asia
Thailand vessel. At that instance, he noticed that some repair works were
being undertaken on the engine of the vessel. The vessel departed at
around 11 pm with only one engine running. After an hour of slow voyage,
the vessel stopped near Kawit Island and dropped its anchor thereat. After
half an hour of stillness, some passengers demanded that they should be
allowed to return to Cebu City for they were no longer willing to
continue their voyage to Cagayan de Oro City. The captain acceded to
their request and thus the vessel headed back to Cebu City. For failure of
Trans-Asia to transport him to the place of destination on November 12,
1991, Atty. Arroyo filed before the trial court a complaint for damages
against Trans-Asia alleging that the engines of M/V Asia Thailand
conked out in the open sea, and for more than an hour it was stalled and at
the mercy of the waves, thus causing fear in the passengers. The Trial court
ruled in favor of Atty. Arroyo. Still unsatisfied, Atty. Arroyo appealed to CA,
which reversed the decision of the trial court in terms of legal basis but still
ruled in favor of Atty. Arroyo. Hence this present petition.
W/N the right of a passenger affected thereby to be determined and governed
by the Civil Code provision on common carriers or in the absence of a specific
provision, governed by Article 698 of the Code of Commerce? (In case of
interruption of a vessel’s voyage and the consequent delay in that vessel’s
arrival at its port of destination) – Both govern.
The court ruled that there was between Atty. Arroyo and Trans-Asia, a
contract of common carriage. Under Article 1733 of the Civil Code, Trans-
Asia was bound to observe extraordinary diligence in ensuring the safety
of Atty. Arroyo. That meant that Trans-Asia was, pursuant to Article 1755 of
the said Code, bound to carry Atty. Arroyo safely as far as human care and
foresight could provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances. In this case, Trans- Asia
failed to discharge this obligation. Before commencing the contracted
voyage, Trans-Asia undertook some repairs on the cylinder head of one of
the engines. But even before it could finish these repairs, it allowed the
vessel to leave the port of origin on only one functioning engine,
instead of two. Moreover, even the lone functioning engine was not in
perfect condition as sometime after it had run its course, it conked out. This
caused the vessel to stop and remain adrift at sea, thus in order to prevent
the ship from capsizing, it had to drop anchor. Plainly, the vessel was
unseaworthy even before the voyage began.
The CA did not grant Atty. Arroyo actual or compensatory damages,
reasoning that no delay was incurred since there was no demand as required
by Article 1169 of the Civil Code. This article, however, finds no application in
this case because as found by the CA, there was in fact no delay in the
commencement of the contracted voyage. If any delay was incurred, it was
after the commencement of such voyage, more specifically, when the voyage
was subsequently interrupted when the vessel had to stop near Kawit Island
after the only functioning engine conked out. As to the rights and duties of
the parties strictly arising out of such delay, the Civil Code is silent. However,
as correctly pointed out by Trans-Asia, Article 698 of the Code of
Commerce specifically provides for a situation. Article 698 must be read
together with Articles 2199, 2200, 2201, and 2208 in relation to Article
21 of the Civil Code. So read, it means that Trans-Asia is liable for any
pecuniary loss or loss of profits which the private respondent may have
suffered by reason thereof. For Atty. Arroyo, such would be the loss of
income if unable to report to his office on the day he was supposed to arrive
were it not for the delay. This, however, assumes that he stayed on the vessel
and was with it when it thereafter resumed its voyage; but he did not. As he
and some passengers resolved not to complete the voyage, the vessel
had to return to its port of origin and allow them to disembark. Any
further delay in Atty. Arroyo’s arrival at the port of destination was
caused by his decision to disembark. But actual or compensatory damages
must be proved, which Atty. Arroyo failed to do so. There is no convincing
evidence that he did not receive his salary for November 13, 1991 nor his
absence was not excused.
II. Facts of the case
Atty. Renato Arroyo (Private Respondent), a public attorney, bought a ticket
from Trans-Asia Shipping Lines, Inc. (Trans-Asia), a corporation engaged in
inter-island shipping, for the voyage of M/V Asia Thailand vessel to Cagayan
de Oro from Cebu City on November 12, 1991
At around 5:30 pm of November 12, 1991, Atty. Arroyo boarded the M/V Asia
Thailand vessel. At that instance, he noticed that some repair works were
being undertaken on the engine of the vessel The vessel departed at around
11 pm with only one engine running
After an hour of slow voyage, the vessel stopped near Kawit Island and
dropped its anchor thereat. After half an hour of stillness, some passengers
demanded that they should be allowed to return to Cebu City for they were
no longer willing to continue their voyage to Cagayan de Oro City. The
captain acceded to their request and thus the vessel headed back to Cebu
City
At Cebu City, Atty. Arroyo together with the other passengers who requested
to be brought back to Cebu City, were allowed to disembark. Thereafter, the
vessel proceeded to Cagayan de Oro City. Atty. Arroyo, the next day, boarded
the M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a vessel of
Trans-Asia
For failure of Trans-Asia to transport him to the place of destination on
November 12, 1991, Atty. Arroyo filed before the trial court a complaint for
damages against Trans-Asia alleging that the engines of M/V Asia Thailand
conked out in the open sea, and for more than an hour it was stalled and at
the mercy of the waves, thus causing fear in the passengers.
After due trial, the trial court ruled in favor of Atty. Arroyo but said that it was
only for breach of contract, with Articles 1170, 1172, and 1173 of the Civil
Code as applicable law, not Article 2180 of the same code. Moreover, the
court ruled that pursuant to Article 2201 of the same code, to be entitled to
damages, the non-performance of the obligation must have been tainted not
only by fraud, negligence, or delay, but also bad faith, malice, and wanton
attitude. The court found that Trans-Asia by leaving Atty. Arroyo in Cebu
could hardly be considered as acting in bad faith, negligence, malice, and
wanton attitude. Unsatisfied, Atty. Arroyo appealed to the CA. The CA
reversed the trial court’s decision by applying Article 1775 in relation to
Articles 2201, 2208, 2217, and 2232 of the Civil Code and accordingly,
awarded compensatory, moral, and exemplary damages. Hence the present
petition.
III. Issue/s
Whether or not the right of a passenger affected thereby to be determined
and governed by the Civil Code provision on common carriers or in the
absence of a specific provision, governed by Article 698 of the Code of
Commerce? (In case of interruption of a vessel’s voyage and the consequent
delay in that vessel’s arrival at its port of destination)—Both.
IV. Ratio/Legal Basis
The right of a passenger affected thereby will be determined and governed
by the Civil Code provision on common carriers and in the absence of a
specific provision, governed by Article 698 of the Code of Commerce? (In
case of interruption of a vessel’s voyage and the consequent delay in that
vessel’s arrival at its port of destination).
The court ruled that there was between Atty. Arroyo and Trans-Asia, a
contract of common carriage. Under Article 1733 of the Civil Code, Trans-Asia
was bound to observe extraordinary diligence in ensuring the safety of Atty.
Arroyo. That meant that Trans-Asia was, pursuant to Article 1755 of the said
Code, bound to carry Atty. Arroyo safely as far as human care and foresight
could provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances. In this case, Trans-Asia failed to discharge
this obligation
Before commencing the contracted voyage, Trans-Asia undertook some
repairs on the cylinder head of one of the engines. But even before it could
finish these repairs, it allowed the vessel to leave the port of origin on only
one functioning engine, instead of two Moreover, even the lone functioning
engine was not in perfect condition as sometime after it had run its course, it
conked out. This caused the vessel to stop and remain adrift at sea, thus in
order to prevent the ship from capsizing, it had to drop anchor. Plainly, the
vessel was unseaworthy even before the voyage began. 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 a contract of
carriage is a clear breach of its duty prescribed in Article 1755 of the Civil
Code.
Actual or compensatory damages represent the adequate compensation or
pecuniary loss suffered and for profits the oblige failed to obtain
In contracts or quasi-contracts, the obligor is liable for the damages which
may be reasonably attributed to the non-performance of the obligation if he
is guilty of fraud, bad faith, malice, or wanton attitude
Moral Damages include moral suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, or similar injury
Exemplary damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated or compensatory
damages
In contracts and quasi-contracts, exemplary damages may be awarded if the
defendant acted in wanton-fraudulent, reckless, oppressive, or malevolent
manner. It cannot be considered as a matter of right; the court having to
decide whether or not they should be adjudicated
The CA did not grant Atty. Arroyo actual or compensatory damages,
reasoning that no delay was incurred since there was no demand as
required by Article 1169 of the Civil Code. This article, however, finds no
application in this case because as found by the CA, there was in fact no
delay in the commencement of the contracted voyage. If any delay was
incurred, it was after the commencement of such voyage, more specifically,
when the voyage was subsequently interrupted when the vessel had to stop
near Kawit Island after the only functioning engine conked out
As to the rights and duties of the parties strictly arising out of such delay, the
Civil Code is silent. However, as correctly pointed out by Trans-Asia, Article
698 of the Code of Commerce specifically provides for a situation, it reads:
“In case a voyage already begun should be interrupted, the passengers shall
be obliged to pay the fare in proportion to the distance covered,
without right to recover for losses and damages if the interruption due
to fortuitous event or force majeure, but with a right to indemnity if the
interruption should have been caused by the captain exclusively. If the
interruption should be caused by the disability of the vessel and a
passenger should agree to await the repairs, he may not be required to
pay any increased price of passage, but his living expenses during the
stay shall be for his own account”
Article 698 must be read together with Articles 2199, 2200, 2201, and 2208 in
relation to Article 21 of the Civil Code. So read, it means that Trans-Asia is
liable for any pecuniary loss or loss of profits which the private respondent
may have suffered by reason thereof. For Atty. Arroyo, such would be the loss
of income if unable to report to his office on the day he was supposed to
arrive were it not for the delay. This, however, assumes that he stayed on the
vessel and was with it when it thereafter resumed its voyage; but he did not.
As he and some passengers resolved not to complete the voyage, the vessel
had to return to its port of origin and allow them to disembark.
Any further delay in Atty. Arroyo’s arrival at the port of destination was
caused by his decision to disembark. Had he remained on the first vessel,
he would have reached his destination at noon of November 13, 1991, thus
been able to report to his office in the afternoon. He, therefore, would have
lost only the salary for half of a day. But actual or compensatory damages
must be proved, which Atty. Arroyo failed to do so. There is no convincing
evidence that he did not receive his salary for November 13, 1991 nor his
absence was not excused.
The Court also agreed with the CA that Trans-Asia is liable for moral and
exemplary damages. In allowing its unseaworthy M/V Asia Thailand to
leave the port of origin and undertake the contracted voyage, with full
awareness that it was exposed to perils of the sea, it deliberately
disregarded its solemn duty to exercise extraordinary diligence and
obviously acted with bad faith and in a wanton and reckless manner
V. Disposition
Petition denied. CA decision affirmed
PAL v CA
Note: A different benefit given does not necessarily give rise to a ground for
damages. There only arises a ground when there is unfair treatment.
Philippine Airlines vs CA
Respondent boarded a PAL plane in Manila and disembarked in Cebu City
where he was supposed to take his connecting flight to Surigao City.
However, due to typhoon Osang, the connecting flight to Surigao City was
cancelled.
To accommodate the needs of its stranded passengers, PAL initially gave out
cash assistance of P 100.00 and, the next day, P200.00, for their expected stay
of two days in Cebu. Respondent Pantejo requested instead that he be
billeted in a hotel at the PAL's expense because he did not have cash with
him at that time, but PAL refused.
Thus, respondent Pantejo was forced to seek and accept the generosity of a
co-passenger, an engineer named Andoni Dumlao, and he shared a room
with the latter at Sky View Hotel with the promise to pay his share of the
expenses upon reaching Surigao.
On October 25, 1988 when the flight for Surigao was resumed, respondent
Pantejo came to know that the hotel expenses of his co-passengers, one
Superintendent Ernesto Gonzales and a certain Mrs. Gloria Rocha, an Auditor
of the Philippine National Bank, were reimbursed by PAL.
At this point, respondent Pantejo informed Oscar Jereza, PAL's Manager for
Departure Services at Mactan Airport and who was in charge of cancelled
flights, that he was going to sue the airline for discriminating against him.
It was only then that Jereza offered to pay respondent Pantejo P300.00 which,
due to the ordeal and anguish he had undergone, the latter declined.
The RTC then ordered a judgment against PAL ordering the latter to pay
Pantejo P300 for actual damages, P150,000 as moral damages, P100,000 as
exemplary damages, P15,000 as attorney’s fees.
In ruling for respondent Pantejo, both the trial court and the Court of
Appeals found that herein petitioner acted in bad faith in refusing to provide
hotel accommodations for respondent Pantejo or to reimburse him for hotel
expenses incurred despite and in contrast to the fact that other passengers
were so favored.
1) Cash assistance was given because there were no available rooms in the
hotels. However, evidence shows Sky View Hotel had had plenty of
vacant rooms.
2) It is not true that the payment made by PAL to Gonzales was a refund for
the ticket, but it was actually a reimbursement for hotel and meal
expenses.
3) Respondent and Gonzales only came to know about the reimbursements
because Mrs. Rocha told them so.
4) Petitioner offered to pay P300.00 to private respondent only after he had
confronted the airline's manager about the discrimination committed
against him, which the latter realized was an actionable wrong.
5) Service Voucher presented by petitioner to prove that it gave cash
assistance to its passengers, was based merely on the list of passengers
already given cash assistance and was purportedly prepared at around
 10:00 A.M. of October 23, 1988. This was two hours before respondent
came to know of the cancellation of his flight to Surigao, hence private
respondent could not have possibly refused the same.
Petitioner theorizes that the hotel accommodations or cash assistance given
in case a flight is cancelled is in the nature of an amenity and is merely a
privilege that may be extended at its own discretion, but never a right that
may be demanded by its passengers. Thus, when respondent Pantejo was
offered cash assistance and he refused it, petitioner cannot be held liable for
whatever befell respondent Pantejo on that fateful day, because it was merely
exercising its discretion when it opted to just give cash assistance to its
passengers.
Issue: Whether PAL acted in bad faith when it failed and refused to provide
hotel accommodations for respondent Pantejo or to reimburse him for hotel
expenses incurred by reason of the cancellation of its connecting flight to
Surigao City due to force majeure.
Assuming arguendo that the airline passengers have no vested right to this
amenities in case a flight is cancelled due to force majeure, what makes
petitioner liable for damages in this particular case and under the facts
obtaining herein is its blatant refusal to accord the so-called amenities
equally to all its stranded passengers who were bound for Surigao City. No
compelling or justifying reason was advanced for such discriminatory and
prejudicial conduct.
Moreover, it was established that it is petitioner's standard company policy,
whenever a flight has been cancelled, to extend to its hapless passengers
cash assistance or to provide them accommodations in hotels with which it
has existing tie-ups.
o In fact, petitioner's Mactan Airport Manager for departure
services, admitted that the PAL has an existing arrangement
with hotel to accommodate stranded passengers, and that
the hotel bills of Ernesto Gonzales were reimbursed
obviously pursuant to that policy.
o 2 witnesses were also presented which said that when their
flight with PAL were cancelled, they were billeted at Rajah
Hotel for 2 nights and 3 days at the expense of PAL.
 Gonzales also testified that based on his previous experience hotel
accommodations were extended by PAL to its stranded passengers
either in Magellan or Rajah Hotels, or even in Cebu Plaza. Thus, we
view as impressed with dubiety PAL's present attempt to represent
such emergency assistance as being merely ex gratia and not ex
debito.
 While petitioner now insists that the passengers were duly informed
that they would be reimbursed for their hotel expenses, it miserably
and significantly failed to explain why the other passengers were
given reimbursements while private respondent was not.
o Although Gonzales was subsequently given a refund, this
was only so because he came to know about it by accident
through Mrs. Rocha, as earlier explained.
 On the bases of all the foregoing, the inescapable conclusion is that
petitioner acted in bad faith in disregarding its duties as a common
carrier to its passengers and in discriminating against herein
respondent Pantejo. It was even oblivious to the fact that this
respondent was exposed to humiliation and embarrassment
especially because of his government position and social
prominence, which altogether necessarily subjected him to ridicule,
shame and anguish.
 It is likewise claimed that the moral and exemplary damages awarded
to respondent Pantejo are excessive and unwarranted on the ground
that respondent is not totally blameless because of his refusal to
accept the P100.00 cash assistance which was inceptively offered to
him. It bears emphasis that respondent Pantejo had every right to
make such refusal since it evidently could not meet his needs and
that was all that PAL claimed it could offer.
o His refusal to accept the P300.00 proffered as an
afterthought when he threatened suit was justified by his
resentment when he belatedly found out that his co-
passengers were reimbursed for hotel expenses and he was
not.
 The discriminatory act of petitioner against respondent ineludibly
makes the former liable for moral damages under Article 21 in
relation to Article 2219 (10) of the Civil Code.
Calalas v CA
I. Recit Ready
Sunga filed a complaint for damages against Calalas, alleging violation of the
contract of carriage by the former in failing to exercise the diligence required
of him as a common carrier. Calalas, on the other hand, filed a third-party
 complaint against Francisco Salva, the owner of the Isuzu truck that
bumped their passenger jeepney. The lower court rendered judgment
against Salva as third-party defendant and absolved Calalas of liability,
holding that it was the driver of the Isuzu truck who was responsible for
the accident. It took cognizance of another case (Civil Case No. 3490), filed
by Calalas against Salva and Verena for quasi-delict, in which Branch 37 of
the same court held Salva and his driver Verena jointly liable
to Calalas for the damage to his jeepney. On appeal, the Court of Appeals
reversed the ruling of the lower court on the ground that Sunga's cause of
action was based on a contract of carriage, not quasi-delict, and that the
common carrier failed to exercise the diligence required under the Civil
Code. The appellate court dismissed the third-party complaint against Salva
and adjudged Calalas liable for damages to Sunga. Hence, this petition.
It is immaterial that the proximate cause of the collision between
the jeepney and the truck was the negligence of the truck driver. The
doctrine of proximate cause is applicable only in actions for  quasi-delict,
not in actions involving breach of contract. In the case at bar, upon the
happening of the accident, the presumption of negligence at once arose,
and it became the duty of petitioner to prove that he had observed
extraordinary diligence in the care of his passengers. The fact that Sunga
was seated in an "extension seat" placed her in a peril greater than that to
which the other passengers were exposed. Therefore, not only was petitioner
unable to overcome the presumption of negligence imposed on him for the
injury sustained by Sunga, but also, the evidence showed he was actually
negligent in transporting passengers. The decision of the Court of Appeals
was, affirmed, with the modification that the award of moral damages was
deleted.
II. Facts of the case
At 10 o'clock in the morning, private respondent Eliza Jujeurche G. Sunga,
took a passenger jeepney owned and operated by petitioner Vicente Calalas.
As the jeepney was filled to capacity of about 24 passengers, Sunga was
given by the conductor an "extension seat," a wooden stool at the back of
the door at the rear end of the vehicle.
On the way to Poblacion Sibulan, Negros Occidental, the jeepney stopped to
let a passenger off. As she was seated at the rear of the vehicle, Sunga gave
way to the outgoing passenger. Just as she was doing so, an Isuzu truck
driven by Iglecerio Verena and owned by Francisco Salva bumped the left
rear portion of the jeepney. As a result, Sunga was injured. She sustained a
fracture of the "distal third of the left tibia-fibula with severe necrosis of the
underlying skin." Closed reduction of the fracture, long leg circular casting,
and case wedging were done under sedation. Her confinement in the
hospital lasted from August 23 to September 7, 1989. Her attending
physician, Dr. Danilo V. Oligario, an orthopedic surgeon, certified she would
remain on a cast for a period of three months and would have to ambulate in
crutches during said period.
On October 9, 1989, Sunga filed a complaint for damages against Calalas,
alleging violation of the contract of carriage by the former in failing to
exercise the diligence required of him as a common carrier. Calalas, on the
other hand, filed a third-party complaint against Francisco Salva, the owner of
the Isuzu truck.
The lower court rendered judgment, against Salva as third-party defendant
and absolved Calalas of liability, holding that it was the driver of the Isuzu
truck who was responsible for the accident. It took cognizance of another
case (Civil Case No. 3490), filed by Calalas against Salva and Verena,
for quasi-delict, in which Branch 37 of the same court held Salva and his
driver Verena jointly liable to Calalas for the damage to his jeepney
Petitioner contends that the ruling in Civil Case No. 3490 that the negligence
of Verena was the proximate cause of the accident negates his liability and
that to rule otherwise would be to make the common carrier an insurer of the
safety of its passengers.
III. Issue/s
W/N petitioner is liable on his contract of carriage? YES
IV. Legal Basis
The issue in Civil Case No. 3490 was whether Salva and his driver Verena were
liable for quasi-delict for the damage caused to petitioner's jeepney. On the
other hand, the issue in this case is whether petitioner is liable on his contract
of carriage. The first, quasi-delict, also known as culpa aquiliana or culpa extra
contractual, has as its source the negligence of the tortfeasor. The second,
breach of contract or culpa contractual, is premised upon the negligence in
the performance of a contractual obligation.
Consequently, in quasi-delict, the negligence or fault should be clearly
established because it is the basis of the action, whereas in breach of
contract, the action can be prosecuted merely by proving the existence of the
contract and the fact that the obligor, in this case the common carrier, failed
to transport his passenger safely to his destination.  In case of death or
injuries to passengers, Art. 1756 of the Civil Code provides that common
carriers are presumed to have been at fault or to have acted negligently
unless they prove that they observed extraordinary diligence as defined
in Arts. 1733 and 1755 of the Code. This provision necessarily shifts to the
common carrier the burden of proof.
There is, thus, no basis for the contention that the ruling in Civil Case No.
3490, finding Salva and his driver Verena liable for the damage to petitioner's
jeepney, should be binding on Sunga. It is immaterial that the proximate
cause of the collision between the jeepney and the truck was the
negligence of the truck driver. The doctrine of proximate cause is
applicable only in actions for quasi-delict, not in actions involving
breach of contract. The doctrine is a device for imputing liability to a
person where there is no relation between him and another party. In such a
case, the obligation is created by law itself. But, where there is a pre-
existing contractual relation between the parties, it is the parties
themselves who create the obligation, and the function of the law is
merely to regulate the relation thus created. Insofar as contracts of
carriage are concerned, some aspects regulated by the Civil Code are those
respecting the diligence required of common carriers with regard to the
safety of passengers as well as the presumption of negligence in cases of
death or injury to passengers. It provides:
ARTICLE 1733. Common carriers, from the nature of their business
and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances
of each case.
Such extraordinary diligence in the vigilance over the goods is further
expressed in Articles 1734, 1735, and 1746, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set
forth in Articles 1755 and 1756. 
ARTICLE 1755. A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the
circumstances.
ARTICLE 1756. In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence as prescribed by Articles 1733 and 1755.
In the case at bar, upon the happening of the accident, the presumption of
negligence at once arose, and it became the duty of petitioner to prove that
he had to observe extraordinary diligence in the care of his passengers.
Now, did the driver of jeepney carry Sunga "safely as far as human care and
foresight could provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances" as required by Art. 1755? We do
not think so. Several factors militate against petitioner's contention.
First, as found by the Court of Appeals, the jeepney was not properly
parked, its rear portion being exposed about two meters from the broad
shoulders of the highway, and facing the middle of the highway in a diagonal
angle. This is a violation of the R.A. No. 4136, as amended, or the Land
Transportation and Traffic Code, which provides:
SECTION 54. Obstruction of Traffic. — No person shall drive his motor
vehicle in such a manner as to obstruct or impede the passage of any
vehicle, nor, while discharging or taking on passengers or loading or
 unloading freight, obstruct the free passage of other vehicles on the
highway.  expense, thereafter proceeding to Manila the following day.
Second, it is undisputed that petitioner's driver took in more
passengers than the allowed seating capacity of the jeepney, a
violation of §32(a) of the same law. It provides:
Exceeding registered capacity. — No person operating any motor
vehicle shall allow more passengers or more freight or cargo in his
vehicle than its registered capacity.
The fact that Sunga was seated in an "extension seat" placed her in a peril
greater than that to which the other passengers were exposed. Therefore, not
only was petitioner unable to overcome the presumption of negligence
imposed on him for the injury sustained by Sunga, but also, the evidence
shows he was actually negligent in transporting passengers.
We find it hard to give serious thought to petitioner's contention that
Sunga's taking an "extension seat" amounted to an implied assumption
of risk. It is akin to arguing that the injuries to the many victims of the
tragedies in our seas should not be compensated merely because those
passengers assumed a greater risk of drowning by boarding an overloaded
ferry. This is also true of petitioner's contention that the jeepney being
bumped while it was improperly parked constitutes caso fortuito. A caso
fortuito is an event which could not be foreseen, or which, though
foreseen, was inevitable. 3 This requires that the following requirements be
present: (a) the cause of the breach is independent of the debtor's will; (b)
the event is unforeseeable or unavoidable; (c) the event is such as to render it
impossible for the debtor to fulfill his obligation in a normal manner, and (d)
the debtor did not take part in causing the injury to the creditor. Petitioner
should have foreseen the danger of parking his jeepney with its body
protruding two meters into the highway.
Japan Airlines v CA
I. Recit-ready summary
Jose Miranda boarded JAL flight No. JL 001 in San Francisco bound for
Manila. On the same day Miranda et al 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
When they were supposed to fly to Manila from Japan, NAIA was closed
because of the Mount Pinatubo Eruption. Hence the trip to Manila was
cancelled indefinitely. JAL paid for their hotel expenses until June 16, but their
flight was again cancelled because NAIA was still closed. JAL told them that it
won’t pay for their hotel expenses anymore. NAIA reopened on June 22.
Miranda et al filed an action for damages against JAL arguing 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. JAL used the defense of force majeure.
WON 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?
NO
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. However, they were awarded nominal damages. SC said that JAL had the
duty to make the necessary arrangements to transport private respondents
on the first available connecting flight to Manila. 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.
Airline passengers must take such risks incident to the mode of travel. In this
regard, adverse weather conditions or 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. 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.

II. Facts of the case
On June 13, 1991, 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
(Miranda et al) 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, they were billeted at Hotel
Nikko Narita for the night. The next day, on the final leg of their journey, they
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 the 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, their long anticipated flight to Manila was again cancelled due
to NAIAs indefinite closure. At this point, JAL informed them 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, they 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.
Miranda et al, on July 25, 1991, commenced an action for damages against
JAL before the RTC of Quezon City.
Miranda et al 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. They insisted that JAL was
obligated to shoulder their expenses as long as they were still stranded in
Narita.
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.
On June 18, 1992, the trial court rendered its judgment in favor of private
respondents holding JAL liable for damages.
JAL appealed the decision before the CA, which, with the exception of
lowering the damages awarded affirmed the trial courts finding. JAL filed MR
which proved futile and unavailing. JAL has now filed this instant petition.
III. Issue/s
WON 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? NO
IV. Ratio/Legal Basis
The Mt. Pinatubo eruption prevented JAL from proceeding to Manila on
schedule. Miranda et al concede that such event can be considered as force
majeure since their delayed arrival in Manila was not imputable to JAL.
In a plethora of cases the Court 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. 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. In this regard, adverse weather conditions or
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.
CA, despite the presence of force majeure, still ruled against JAL relying in
our decision in PAL v. Court of Appeals. 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 the passengers were left at the
airport and could not even hitch a ride in a Ford Fiera loaded with PAL
personnel, not to mention the apparent apathy of the PAL station manager as
to the predicament of the stranded passengers. In light of these
circumstances, the Court held that if the fortuitous event was accompanied
by neglect and malfeasance by the carriers employees, an action for damages
against the carrier is permissible. Unfortunately, for private respondents,
none of these conditions are present in the instant petition.
The Court is not prepared, however, to completely absolve JAL from any
liability. It must be noted that private respondents bought tickets from the
United States with Manila as their final destination. While JAL was no longer
required to 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 transport private respondents on the first
available connecting flight to Manila. 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.
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 NAIAs 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. 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.
V. Disposition
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 the private respondents nominal damages in the sum of P100,000.00
each including attorney's fees of P50,000.00 plus costs. 
Northwest Airlines v Catapang
Note: Take note of the circumstances of the person in considering the
damages due the person.
I. Recit-ready summary
Respondent Catapang requested First United Travel, Inc. (FUT) to issue
him a ticket that would allow rebooking or rerouting of flights within
the United States. FUT informed him that Northwest Airlines, Inc.
(petitioner) was willing to accommodate his request provided he would
pay an additional US$50 for every rebooking or rerouting of flight. He
agreed. When Catapang arrived in New York, he called Northwest’s office
which informed him that his ticket was not "rebookable or reroutable".
Catapang proceeded to Northwest’s ticket office where he was treated in a
rude manner by an employee who informed him that his ticket was not
rebookable or reroutable. He filed a complaint for damages. RTC awarded
Catapang damages and CA affirmed.
The issue is whether award for damages is correct?
YES, except for filing fees and attorney’s fees.
Instead of civilly informing respondent that his ticket could not be rebooked,
petitioner's agent in New York exhibited rudeness in the presence of
respondent's brother-in-law and other customers. Passengers have the
right to be treated by a carrier's employees with kindness, respect,
courtesy and due consideration. Any discourteous conduct on the part of
these employees toward a passenger gives the latter an action for damages
against the carrier. The award of moral and exemplary damages to
respondent is thus justified.
II. Facts of the case
Respondent Delfin Catapang is a lawyer and at the time of the case,
Assistant Vice President and Head of the Special Projects Department,
Corporate Services Division of the United Coconut Planters Bank (UCPB). He
was directed by UCPB to go to Paris for a business trip. He intended to go to
US to visit his siblings after Paris. So, he requested First United Travel, Inc.
(FUT) to issue him a ticket that would allow rebooking or rerouting of flights
within the United States.
FUT informed him, via telephone, that Northwest Airlines, Inc.
(petitioner) was willing to accommodate his request provided he would
pay an additional US$50 for every rebooking or rerouting of flight. He
agreed and was given a ticket covering the New York to Los Angeles via
Detroit and the Los Angeles to Manila segments of his travel. The
rebooking/rerouting scheme was annotated on the restriction portion of the
ticket:
No end./7 days adv. Purchase
US$50 — rebooking/re-routing/cancellation fee
When Catapang arrived in New York, he called Northwest’s office
which informed him that his ticket was not "rebookable or reroutable".
Catapang proceeded to Northwest’s ticket office at the World Trade Center
where he was treated in a rude manner by an employee who informed
him that his ticket was not rebookable or reroutable since it was of a
"restricted type", and that unless he upgraded it by paying US$644.00, he
could not rebook. Left with no choice, respondent paid that amount for
rebooking.
Upon his return to the Philippines, Catapang wrote to petitioner in a
letter (see notes). His letter of demand remained unanswered, so he filed a
complaint for damages against Northwest. Northwest claimed that
respondent's ticket was a discounted one, subject to the rules which
petitioner's agents have to abide by. Thus, with respect to the annotation
on respondent's ticket of the US$50.00 rebooking charge, petitioner
explained that the same was subject to the "rules of applicability", which
rules could not be reflected on the ticket.
RTC ruled in favor of Catapang and awarded actual (including filing
fees), moral, exemplary damages, attorney’s fees, and cost of suit. CA
affirmed except it reduced the moral damages, totalling now to P700,000.
III. Issue/s
Whether the award for damages is correct? YES, except for filing fees and
attorney’s fees.
IV. Ratio/Legal Basis
Northwest assails that moral damages should not be awarded as
there is no breach of contract and exemplary damages as it did not
commit wanton or malevolent conduct. Further, attorney’s fees cannot be
recovered under Art. 2208 of the Civil Code, there is no pecuniary loss so
actual damages could not be recovered, the reimbursement of filing fees
has no basis and P700,000 in damages is excessive.
The Court disagrees. When respondent inquired from petitioner's agent
FUT if he would be allowed to rebook/reroute his flight, FUT advised him
that he could, on the condition that he would pay $50 for every
rebooking. He was not told by FUT and the ticket did not reflect it that
the ticket being issued to him was a "restricted type" to call for its
upgrading before a rebooking/rerouting. But Northwest’s reservation
supervisor, Amelia Merris, admitted that the only restriction on the ticket
refers to non-endorsement. (It means ticket cannot be transferred to
another airline)
Petitioner's breach in this case was aggravated by the undenied
treatment received by respondent when he tried to rebook his ticket. Instead
of civilly informing respondent that his ticket could not be rebooked,
petitioner's agent in New York exhibited rudeness in the presence of
respondent's brother-in-law and other customers, insulting respondent
by telling him that he could not understand English.
Passengers have the right to be treated by a carrier's employees with
kindness, respect, courtesy and due consideration. They are entitled to be
protected against personal misconduct, injurious language, indignities and
abuses from such employees. So it is that any discourteous conduct on the
part of these employees toward a passenger gives the latter an action for
damages against the carrier. The award of moral and exemplary damages to
respondent is thus justified.
But the inclusion of filing fees as part of the actual damages is
superfluous, if not erroneous, as it is already chargeable in the “cost of
suit” as per Secs. 8 and 10 of the Rules of Court. As for the award of
attorney's fees, the trial court did not state the factual and legal basis thereof.
The transcript of stenographic notes of the lower court's proceedings do not
show that respondent adduced proof to sustain his general averment of a
retainer agreement in the amount of P200,000.00. The award must thus be
deleted.
V. Disposition
WHEREFORE, the Court of Appeals Decision of June 30, 2006 is
AFFIRMED with MODIFICATION in that the award of attorney's fees is deleted
for lack of basis. And the award of actual damages of P7,372.50 representing
filing fees is deleted.
VI. Notes
At about 9:30 in the morning of March 11, 1992, I went to the sales
office in the World Trade Center where I explained to your black woman
representative my predicament. Your representative rudely told me that my
ticket is the restrictive type and that my flight can not be rebooked or
rerouted. I explained that the only restriction on my ticket is that I should pay
US$50.00 if I have to rebook or reroute my flight and asked your
representative to read the restriction. Your representative rudely and
impolitely retorted that I could not understand English and that unless I
pay the amount of US$644.00, I cannot get a rebooking and rerouting.
Despite my appeal and protestation, she did not reconsider her decision. As I
was badly needed in Detroit on the evening of the same day and had to be
back in Manila on the 14th of March, I was compelled to pay, under protest,
the amount of US$644.00 using my American Express Card as my cash was
insufficient to cover the amount. It was only then that I was issued ticket no.
012:4488:504:099.
Considering that my ticket was cleared with you prior to its issuance
and that FUT is your duly accredited agent, you are bound by the terms
of the ticket issued by FUT in your behalf. You have no right to
unilaterally change the tenor of your contract during its effectivity
without my consent.
Your airline’s willful breach of the terms and conditions of my ticket
and the shabby treatment that I received from your personnel hurt my
feeling, humiliated and embarrassed me in the presence of my brother-in-law
and other people nearby who witnessed the incident. The fact that your
employee did that to a bank officer and a lawyer like me only shows that your
airline can also do the same to others, not to mention the poor and hapless
persons.
Because I could not bear my wounded feeling, the shabby treatment,
the humiliation and the embarrassment that I received from your employee, I
asked for the cancellation and refund of my ticket covering my trip from Los
Angeles to the Philippines for which I was given a refund application slip no.
012 0230189256 3 by your ticket counter at the Los Angeles airport on March
12, 1992.
To compensate me for the expenses that I incurred, and the
wounded feeling, humiliation and embarrassment that were caused by your
airline’s willful breach of contract with me, I demand that you pay me
damages in the amount of ₱1,000,000.00 within a period of five (5) days
from your receipt hereof. Otherwise, I shall have no alternative but to
seek redress from our court of justice and to hold you liable for all other
expenses attendant thereto.
Dangwa v CA
Note: Take note – the presumption of negligence will attach in case of injury
or death except in cases enumerated under 1734.
I. Recit-ready summary
In the case at bar, pedrito Cudiamat unfortunately died due to injuries
suffered as he was trying to enter a bus. The bus driver claimed that he
did not see and thus he accidentally ran over the passenger. They tried to
bring him to the hospital but the driver still stopped to let a passenger
down. Now the family of Pedrito is filing a case against Dangwa (owner of
the bus) for negligence.
Is Dangwa liable? Yes
Even if Cudiamat was entering the bus while it was moving, this alone
cannot singlehandedly call him negligent. Evidence also proved that the
bus was clearly not moving in this case based upon the testimonies of
witnesses.
And as a common carrier, the moment the passenger stepped on the vehicle
was the time he became a passenger thus the extraordinary diligence
required to take their passengers to their destination safely was present.
As the driver was found to be negligent Dangwa is also negligent for being
the common carrier not practicing extraordinary Dilligence
II. Facts of the case
On May 13, 1985, private respondents filed a complaint 1 for damages
against petitioners for the death of Pedrito Cudiamat as a result of a vehicular
accident which occurred on March 25, 1985 at Marivic, Sapid, Mankayan,
Benguet. Among others, it was alleged that on said date, while petitioner
Theodore M. Lardizabal was driving a passenger bus belonging to
petitioner corporation in a reckless and imprudent manner and without
due regard to traffic rules and regulations and safety to persons., it ran
over its passenger, PEDRO CUDIAMAT.
Before taking the passenger to the nearest hospital, the said driver, in utter
bad faith and without regard to the welfare of the victim, first brought
his other passengers and cargo to their respective destinations before
banging said victim to the Lepanto Hospital where he expired.
Dangwa and other petitioners then claimed that they are not liable as they
were exercising extraordinary diligence and that it was due to the
victim’s own negligence in entering a moving vehicle that caused the
accident.

RTC ruled in favor of Dangwa. CA reversed, hence this petition with the
central issue herein being whether respondent court erred in reversing the
decision of the trial court and in finding petitioners negligent and liable for
the damages claimed.
TRIAL COURT. The trial court in this case found the victim negligent due to
his acts of entering a moving vehicle with one hand on an umbrella. There
was a lack of any signs or signal to let the driver or conductor know that he
was entering the vehicle as well.
CA. From the testimony of appellee's own witness in the person of Vitaliano
Safarita, it is evident that the subject bus was at full stop when the victim
Pedrito Cudiamat boarded the same as it was precisely on this instance where
a certain Miss Abenoja alighted from the bus. Moreover, contrary to the
assertion of the appellees, the victim did indicate his intention to board
the bus as can be seen from the testimony of the said witness when he
declared that Pedrito Cudiamat was no longer walking and made a sign to
board the bus when the latter was still at a distance from him. It was at the
instance when Pedrito Cudiamat was closing his umbrella at the platform
of the bus when the latter made a sudden jerk movement (as) the driver
commenced to accelerate the bus.
Evidently, the incident took place due to the gross negligence of the
appellee-driver in prematurely stepping on the accelerator and in not waiting
for the passenger to first secure his seat especially so when we take into
account that the platform of the bus was at the time slippery and wet
because of a drizzle. The defendants-appellees utterly failed to observe their
duty and obligation as common carrier to the end that they should observe
extra-ordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them according to the circumstances of each
case
III. Issue/s
Is Dangwa liable as a common carrier? YES
IV. Ratio/Legal Basis
After a careful review of the evidence on record, we find no reason to disturb
the above holding of the Court of Appeals. Its aforesaid findings are
supported by the testimony of petitioners' own witnesses. Virginia Abalos,
one of the witnesses, testified that this incident occurred in the 53 and 54
bunkerhouse. The bus conductor also said that the incident occurred at the
same place where he saw the victim lying down asking for help.
The foregoing testimonies show that the place of the accident and the place
where one of the passengers alighted were both between Bunkhouses 53
and 54, hence the finding of the Court of Appeals that the bus was at full
stop when the victim boarded the same is correct. They further confirm
the conclusion that the victim fell from the platform of the bus when it
suddenly accelerated forward and was run over by the rear right tires of
the vehicle, as shown by the physical evidence on where he was thereafter
found in relation to the bus when it stopped. Under such circumstances, it
cannot be said that the deceased was guilty of negligence.
The contention of petitioners that the driver and the conductor had no
knowledge that the victim would ride on the bus, since the latter had
supposedly not manifested his intention to board the same, does not merit
consideration. When the bus is not in motion there is no necessity for a
person who wants to ride the same to signal his intention to board. A
public utility bus, once it stops, is in effect making a continuous offer to
bus riders. Hence, it becomes the duty of the driver and the conductor, every
time the bus stops, to do no act that would have the effect of increasing the
peril to a passenger while he was attempting to board the same. The
premature acceleration of the bus in this case was a breach of such duty
It is the duty of common carriers of passengers, including common
carriers by railroad train, streetcar, or motorbus, to stop their
conveyances a reasonable length of time in order to afford passengers
an opportunity to board and enter, and they are liable for injuries
suffered by boarding passengers resulting from the sudden starting up
or jerking of their conveyances while they are doing so.
Further, even assuming that the bus was moving, the act of the victim in WHEREFORE, subject to the above modifications, the challenged judgment
boarding the same cannot be considered negligent under the circumstances. and resolution of respondent Court of Appeals are hereby AFFIRMED in all
As clearly explained in the testimony of the aforestated witness for other respects. SO ORDERED.
petitioners, Virginia Abalos, th bus had "just started" and "was still in slow Aboitiz Shipping v CA
motion" at the point where the victim had boarded and was on its platform.
13
Note: Take note of the issue on reasonable time. This is a matter of evidence.
I. Recit-ready summary
It is not negligence per se, or as a matter of law, for one attempt to
board a train or streetcar which is moving slowly. 14 An ordinarily
Anacleto Viana boarded the vessel M/V Antonia, owned by Aboitiz, at
prudent person would have made the attempt board the moving
the port at San Jose, Occidental Mindoro, bound for Manila. Said vessel
conveyance under the same or similar circumstances. The fact that
arrived at Pier 4, North Harbor, Manila, and the passengers therein
passengers board and alight from slowly moving vehicle is a matter of
disembarked. The crane owned by Pioneer and operated by its crane
common experience both the driver and conductor in this case could not
operator was placed alongside the vessel and one (1) hour after the
have been unaware of such an ordinary practice.
passengers of said vessel had disembarked, it started operation by
As soon as he stepped on the platform of the bus, the victim instantly
unloading the cargoes from said vessel. While the crane was being
became a passenger thus is afforded all the rights of a passenger of a
operated, Anacleto who had already disembarked from said vessel went
common carrier.
back to the vessel, and the crane hit him, pinning him between the side
of the vessel and the crane. He died. Private respondents Vianas filed a
Moreover, the circumstances under which the driver and the conductor
complaint 3 for damages against Aboitiz for breach of contract of carriage.
failed to bring the gravely injured victim immediately to the hospital for
medical treatment is a patent and incontrovertible proof of their
WON Anacleto was still a passenger of Aboitiz at the time of the incident? YES.
negligence. It defies understanding and can even be stigmatized as callous
indifference. The evidence shows that after the accident the bus could have
Doctrine. By the very nature of petitioner's business as a shipper, the
forthwith turned at Bunk 56 and thence to the hospital, but its driver instead
passengers of vessels are allotted a longer period of time to disembark
opted to first proceed to Bunk 70 to allow a passenger to alight and to
from the ship than other common carriers such as a passenger bus.
deliver a refrigerator, despite the serious condition of the victim. The vacuous
When the accident occurred, the victim was in the act of unloading his
reason given by petitioners that it was the wife of the deceased who caused
cargoes, which he had every right to do, from petitioner's vessel. It is not
the delay was tersely and correctly confuted by respondent court:
de􏰀finitely shown that one (1) hour prior to the incident, the victim had
already disembarked from the vessel.
... The pretension of the appellees that the delay was due to the fact that they
had to wait for about twenty minutes for Inocencia Cudiamat to get dressed
ISSUE: WON Aboitiz is negligent for Anacleto’s death? YES.
deserves scant consideration. It is rather scandalous and deplorable for a wife
whose husband is at the verge of dying to have the luxury of dressing herself
Doctrine. Presumption is established by law that in case of a passenger's
up for about twenty minutes before attending to help her distressed and
death or injury the operator of the vessel was at fault or negligent, having
helpless husband.
failed to exercise extraordinary diligence, and it is incumbent upon it to rebut
the same.
V. Disposition
Definitely, even assuming the existence of the supposed cordon of drums
loosely placed around the unloading area and the guard's admonitions
against entry therein, these were at most insufficient precautions which pale
into insignificance if considered vis-a-vis the gravity of the danger to which
the deceased was exposed. There is no showing that petitioner was
extraordinarily diligent in requiring or seeing to it that said
precautionary measures were strictly and actually enforced to subserve
their purpose of preventing entry into the forbidden area.
WON Pioneer is negligent for Anacleto’s death? NO.
Aboitiz joined Pioneer in proving the alleged gross negligence of the victim,
hence its present contention that the death of the passenger was due to the
negligence of the crane operator cannot be sustained both on grounds of
estoppel and for lack of evidence on its present theory.
II. Facts of the case
Anacleto Viana boarded the vessel M/V Antonia, owned by Aboitiz, at the
port at San Jose, Occidental Mindoro, bound for Manila. Said vessel arrived at
Pier 4, North Harbor, Manila, and the passengers therein disembarked, a
gangplank having been provided connecting the side of the vessel to the
pier. Instead of using said gangplank, Anacleto disembarked on the third
deck which was on the level with the pier.
After said vessel had landed, the Pioneer Stevedoring Corporation took over
the exclusive control of the cargoes loaded on said vessel pursuant to the
Memorandum of Agreement dated July 26, 1975 (Exh. '2') between the third
party defendant Pioneer Stevedoring Corporation and defendant Aboitiz
Shipping Corporation.
The crane owned by Pioneer and operated by its crane operator was placed
alongside the vessel and one (1) hour after the passengers of said vessel had
disembarked, it started operation by unloading the cargoes from said vessel.
While the crane was being operated, Anacleto who had already
disembarked from said vessel obviously remembering that some of his
cargoes were still loaded in the vessel, went back to the vessel, and it
was while he was pointing to the crew of the said vessel to the place
where his cargoes were loaded that the crane hit him, pinning him
between the side of the vessel and the crane. He was thereafter brought to
the hospital where he later expired three (3) days thereafter.
Private respondents Vianas filed a complaint 3 for damages against Aboitiz
for breach of contract of carriage.
Aboitiz, as third-party plaintiff, filed a third-party complaint against Pioneer
imputing liability thereto for Anacleto Viana's death as having been allegedly
caused by the negligence of the crane operator who was an employee of
Pioneer under its exclusive control and supervision.
Both the trial court and respondent Court of Appeals found the victim
Anacleto Viana guilty of contributory negligence, but holding that it was
the negligence of Aboitiz in prematurely turning over the vessel to the
arrastre operator for the unloading of cargoes which was the direct,
immediate and proximate cause of the victim's death.
III. Issue/s
1. WON Anacleto was still a passenger of Aboitiz at the time of the
incident? YES.
2. WON Aboitiz is negligent for Anacleto’s death? YES.
3. WON Pioneer is negligent for Anacleto’s death? NO.
IV. Ratio/Legal Basis
Anacleto was Aboitiz’s passenger
Petitioner contends that since one (1) hour had already elapsed from the
time Anacleto Viana disembarked from the vessel and that he was given
more than ample opportunity to unload his cargoes prior to the operation of
the crane, his presence on the vessel was no longer reasonable and he
consequently ceased to be a passenger.
DOCTRINE: The rule is that the relation of carrier and passenger
continues until the passenger has landed at the port of destination and
has left the vessel owner's dock or premises. Once created, the
relationship will not ordinarily terminate until the passenger has, after
reaching his destination, safely alighted from the carrier's conveyance or
had a reasonable opportunity to leave the carrier's premises. All persons
who remain on the premises a reasonable time after leaving the
conveyance are to be deemed passengers, and what is a reasonable time
or a reasonable delay within this rule is to be determined from all the
circumstances, and includes a reasonable time to see after his baggage
and prepare for his departure. The carrier-passenger relationship is not
terminated merely by the fact that the person transported has been carried
to his destination if, for example, such person remains in the carrier's
premises to claim his baggage. That reasonableness of time should be
made to depend on the attending circumstances of the case, such as the
kind of common carrier, the nature of its business, the customs of the
place, and so forth, and therefore precludes a consideration of the time
element per se without taking into account such other factors. The
primary factor to be considered is the existence of a reasonable cause as
will justify the presence of the victim on or near the petitioner's vessel.
By the very nature of petitioner's business as a shipper, the passengers of
vessels are allotted a longer period of time to disembark from the ship than
other common carriers such as a passenger bus. With respect to the bulk of
cargoes and the number of passengers it can load, such vessels are capable
of accommodating a bigger volume of both as compared to the capacity of a
regular commuter bus. Consequently, a ship passenger will need at least
an hour as is the usual practice, to disembark from the vessel and claim
his baggage whereas a bus passenger can easily get off the bus and
retrieve his luggage in a very short period of time. Anacleto Viana was still
a passenger at the time of the incident. When the accident occurred, the
victim was in the act of unloading his cargoes, which he had every right to
do, from petitioner's vessel.
It is not definitely shown that one (1) hour prior to the incident, the
victim had already disembarked from the vessel. Petitioner failed to prove
this. In consonance with common shipping procedure as to the minimum
time of one (1) hour allowed for the passengers to disembark, it may be
presumed that the victim had just gotten off the vessel when he went to
retrieve his baggage. Yet, even if he had already disembarked an hour earlier,
his presence in petitioner's premises was not without cause. The victim had to
claim his baggage which was possible only one (1) hour after the vessel
arrived since it was admittedly standard procedure in the case of petitioner's
vessels that the unloading operations shall start only after that time.
Aboitiz is negligent
DOCTRINE: Presumption is established by law that in case of a passenger's
death or injury the operator of the vessel was at fault or negligent, having
failed to exercise extraordinary diligence, and it is incumbent upon it to rebut
the same.
We cannot in reason deny that petitioner failed to rebut the
presumption against it. Under the facts obtaining in the present case, it
cannot be gainsaid that petitioner had inadequately complied with the
required degree of diligence to prevent the accident from happening.
As found by the Court of Appeals, the evidence does not show that there was
a cordon of drums around the perimeter of the crane, as claimed by
petitioner. It also adverted to the fact that the alleged presence of visible
warning signs in the vicinity was disputable and not indubitably established.
Thus, we are not inclined to accept petitioner's explanation that the
victim and other passengers were su􏰁ciently warned that merely
venturing into the area in question was fraught with serious peril.
Definitely, even assuming the existence of the supposed cordon of drums
loosely placed around the unloading area and the guard's admonitions
against entry therein, these were at most insufficient precautions which pale
into insignificance if considered vis-a-vis the gravity of the danger to which
the deceased was exposed. There is no showing that petitioner was
extraordinarily diligent in requiring or seeing to it that said
precautionary measures were strictly and actually enforced to subserve
their purpose of preventing entry into the forbidden area. While the
victim was admittedly contributorily negligent, still petitioner's
aforesaid failure to exercise extraordinary diligence was the proximate
and direct cause of, because it could de􏰀nitely have prevented, the
former's death.
 Pioneer not liable
Aboitiz joined Pioneer in proving the alleged gross negligence of the victim,
hence its present contention that the death of the passenger was due to
the negligence of the crane operator cannot be sustained both on
grounds of estoppel and for lack of evidence on its present theory. Even
in its answer filed in the court below it readily alleged that Pioneer had taken
the necessary safeguards insofar as its unloading operations were concerned,
a fact which appears to have been accepted by the plaintiff therein by not
impleading Pioneer as a defendant, and likewise inceptively by Aboitiz by
filing its third-party complaint only after ten (10) months from the institution
of the suit against it. Parenthetically, Pioneer is not within the ambit of
the rule on extraordinary diligence required of, and the corresponding
presumption of negligence foisted on, common carriers like Aboitiz.
V. Disposition
WHEREFORE, the petition is DENIED and the judgment appealed from is
hereby AFFIRMED in toto.
Diaz v CA
I. Recit-ready summary( Really short case)
Diaz operated a common carrier tamaraw FX in Cagayan. It rammed into
a HINO truck from behind and 9 people died including Sherley then her heirs
instituted an action for Breach of Contract of carriage and Damages.
WON the Court of Appeals committed grave abuse of discretion in
affirming the trial court's decision holding petitioner liable for breach of
contract NO
DOCTRINE: In a contract of carriage, it is presumed that the common
carrier is at fault or is negligent when a passenger dies or is injured. 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.
IN THIS CASE. petitioner, as common carrier, failed to establish
sufficient evidence to rebut the presumption of negligence. The findings
of the trial court, as affirmed by the Court of Appeals, showed that the
accident which led to the death of Sherly Moneño was caused by the
reckless speed and gross negligence of petitioner's driver who
demonstrated no regard for the safety of his passengers. It was thus
correct to hold petitioner guilty of breach of the contract of carriage.
II. Facts of the case
DIAZ operated a common carrier a tamaraw FX taxi plying the route of
Cagayan de Oro City. This was driven by Arman Retes the tamaraw was
moving at a very fast speed then it rammed a HINO cargo truck the rear
portion this was owned by LANTORIA and driven by Rogelio Francisco
9 people died b/c of this including Sherly Moneno. Heirs of Shirley filed a
case for Breach of contract of carriage and damages against DIAZ AND
ARMAN then Diaz filed a 3rd party complaint against Lantoria and Francisco.
RTC RULED IN FAVOR OF RESPONDENTS….. CA AFFIRM
III. Issues
Whether or not the Court of Appeals committed grave abuse of discretion in
affirming the trial court's decision holding petitioner liable for breach of
contract NO
IV. Ratio/Legal Basis
.
A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.
In a contract of carriage, it is presumed that the common carrier is at
fault or is negligent when a passenger dies or is injured. 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.
In the case at bar, petitioner, as common carrier, failed to establish
sufficient evidence to rebut the presumption of negligence. The findings
of the trial court, as affirmed by the Court of Appeals, showed that the
accident which led to the death of Sherly Moneño was caused by the reckless
speed and gross negligence of petitioner's driver who demonstrated no
regard for the safety of his passengers. It was thus correct to hold petitioner
guilty of breach of the contract of carriage.
Pestano v Sumayang
Under Articles 2180 and 2176 of the Civil Code, when an injury is caused by
the negligence of a servant or an employee, the master or employer is
presumed to be negligent either in the selection or in the supervision of that
employee. This presumption may be overcome only by satisfactorily showing
that the employer exercised the care and the diligence of a good father of a
family in the selection and the supervision of its employee. The negligence
alluded to here is in its supervision over its driver, not in that which
directly caused the accident. The fact that Pestaño was able to use a bus
with a faulty speedometer shows that Metro Cebu was remiss in the
supervision of its employees and in the proper care of its vehicles. It had
thus failed to conduct its business with the diligence required by law.

II. Facts of the case

I. Summary
(this includes all of the testimonies in the case)
Ananias Sumayang was riding a motorcycle along the national highway in
Ananias Sumayang was riding a motorcycle along the national highway
Ilihan, Tabagon, Cebu. Riding with him was his friend Manuel Romagos. As
in Ilihan, Tabagon, Cebu. Riding with him was his friend Manuel
they came upon a junction where the highway connected with the road
Romagos. As they came upon a junction where the highway connected with
leading to Tabagon, they were hit by a passenger bus driven by Gregorio
the road leading to Tabagon, they were hit by a passenger bus driven by
Pestaño and owned by Metro Cebu Autobus Corporation (Metro Cebu),
Gregorio Pestaño and owned by Metro Cebu, which had tried to
which had tried to overtake them, sending the motorcycle and its passengers
overtake them, sending the motorcycle and its passengers hurtling upon
hurtling upon the pavement. Both Ananias Sumayang and Manuel Romagos
the pavement. Both Ananias Sumayang and Manuel Romagos were rushed
were rushed to the hospital in Sogod, where Sumayang was pronounced
to the hospital but later died. The trial court and the CA found the petitioners
dead on arrival. Romagos was transferred to the Cebu Doctors’ Hospital, but
to be liable. Hence, this petition.
he succumbed to his injuries the day after.

W/N the negligence of the driver is the proximate cause of the injury. YES
Apart from the institution of criminal charges against Gregorio Pestaño,
Teotimo and Paz Sumayang, as heirs of Ananias Sumayang, filed this civil
The testimonies said that as the two vehicles approached the junction, the
action for damages against Gregorio Pestaño, as driver, Metro Cebu, as
victim raised his left arm to signal that he was turning left to Tabagon, but
owner and operator of the said bus, and Perla Compania de Seguros, as
that the latter and his companion were thrown off the motorcycle after it
insurer of Metro Cebu.
was bumped by the overspeeding bus. We find no cogent reason to
reverse or modify their factual findings. The CA agreed with the trial court
Joint trial of the two cases thereafter ensued, where the following assertions
that the vehicular collision was caused by Pestaño’s negligence when he
were made:
attempted to overtake the motorcycle. As a professional driver operating a
public transport bus, he should have anticipated that overtaking at a
Respondents rely mainly on the testimonies of Ignacio Neis, and Pat. Aquilino
junction was a perilous maneuver and should thus have exercised
Dinoy. Neis declared that he saw the incident while he was sitting on a bench
extreme caution.
beside the highway; that both vehicles came from the North; that as the
motorcycle approached the junction to Tabagon, the driver Ananias
Sumayang signalled with his left arm to indicate that he was taking the
Tabagon Road; that the motorcycle did turn left but as it did so, it was
bumped by an overspeeding bus; that the force of the impact threw
Ananias Sumayang and his companion Manuel Romagos about 14 meters
away. The motorcycle, Neis continued, was badly damaged as it was dragged
by the bus.
Pat. Dinoy testified that he was in the nearby house when he heard the
sound or noise caused by the collision; that he took note of the various
distances that the probable point of impact was at the left lane of the
highway and right at the junction to Tabagon; that he based his conclusion
on the ‘scratches’ caused by the motorcycle’s footrest on the asphalt
pavement; that on the part of the bus, the right end of its front bumper was
bent and the right portion of the radiator grill was dented.
On the contrary, Pestaño blamed Sumayang for the accident. He testified that
when he first blew the horn the motorcycle which was about 15 or 20
meters ahead went to the right side of the highway that he again blew
the horn and accelerated in order to overtake the motorcycle; that when
he was just one meter behind, the motorcycle suddenly turned left
towards the Tabagon Road and was bumped by his bus; that he was able
to apply his break only after the impact. Pestaño’s testimony was
corroborated by one of the passengers of the bus; that the motorcycle
suddenly turned left towards Tabagon Road without giving any signal to
indicate its maneuver; that the bus was going at 40 kph when the
accident occurred.
For the defense of the corporation, Gregorio Pestaño explained how his
driving experience and ability were tested by the company before he was
hired. Also, the management gave regular lectures to drivers and
conductors touching on topics like speeding, parking, loading and
treatment of passengers, and that before he took to the road he checked
together with the mechanic the tires, brake, signal lights as well as the
tools to be brought along. The corporation also presented its maintenance
supervisor, Agustin Pugeda, Jr., and its manager, Alfonso Corominas, Jr. who
corroborated Pestaño’s testimony that his driving ability was thoroughly
tested, and that all drivers underwent periodic lecture on various aspects of
safety driving including pertinent traffic regulations. They also confirmed
the thorough checkup of every vehicle before it would depart and that
the performance of the drivers was being monitored by several
inspectors posted at random places along the route.
The trial court and the CA found the petitioners to be liable. Hence, this
petition. Petitioners contend that Pestaño was not under any obligation to
slow down when he overtook the motorcycle, because the deceased had
given way to him upon hearing the bus horn. Seeing that the left side of the
road was clearly visible and free of oncoming traffic, Pestaño accelerated his
speed to pass the motorcycle. Having given way to the bus, the
motorcycle driver should have slowed down until he had been
overtaken.
They further contend that the motorcycle was not in the middle of the road
nearest to the junction as found by the trial and the appellate courts, but was
on the inner lane. This explains why the damage on the bus were all on the
right side — the right end of the bumper and the right portion of the radiator
grill were bent and dented. Hence, they insist that it was the victim who was
negligent.
III. Issue/s
W/N the negligence of the driver is the proximate cause of the injury? YES
IV. Held
We disagree. Petitioners are raising a question of fact based on Pestaño’s
testimony contradicting that of Eyewitness Ignacio Neis and on the location
of the dents on the bumper and the grill. Neis testified that as the two
vehicles approached the junction, the victim raised his left arm to signal that
he was turning left to Tabagon, but that the latter and his companion were
thrown off the motorcycle after it was bumped by the overspeeding bus.
We find no cogent reason to reverse or modify their factual findings. The CA
agreed with the trial court that the vehicular collision was caused by
Pestaño’s negligence when he attempted to overtake the motorcycle. As a
professional driver operating a public transport bus, he should have
anticipated that overtaking at a junction was a perilous maneuver and should
thus have exercised extreme caution.
Factual findings of the CA affirming those of the trial court are conclusive and
binding on this Court. Petitioners failed to demonstrate that this case falls
under any of the recognized exceptions to this rule. Indeed, the issue of
negligence is basically factual and, in quasi-delicts, crucial in the award of
damages.
Petitioners aver that the CA was wrong in attributing the accident to a
faulty speedometer and in implying that the accident could have been
avoided had this instrument been properly functioning.
This contention has no factual basis. Under Articles 2180 and 2176 of the Civil
Code, owners and managers are responsible for damages caused by their
employees. When an injury is caused by the negligence of a servant or an
employee, the master or employer is presumed to be negligent either in
the selection or in the supervision of that employee. This presumption
may be overcome only by satisfactorily showing that the employer exercised
the care and the diligence of a good father of a family in the selection and
the supervision of its employee.
The CA said that allowing Pestaño to ply his route with a defective
speedometer showed laxity on the part of Metro Cebu in the operation
of its business and in the supervision of its employees. The negligence
alluded to here is in its supervision over its driver, not in that which directly
caused the accident. The fact that Pestaño was able to use a bus with a faulty
speedometer shows that Metro Cebu was remiss in the supervision of its
employees and in the proper care of its vehicles. It had thus failed to conduct
its business with the diligence required by law.
V. Dispositive Portion
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution
AFFIRMED. Cost against petitioners.
SO ORDERED.
Ludo v CA
I. Recit-ready summary
While docking, Gabisan Shipping’s vessel, MV Miguela, rammed into the
fender pile cluster of the private wharf owned and operated by Ludo for
the loading and unloading of copra and other processed products. The
damage to the pile clusters is undisputed. Ludo contends that the damage
was due directly due to MV Miguela’s ramming into the pile clusters
during docking – after it was rammed, an independent marine surveyor
was hired and he found that 1 post was uprooted while 2 others were
loosened and that the pile cluster was leaning shoreward; a skin diver
hired by the marine surveyor further found that 1 post was broken at about
7in from the seabed and 2 other posts rose and cracked at the bottom.
Gabisan argues that the damage could have been caused by prior and
subsequent vessels which likewise docked in Ludo’s private wharf – the
vessel’s captain testified that he ordered his bodega man to check any
damage done, and that the latter told him that there was no damage;
the bodega man, however on cross-examination, testified that he did find a
crack on the post but added that he found seashells and seaweeds under the
uprooted post (which is allegedly evidence that the damage happened a long
time ago).
The RTC ruled in favor of Ludo, the CA reversed.
ISSUE: WON the doctrine of res ipsa loquitur applies. – YES
First, MV Miguela was under the exclusive control of its officers and
crew. Ludo did not have direct evidence on what transpired within as the
officers and crew maneuvered the vessel to its berthing place. We note the
Court of Appeals' finding that Naval and Espina were not
knowledgeable on the vessel's maneuverings, and could not testify on
the negligence of the officers and crew.
Second, aside from the testimony that MV Miguela rammed the cluster pile,
private respondent did not show persuasively other possible causes of
the damage.
Applying now the above, there exists a presumption of negligence against
private respondents which we opine the latter failed to overcome.
Additionally, petitioner presented tangible proof that demonstrated private
respondents' negligence. As testified by Capt. Olasiman, from command of
"slow ahead" to "stop engine", the vessel will still travel 100 meters before it
finally stops. However, he ordered "stop engine" when the vessel was only 50
meters from the pier. Further, he testified that before the vessel is put to slow
astern, the engine has to be restarted. However, Olasiman can not estimate
how long it takes before the engine goes to slow astern after the engine is
restarted. From these declarations, the conclusion is that it was already too
late when the captain ordered reverse. By then, the vessel was only 4
meters from the pier, and thus rammed it.
Respondent company's negligence consists in allowing incompetent
crew to man its vessel. As shown also by petitioner, both Captain Olasiman
and Chief Mate Gabisan did not have a formal training in marine
navigation. The former was a mere elementary graduate while the latter is a
high school graduate. Their experience in navigation was only as a
watchman and a quartermaster, respectively.
II. Facts of the case
Petitioner Ludo & Luym Corporation is a domestic corporation engaged in
copra processing. Private Respondent Gabisan Shipping Lines was the
registered owner and operator of the motor vessel MV Miguela, while the
other private respondent, Anselmo Olasiman, was its captain. Petitioner owns
and operates a private wharf used by vessels for loading and unloading of
copra and other processed products. Among its wharf's facilities are fender
pile clusters for docking and mooring.
MV Miguela was docking at petitioner's wharf, it rammed and destroyed a
fender pile cluster. Petitioner demanded damages from private
respondents. The latter refused. Hence, petitioner filed a complaint for
damages before the RTC.
Petitioner's evidence during trial showed MV Miguela came to dock at
petitioner's wharf. Ireneo Naval, petitioner's employee, guided the vessel to
its docking place. After the guide (small rope) was thrown from the vessel
and while the petitioner's security guard was pulling the big rope to be tied
to the bolar, MV Miguela did not slow down. The crew did not release the
vessel's anchor. Naval shouted "Reverse" to the vessel's crew, but it was too
late when the latter responded, for the vessel already rammed the pile
cluster. The impact disinclined the pile cluster and deformed the cable wires
wound around it.
Marine surveyor Carlos Degamo inspected the damage on the pile cluster
and found that one post was uprooted while two others were loosened and
that the pile cluster was leaning shoreward. Degamo hired skin diver Marvin
Alferez, who found that one post was broken at about 7 inches from the
seabed and two other posts rose and cracked at the bottom. Based on these
findings, Degamo concluded that the two raised posts were also broken
under the seabed and estimated the cost of repair and replacement at
P95,000.00.
Private respondents denied the incident and the damage. Their witnesses
claimed that the damage, if any, must have occurred prior to their
arrival and caused by another vessel or by ordinary wear and tear. They
averred that MV Miguela started to slow down at 100 meters and the crew
stopped the engine at 50 meters from the pier; that Capt. Anselmo Olasiman
did not order the anchor's release and chief mate Manuel Gabisan did not
hear Naval shout "Reverse". Respondents claimed that Naval had no business
in the vessels' maneuvering. When Naval informed the vessel's officers of the
incident, Olasiman sent their bodega man, Ronilo Lazara, to dive on the same
afternoon to check on the alleged damage. Lazara told Olasiman that there
was no damage. However, during direct examination, Lazara testified that he
found a crack on the side of the pile cluster, one post detached from the
seabed at a distance of about 7 inches, and seashells and seaweeds directly
underneath the uprooted post. There were scattered pieces of copra at the
place where MV Miguela docked, which indicated the prior docking by other
vessels.
The trial court found that it was able to prove by preponderance of evidence
that MV Miguela rammed and damaged the pile cluster; that petitioner's
witnesses, Naval and Espina, actually saw the incident; that respondents failed
to refute the testimony of marine surveyor Degamo and skin diver Alferez on
the damages; that the officers and crew of MV Miguela were negligent; and
that respondents are solidarily liable for the damages.
The Court of Appeals reversed the decision of the trial court. The CA found
that petitioner's eyewitness Naval was incompetent to testify on the
negligence of the crew and officers of MV Miguela; that there were other
vessels that used the wharf for berthing and petitioner's evidence did not
positively prove that it was MV Miguela that rammed the pile cluster; that the
photographs of the pile cluster taken after the incident showed no visible
damages; that, as shown by private respondents' witness, there were
seashells and seaweeds directly under the uprooted post, which indicated
that the breaking happened a long time ago.
III. Issue/s
Is the doctrine of res ipsa loquitur applicable to this case?
IV. Ratio/Legal Basis
Finally, is the doctrine of res ipsa loquitur applicable to this case?
Petitioner argues that the Court of Appeals erred when it reversed the trial
court for the latter's heavy reliance on Naval's testimony. The appellate court
overlooked the fact that aside from Naval's testimony, the trial court also
relied on the principle of res ipsa loquitur to establish private respondents'
negligence.
The doctrine of res ipsa loquitur was explained in Batiquin vs. Court of
Appeals, 258 SCRA 334 (1996), thus:
Where the thing which causes injury is shown to be under the
management of the defendant, and the accident is such as in the
ordinary course of things does not happen if those who have the
management use proper care, it affords reasonable evidence, in the
absence of an explanation by the defendant, that the accident arose
from want of care.
The doctrine recognizes that parties may establish prima facie negligence
without direct proof and allows the principle to substitute for specific proof
of negligence. This is invoked when under the circumstances, direct evidence
is absent and not readily available.
In our view, all the requisites for recourse to this doctrine exist.
1. First, MV Miguela was under the exclusive control of its officers and
crew. Petitioner did not have direct evidence on what transpired
within as the officers and crew maneuvered the vessel to its berthing
place. We note the Court of Appeals' finding that Naval and Espina
were not knowledgeable on the vessel's maneuverings, and could
not testify on the negligence of the officers and crew.
2. Second, aside from the testimony that MV Miguela rammed the
cluster pile, private respondent did not show persuasively other
possible causes of the damage.
Applying now the above, there exists a presumption of negligence against
private respondents which we opine the latter failed to overcome.
Additionally, petitioner presented tangible proof that demonstrated private
respondents' negligence. As testified by Capt. Olasiman, from command of
"slow ahead" to "stop engine", the vessel will still travel 100 meters before it
finally stops. However, he ordered "stop engine" when the vessel was only 50
meters from the pier. Further, he testi􏰀ed that before the vessel is put to slow
astern, the engine has to be restarted. However, Olasiman can not estimate
how long it takes before the engine goes to slow astern after the engine is
restarted. From these declarations, the conclusion is that it was already too
late when the captain ordered reverse. By then, the vessel was only 4 meters
from the pier, and thus rammed it.
Respondent company's negligence consists in allowing incompetent crew to
man its vessel. As shown also by petitioner, both Captain Olasiman and Chief
Mate Gabisan did not have a formal training in marine navigation. The former
was a mere elementary graduate while the latter is a high school graduate.
Their experience in navigation was only as a watchman and a quartermaster,
respectively.
V. Disposition
Granted.
Ong Yiu v CA
Recit-ready summary
Ong Yiu was a passenger of PAL who was on board a flight from Cebu en
route to Butuan, he was scheduled to attend a civil and specpro case. He
checked in one piece of luggage. When he arrived, he claimed his luggage, it
could not be found. PAL Butuan messaged PAL Cebu and in turn PAL Cebu
messaged PAL Manila. PAL Manila notified PAL Cebu that the luggage was
with them and they would be forwarding it to the earliest flight to Cebu, in
turn would forward it to Butuan on the earliest flight possible. Ong Yiu went
to the airport to inquire but he did not wait for the 10AM flight (where his
luggage was). A former driver of Ong Yiu instead volunteered to take it to
him. When the luggage arrived it was opened and some documents were
missing so Ong Yiu returned it to the airport and demanded the complete
contents of the luggage and also wanted an investigation. Petitioner inquired
about the investigation but PAL said they couldn’t pinpoint who it was.
Petitioner thus filed a case for damages against PAL. CFI ruled in favor of
Ong Yiu. CA reversed CFI decision and limited the liability of PAL to 100.
W/N CA erred in ruling that PAL was only guilty of simple negligence
and not bad faith in the breach of its contract of transportation. (NO)
W/N CA erred when it removed the award for damages and instead
ordered PAL Cebu to pay P100 only. (NO)
DOCTRINE: Bad faith means a breach of a known duty through some motive
of interest or ill will. It was the duty of PAL to look for petitioner's luggage
which had been miscarried. PAL exerted due diligence in complying with such
duty.
DOCTRINE: while it may be true that petitioner had not signed the plane he
is nevertheless bound by the provisions thereof. These are akin to a
contract of adhesion wherein one party imposes a ready made form of
contract on the other, as the plane ticket in the case at bar, are contracts
not entirely prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent.
Facts of the case
Ong Yiu (Petitioner) was a passenger of a PAL flight on August 26 from
Mactan Cebu, bound for Butuan City. He was scheduled to attend a civil case
and a SpecPro case set for hearing. He checked in one piece of luggage, a
blue “maleta” for which he was issued a claim check. When the passenger
arrived at the Butuan airport, he claimed his luggage but it could not be
found. It was only after reacting indigently when the porter clerk Maximo
Gomez attended to petitioner’s missing luggage.
PAL Butuan sent a message concerning the lost luggage to PAL Cebu. After
receiving the message, PAL Cebu relayed it to the Mactan Airport teletype
operator. Around 3:59 PM, PAL Manila informed PAL Cebu advising that the
luggage was carried by a Manila bound flight. PAL Manila informed PAL Cebu
that the luggage would be forwarded on the next flight to Cebu and in turn,
PAL Cebu informed PAL Butuan that the luggage it would receive from PAL
Manila would be boarded on earliest flight on the following day (August
27. Take note: the entire mishap happened August 26). However this
message was not received by PAL Butuan as all the personnel had already left
because there were no more incoming flights that afternoon
Petitioner was worried about the luggage because the documents for the
hearing the next day was in the luggage. Petitioner wired PAL Cebu
demanding delivery of the luggage or else he would file a case for damages
against PAL Cebu. PAL Cebu received the message but felt no need to wire
the petitioner that his luggage had already been forwarded on the
assumption that it would arrive to Butuan city on time.
Early in the morning of August 27, Petitoner went to the airport to inquire
about his luggage. He then left the airport before the 10 AM flight which
came from Cebu and carried the missing baggage. Maximo Gomez paged
the petitioner but he already left. A certain Emilio Dagoro, a former driver of
petitioner, volunteered to take the luggage to the petitioner. Maximo
recognized him as the petitioner’s driver and so he placed it on the counter.
Dagorro examined the lock, pressed it, and it opened. After calling the
attention of Maximo Gomez, the "maleta" was opened, Gomez took a look at
its contents, but did not touch them. Dagorro then delivered the "maleta" to
petitioner, with the information that the lock was open. Upon inspection,
petitioner found that a folder containing certain exhibits, transcripts and
private documents in the civil and specpro case were missing, aside from two
gift items for his parents-in-law. Petitioner refused to accept the luggage.
Dagorro returned the luggage to the porter clerk, Maximo Gomez, who
sealed it and forwarded the same to PAL Cebu.
Petitioner asked for postponement of the hearing which was granted. He
then sent a telegram to PAL demanding that his luggage be produced intact
and to be compensated for actual and moral damages (250,000) or else he
will file a suit.
Officers of PAL Cebu went to Petitioner’s office to deliver the “maleta” In the
presence of Mr. Jose Yap and Atty. Manuel Maranga the contents were listed
and receipted for by petitioner. Afterwards, Petitioner sent a tracer letter to
PAL Cebu inquiring about the investigation PAL Cebu’s officers promised to
conduct to pinpoint responsibility for the unauthorized opening of the
maleta. As a response, PAL Cebu (See notes for letter) said they were not
able to pinpoint who was responsible.
CFI: Petitioner filed a complaint against PAL for damages and breach of
contract of transportation. CFI ruled in favor of Petitioner and found PAL to
have acted in bad faith and malice.
CA: Reversed CFI decision. Said PAL was only guilty of simple negligence so
the award of damages was removed but ordered PAL to pay plaintiff the sum
of P100.00, the baggage liability assumed by it under the condition of
carriage printed at the back of the ticket.
Issue/s
W/N CA erred in ruling that PAL was only guilty of simple negligence and not
bad faith in the breach of its contract of transportation. (NO)
W/N CA erred when it removed the award for damages and instead ordered
PAL Cebu to pay P100 only. (NO)
Ratio/Legal Basis
Simple negligence or Bad faith?
PAL did not act in bad faith. Bad faith means a breach of a known duty
through some motive of interest or ill will. It was the duty of PAL to look for
petitioner's luggage which had been miscarried. PAL exerted due diligence in
complying with such duty. Court relied on CA facts (IMPT SEE NOTES)
Furthermore, the failure of PAL Cebu to reply to the Petitioner’s telegram was
not indicative of bad faith. Petitioner sent the letter at 10 PM, the PAL
supervisor was only notified the day after. At that time the luggage was
already to be forwarded to Butuan City. There was no bad faith, therefore, in
the assumption made by said supervisor that the plane carrying the bag
would arrive at Butuan earlier than a reply telegram. Had petitioner waited or
caused someone to wait at the airport for the arrival of the morning flight, he
would have been able to retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith,
petitioner is not entitled to moral damages.
Limit of PAL’s carriage liability
Petitioner failed to declare a higher value for his luggage. As a general
proposition, the plaintiff's maleta having been pilfered while in the custody of
the defendant, it is presumed that the defendant had been negligent. The
liability, however, of PAL for the loss, in accordance with the stipulation
written on the back of the ticket, Exhibit 12, is limited to P100.00 per
baggage, plaintiff not having declared a greater value, and not having called
the attention of the defendant on its true value and paid the tariff therefor.
The validity of this stipulation is not questioned by the plaintiff. They are
printed in reasonably and fairly big letters, and are easily readable. Moreover,
plaintiff had been a frequent passenger of PAL from Cebu to Butuan City and
back, and he, being a lawyer and businessman, must be fully aware of these
conditions.
Petitioner argues that there is nothing in the evidence to show that he had
actually entered into a contract with PAL limiting the latter's liability for loss
or delay of the baggage of its passengers, and that Article 1750 of the Civil
Code has not been complied with.
while it may be true that petitioner had not signed the plane he is
nevertheless bound by the provisions thereof. These are akin to a contract
of adhesion wherein one party imposes a ready made form of contract
on the other, as the plane ticket in the case at bar, are contracts not
entirely prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.
Considering, therefore, that petitioner had failed to declare a higher value for
his baggage, he cannot be permitted a recovery in excess of P100.00.Besides,
passengers are advised not to place valuable items inside their baggage but
"to avail of our V-cargo service. I t is likewise to be noted that there is
nothing in the evidence to show the actual value of the goods allegedly lost
by petitioner.
Disposition
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and
the judgment sought to be reviewed hereby affirmed in toto.
Notes
PAL LETTER
Dear Atty. Ong Yiu:
This is with reference to your September 5, 1967, letter to Mr. Ricardo G.
Paloma, Acting Manager, Southern Philippines.
First of all, may we apologize for the delay in informing you of the result of
our investigation since we visited you in your office last August 31, 1967.
Since there are stations other than Cebu which are involved in your case, we
have to communicate and await replies from them. We regret to inform you
that to date we have not found the supposedly lost folder of papers nor
have we been able to pinpoint the personnel who allegedly pilferred
your baggage.
You must realize that no inventory was taken of the cargo upon loading
them on any plane. Consequently, we have no way of knowing the real
contents of your baggage when same was loaded.
We realized the inconvenience you encountered of this incident but we trust
that you will give us another opportunity to be of better service to you.
Very truly yours,
PHILIPPINE AIR LINES, INC.
(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor
Cebu
CA FACTS
We do not find any evidence of bad faith in this. On the contrary, We find
that the defendant had exerted diligent effort to locate plaintiff's baggage.
The trial court saw evidence of bad faith because PAL sent the telegraphic
message to Mactan only at 3:00 o'clock that same afternoon, despite
plaintiff's indignation for the non-arrival of his baggage. The message was
sent within less than one hour after plaintiff's luggage could not be located.
Efforts had to be exerted to locate plaintiff's maleta. Then the Bancasi airport
had to attend to other incoming passengers and to the outgoing passengers.
Certainly, no evidence of bad faith can be inferred from these facts. Cebu
office immediately wired Manila inquiring about the missing baggage of the
plaintiff. At 3:59 P.M., Manila station agent at the domestic airport wired
Cebu that the baggage was over carried to Manila. And this message was
received in Cebu one minute thereafter, or at 4:00 P.M. The baggage was in
fact sent back to Cebu City that same afternoon. His Honor stated that the
fact that the message was sent at 3:59 P.M. from Manila and completely
relayed to Mactan at 4:00 P.M., or within one minute, made the message
appear spurious. This is a forced reasoning. A radio message of about 50
words can be completely transmitted in even less than one minute
depending upon atmospheric conditions. Even if the message was sent from
Manila or other distant places, the message can be received within a minute.
that is a scientific fact which cannot be questioned.
Estrada v Consolacion
Recit-ready summary
A Ford pick-up and a Toyota pick-up were speeding over CM Recto. The two
collided and the Ford pick-up truck bumped the AC Jeep which Simeona
Estrada, wife of plaintiff, was riding. Simeona died as a result of the accident.
The private respondents were able to prove that the accident was due to the
fault or negligence of the two pick-up truck drivers whom the carrier had no
supervision or control. It is now incumbent upon the petitioner to rebut such
proof which he failed to do so.
Facts of the case
PLAINTIFF’S ALLEGATIONS. Simeona Estrada (wife of plaintiff) was a
passenger of the AC Jeep owned and operated by Corazon Uy and driven by
Lucio Galaura. The AC Jeep was cruising along CM Recto when the vehicle
collided with a Ford pick-up truck. Simeona sustained a fractured left
humerus (pulmonary) embolism and shock due to respiratory failure. She
died in San Pedro Hospital.

Plaintiff asked for actual damages, indemnification for the death of his wife,
May Uy and Galaura be held liable for the accident caused by persons whom
moral damages, and attorney’s fees.
they had no supervision or control? (No)

DEFENDANTS’ ALLEGATIONS. While admitting that Simeona was a passenger

Under the contract of carriage, Uy and Galaura assumed the express
and died as a result of the accident, the defendants alleged that the
obligation to transport Simeona to her destination safely and to observe
proximate and only cause was the negligence of third persons. Danilo Ang,
extraordinary diligence with due regard for all circumstances, and that any
driver of a Toyota pick-up truck, and Rodolfo Endino, driver of a Ford pick-up
injury suffered by her is immediately attributable to the negligence of the
truck, were driving their vehicles at a fast rate of speed. The two vehicles
carrier.
collided. Then, the Ford-pick up truck deviated from its lane and hit the AC
Jeep.
To overcome the presumption, it must be shown that the carrier observed
extraordinary diligence (utmost diligence of very cautious persons as far as
Defendants set up a counterclaim for damages by reason that the suit is
human care and foresight can provide) or that the accident
clearly unfounded.
was caused by a fortuitous event.

Defendants filed a motion for summary judgment against plaintiff on the

In order for case fortuito to exempt a person from responsibility, the
ground that there is no genuine issue as to any material fact in the case
following must concur:
except as to the amount of damages defendants are seeking from plaintiff by
1. The event is independent of the human will
2. The occurrence must render it impossible for the obligor to way of counterclaim.
fulfull his obligation in a normal manner;
3. The obligor must be free of a concurrent or contributory fault or Plaintiff opposed the motion relying on the presumption that in case of the
negligence death of the passenger the common carrier is presumed to have acted
negligently.
Respondent judge found that there is no genuine issue. The judge ordered
that defendants have judgment summarily against the plaintiff for such
amount as may be found due them for damages to be ascertained by trial
upon that issue alone.
Issue/s
May Uy and Galaura be held liable for the accident caused by persons whom
they had no supervision or control? (No)
Ratio/Legal Basis
Under the contract of carriage, Uy and Galaura assumed the express
obligation to transport Simeona to her destination safely and to observe
extraordinary diligence with due regard for all circumstances, and that any
injury suffered by her is immediately attributable to the negligence of the
carrier.
To overcome the presumption, it must be shown that the carrier observed
extraordinary diligence (utmost diligence of very cautious persons as far as
human care and foresight can provide) or that the accident was caused by a
fortuitous event.
In order for case fortuito to exempt a person from responsibility, the
following must concur:
1. The event is independent of the human will
2. The occurrence must render it impossible for the obligor to
fulfull his obligation in a normal manner;
3. The obligor must be free of a concurrent or contributory fault or
negligence
The private respondents were able to prove that the accident was due to the
fault or negligence of the two pick-up truck drivers whom the carrier had no
supervision or control. It is now incumbent upon the petitioner to rebut such
proof which he failed to do so.
[NOTE: Not relevant at all for Transpo pero this case revolved around the
interlocutory order of the respondent judge. It is a determination of the court
of a preliminary point or directing some steps in the proceeding but not a
disposition on the merits. In the absence of any findings of fact and
conclusions of law, the order cannot be considered a judgment. There being
no judgment, the present petition is premature.]
Disposition
ACCORDINGLY, the petition for certiorari with prohibition is dismissed,
without
special pronouncement as to costs.
Savellano v Northwest Airlines
Recit-ready summary
On 27 October 1991, the Savellanos departed from San Francisco, USA
on board Northwest (NW) Airlines Business Class bound for Manila on a 12-
hour flight. After being airborne for approximately 2 ½ hours, NW’s pilot
made an emergency landing in Seattle after announcing that a fire had
started in one of the plane's engines. Respondent's shuttle bus thereafter
brought all passengers to the Seattle Red Lion Hotel where they were billeted
by, and at the expense of respondent. The Savellanos were subsequently
informed that they are scheduled for a flight to Manila the following day.
Prior to leaving the hotel, however, petitioners met at the lobby Col. Roberto
Delfin, a Filipino co-passenger who was also travelling Business Class, who
informed them that he and some passengers were leaving the next day,
October 29, 1991, on board the same plane with the same itinerary. When
petitioners reached the Seattle Airport, respondent's ground stewardess
belatedly advised them that instead of flying to Manila they would have to
board a 3-hour flight to Los Angeles for a connecting flight to Manila via
Seoul. Upon arrival, petitioners saw their other co-passengers from the
distressed flight, who unlike them, left Seattle on 29 October instead of
October 28. They were teased for taking the longer and tiresome route to the
Philippines. Further, when petitioners claimed their luggage at the
baggage carousel, they discovered that the would-have-been
handcarried items which were not allowed to be placed inside the
passengers' baggage compartment had been ransacked and the
contents thereof stolen.

WON there was breach of contract of air carriage by Northwest Airlines? YES
There is nothing in the contractual provisions printed in the airline
ticket authorizing Northwest to decide unilaterally, after the distressed
flight landed in Seattle, what other stopping places petitioners should
take and when they should fly. True, Condition 9 on the ticket allowed
respondent to substitute alternate carriers or aircraft without notice.
However, nothing there permits shuttling passengers to stopping places
that they have not been previously notified of, much less agreed to or
been prepared for. Substituting aircrafts or carriers without notice is
entirely different from changing stopping places or connecting cities
without notice. Furthermore, the change in petitioners' flight itinerary does
not fall under the situation covered by the phrase "may alter or omit
stopping places shown on the ticket in case of necessity." A case of
necessity must first be proven. The burden of proving it necessarily fell on
respondent. This responsibility it failed to discharge. Northwest failed to
show a "case of necessity" for changing the stopping place from Tokyo to Los
Angeles and Seoul. It is a fact that some of the passengers on the distressed
flight continued on to the Tokyo (Narita) connecting place. No explanation
whatsoever was given to petitioners as to why they were not similarly allowed
to do so. However, only nominal damages may be awarded as the
records show that respondent was impelled by sincere motives to get
petitioners to their final destination by whatever was the most
expeditious course in its judgment. Neither will actual damages be
granted in the absence of convincing and timely proof of loss.
Facts of the case
Victorino Savellano (Savellano) was a Cabugao, Ilocos Sur mayor for
many terms, former Chairman of the Commission on Elections and RTC
judge. His wife, Virginia is a businesswoman and operates several rural banks
in Ilocos Sur. The couple's son, Deogracias was, at the time of the incident
subject of the case, the Vice-Governor of Ilocos Sur.
On October 27, 1991, at around 1:45 p.m., the family of Savellano
including him, departed from San Francisco, USA on board Northwest Airlines
(NW) Flight 27, Business Class, bound for Manila, Philippines using the NW
round-trip tickets which were issued at Northwest Airlines’s Manila ticketing
office.
Petitioners were expected to arrive at the Ninoy Aquino International
Airport (NAIA), Manila on October 29, 1991 (Manila time) or after twelve
hours of travel.
After being airborne for approximately two and one-half (2 1/2) hours or
at about 4:15 p.m. of the same day, October 27, 1991 (Seattle, USA time), NW
Flight 27's pilot made an emergency landing in Seattle after announcing that
a fire had started in one of the plane's engines. Respondent's shuttle bus
thereafter brought all passengers to the Seattle Red Lion Hotel where they
were billeted by, and at the expense of respondent.
Petitioners who were travelling as a family were assigned one room at
the hotel. At around 12:00 midnight, they were awakened by a phone call
from respondent's personnel who advised them to be at the Seattle Airport
by 7:00 a.m. (Seattle time) the following day, October 28, 1991, for departure.
To reach the airport on time, the NW shuttle bus fetched them early, making
them skip the 6:30 a.m. hotel breakfast.
Prior to leaving the hotel, however, petitioners met at the lobby Col.
Roberto Delfin, a Filipino co-passenger who was also travelling Business
Class, who informed them that he and some passengers were leaving the
next day, October 29, 1991, on board the same plane with the same itinerary.
When petitioners reached the Seattle Airport, respondent's ground
stewardess belatedly advised them that instead of flying to Manila they
would have to board NW Flight 94, a DC-10 plane, bound for a 3-hour flight
to Los Angeles for a connecting flight to Manila. When Savellano insisted for
a direct flight to Manila, the female ground stewardess just told them to
hurry up as they were the last passengers to board.
In Los Angeles, petitioners and the other passengers became confused
for a while as board indicated a Seoul-Bangkok flight, none was posted for a
Manila flight. It was only after they complained to the NW personnel that the
latter finally changed the board to include Manila.

Before boarding NW Flight 23 for Manila via Seoul, petitioners
encountered another problem. Their three small handcarried items which
were not padlocked as they were merely closed by zippers were not allowed
to be placed inside the passengers' baggage compartments of the plane by
an arrogant NW ground stewardess.
On petitioners' arrival at the NAIA, Manila, they saw Col. Delfin and his
wife as well as the other passengers of the distressed flight, who unlike them
who left Seattle on October 28, 1991, left Seattle on October 29, 1991. They
were teased for taking the longer and tiresome route to the Philippines.
When petitioners claimed their luggage at the baggage carousel, they
discovered that the would-have-been handcarried items which were not
allowed to be placed inside the passengers' baggage compartment had been
ransacked and the contents thereof stolen. Virginia was later to claim having
lost her diamond earrings costing P300,000.00, two (2) Perry Gan shoes worth
US$250.00, four (4) watches costing US$40.00 each, two (2) pieces of Tag
Heuer watch and three (3) boxes of Elizabeth Arden perfumes. Deogracias, on
the other hand, claimed to have lost two (2) pairs of Cole Haan shoes which
he bought for his wife, and the clothes, camera, personal computer, and jeans
he bought for his children.
Petitioners demanded from respondent the amount of P3,000,000.00 as
damages for what they claimed to be the humiliation and inconvenience they
suffered in the hands of its personnel. Respondent did not accede to the
demand.
Petitioners concede that they were not downgraded in any of the flights
on their way home to Manila. Their only complaint is that they suffered
inconvenience, embarrassment, and humiliation for taking a longer route.
During the trial, a subpoena duces tecum was issued directing
respondent to submit the passengers' manifest of the distressed flight from
San Francisco to Tokyo on October 27, 1991, the passengers' manifest of the
same distressed plane from Seattle to Tokyo which took off on October 29,
1991, and the passenger manifest of the substitute plane from Seattle to Los
Angeles and Los Angeles to Seoul enroute to Manila which took off on
October 28, 1991. The subpoena duces tecum was not complied with by
respondent, it proffering that its Minneapolis head office retains documents
only for one year after which they are destroyed.
RTC of Cabugao, Ilocos Sur rendered judgment in favor of petitioners.
The CA ruled that petitioners had failed to show respondent's bad faith,
negligence or malice in transporting them via the Seattle-Los Angeles-Seoul-
Manila route. Hence, it held that there was no basis for the RTC's award of
moral and exemplary damages. Neither did it find any reason to grant
attorney's fees. It further rules that the testimonial claim of losses is
unsupported by any other evidence at all. It is odd and even contrary to
human experience for [petitioner] Virginia not to have taken out a
P300,000.00 pair of diamond earrings from an unlocked small luggage after
such luggage was not allowed to be placed inside the passenger's baggage
compartment, given the ease with which it could have been done as the small
luggage was merely closed by zipper. Just as it is odd why no receipts for
alleged purchases for valuable pasalubongs including Tag Huer watches,
camera and personal computer were presented.
Issue/s
WON there was breach of contract of air carriage by Northwest Airlines? --
YES
Ratio/Legal Basis
Breach of Contract
Petitioners' contract of carriage with Northwest was for the San
Francisco-Tokyo (Narita)-Manila flights scheduled for October 27, 1991. This
itinerary was not followed when the aircraft used for the first segment of the
journey developed engine trouble. Petitioners stress that they are
questioning, not the cancellation of the original itinerary, but its substitution,
which they allegedly had not contracted for or agreed to. They insist that, like
the other passengers of the distressed flight, they had the right to be placed
on Flight 27, which had a connecting flight from Japan to Manila. They add
that in being treated differently and shabbily, they were being discriminated
against.
 A contract is the law between the parties. Thus, in determining whether
petitioners' rights were violated, we must look into its provisions, which are
printed on the airline ticket. Condition 9 in the agreement states that “a
carrier may without notice substitute alternate carriers or aircraft, and may
alter or omit stopping places shown on the ticket in case of necessity."
The basis of the Complaint was the way respondent allegedly treated
petitioners like puppets that could be shuttled to Manila via Los Angeles and
Seoul without their consent. Undeniably, it did not take the time to explain
how it would be meeting its contractual obligation to transport them to their
final destination. Its employees merely hustled the confused petitioners into
boarding one plane after another without giving the latter a choice from
other courses of action that were available. It unilaterally decided on the
most expedient way for them to reach their final destination.
Passenger’s Consent
After an examination of the conditions printed on the airline ticket, we
find nothing there authorizing Northwest to decide unilaterally, after the
distressed flight landed in Seattle, what other stopping places petitioners
should take and when they should fly. True, Condition 9 on the ticket allowed
respondent to substitute alternate carriers or aircraft without notice.
However, nothing there permits shuttling passengers — without so much as
a by your-leave — to stopping places that they have not been previously
notified of, much less agreed to or been prepared for. Substituting aircrafts
or carriers without notice is entirely different from changing stopping places
or connecting cities without notice.
The ambiguities in the contract, being one of adhesion, should be
construed against the party that caused its preparation — in this case,
respondent. Since the conditions enumerated on the ticket do not specifically
allow it to change stopping places or to fly the passengers to alternate
connecting cities without consulting them, then it must be construed to
mean that such unilateral change was not permitted.
Proof of Necessity of Alteration
Furthermore, the change in petitioners' flight itinerary does not fall
under the situation covered by the phrase "may alter or omit stopping places
shown on the ticket in case of necessity." A case of necessity must first be
proven. The burden of proving it necessarily fell on respondent. This
responsibility it failed to discharge.
Petitioners do not question the stop in Seattle, so we will not delve into
this matter. The airplane engine trouble that developed during the flight
bound for Tokyo from San Francisco definitely merited the "necessity" of
landing the plane at some place for repair — in this case, Seattle — but not
that of shuttling petitioners to other connecting points thereafter without
their consent.
Northwest failed to show a "case of necessity" for changing the stopping
place from Tokyo to Los Angeles and Seoul. It is a fact that some of the
passengers on the distressed flight continued on to the Tokyo (Narita)
connecting place. No explanation whatsoever was given to petitioners as to
why they were not similarly allowed to do so. It may be that the Northwest
connecting flight from Seattle to Tokyo to Manila could no longer
accommodate them. Yet it may also be that there were other carriers that
could have accommodated them for these sectors of their journey, and
whose route they might have preferred to the more circuitous one
unilaterally chosen for them by respondent.
Damages
Petitioners impute oppression, discrimination, recklessness and
malevolence to respondent. We are not convinced. There is no persuasive
evidence that they were maliciously singled out to fly the Seattle-Los
Angeles-Seoul-Manila route. It appears that the passengers of the distressed
flight were randomly divided into two groups. One group was made to take
the Tokyo-Manila flight; and the other, the Los Angeles-Seoul-Manila flight.
The selection of who was to take which flight was handled via the computer
reservation system, which took into account only the passengers' final
destination.
The records show that respondent was impelled by sincere motives to
get petitioners to their final destination by whatever was the most
expeditious course — in its judgment, if not in theirs. Though they claim that
they were not accommodated on Flight 27 from Seattle to Tokyo because
respondent had taken on Japanese passengers, petitioners failed to present
convincing evidence to back this allegation. In the absence of convincing
evidence, we cannot find respondent guilty of bad faith.
The unexpected and sudden requirement of having to arrange the
connecting flights of every single person in the distressed plane in just a few
hours, in addition to the Northwest employees' normal workload, was difficult
to satisfy perfectly. We cannot find respondent liable for exemplary damages
for its imperfection of neglecting to consult with the passengers beforehand.
Nevertheless, herein petitioners will not be totally deprived of
compensation. Nominal damages may be awarded as provided by the Civil
Code. Nominal damages are recoverable if no actual, substantial or specific
damages were shown to have resulted from the breach. The amount of such
damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances.
In the present case, we must consider that petitioners suffered the
inconvenience of having to wake up early after a bad night and having to
miss breakfast; as well as the fact that they were business class passengers.
They paid more for better service; thus, rushing them and making them miss
their small comforts was not a trivial thing. We also consider their social and
official status. Victorino Savellano was a former mayor, regional trial court
judge and chairman of the Commission on Elections. Virginia B. Savellano
was the president of five rural banks, and Deogracias Savellano was then the
incumbent vice governor of Ilocos Sur. Hence, it will be proper to grant one
hundred fifty thousand pesos (P150,000) as nominal damages to each of
them, in order to vindicate and recognize their right to be notified and
consulted before their contracted stopping place was changed.
A claim for the alleged lost items from the baggage of petitioners
cannot prosper, because they failed to give timely notice of the loss to
respondent. The Conditions printed on the airline ticket plainly read:
“2. Carriage hereunder is subject to the rules and limitations relating to
liability established by the Warsaw Convention unless such carriage is not
'International carriage' as defined by that Convention.
7. Checked baggage will be delivered to bearer of the baggage check. In
case of damage to baggage moving in international transportation complaint
must be made in writing to carrier forthwith after discovery of damage, and
at the latest, within 7 days from receipt; in case of delay, complaint must be
made within 21 days from date the baggage was delivered."
The pertinent provisions of the Rules Relating to International Carriage
by Air (Warsaw Convention) state:
"Article 26
1. Receipt by the person entitled to delivery of luggage or goods
without complaint is prima facie evidence that the same have been delivered
in good condition and in accordance with the document of carriage.
2. In case of damage, the person entitled to delivery must complain to
the carrier forthwith after the discovery of the damage, and, at the latest,
within three days from the date of receipt in the case of luggage and seven
days from date of receipt in the case of goods. In the case of delay the
complaint must be made at the latest within fourteen days from the date on
which the luggage or goods have been placed at his disposal.
3. Every complaint must be made in writing upon the document of
carriage or by separate notice in writing dispatched within the times
aforesaid.
4. Failing complaint within the times aforesaid, no action shall lie against
the carrier, save in the case of fraud on his part."
After allegedly finding that their luggage had been ransacked,
petitioners never lodged a complaint with any Northwest airport personnel.
Neither did they mention the alleged loss of their valuables in their
November 22, 1991 demand letter. Hence, in accordance with the parties'
contract of carriage, no claim can be heard or admitted against respondent
with respect to alleged damage to or loss of petitioners' baggage.
Disposition
WHEREFORE, the Petition is hereby PARTIALLY GRANTED, and the
assailed Decision MODIFIED. Respondent is ORDERED to pay one hundred
fifty thousand pesos (P150,000) to each of the three petitioners as nominal
damages. No. pronouncement as to costs.
SO ORDERED.
Yobido v CA
Recit-ready summary
Tito and Leny Tumboy and their children boarded a Yobido bus bound from
Surigao del Sur to Davao City. While travelling, the left front tire of the bus
suddenly exploded, causing it to fall into a ravine. Tito died. Yobido insists
that the tire blowout that caused the death of Tito Tumboy was a caso
fortuito.
The issue is whether or not Yobido should be held liable? – Yes.
The SC ruled that the blow out was not a fortuitous event. There are human
factors involved in the situation. The fact that the tire was new did not imply
that it was entirely free from manufacturing defects or that it was properly
mounted on the vehicle. Neither may the fact that the tire bought and used
in the vehicle is of a brand name noted for quality, resulting in the
conclusion that it could not explode within five days' use. Be that as it
may, it is settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a caso
fortuito that would exempt the carrier from liability for damages.
Facts of the case
On April 26, 1988, spouses Tito and Leny Tumboy and their minor
children named Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a
Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta.
Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into
a ravine around three (3) feet from the road and struck a tree. The incident
resulted in the death of 28-year-old Tito Tumboy, and physical injuries to
other passengers.
The plaintiffs asserted that violation of the contract of carriage between
them and the defendants was brought about by the driver's failure to
exercise the diligence required of the carrier in transporting passengers safely
to their place of destination. According to Leny Tumboy, the bus left
Mangagoy at 3:00 o'clock in the afternoon. The winding road it traversed was
not cemented and was wet due to the rain; it was rough with crushed rocks.
The bus which was full of passengers had cargoes on top. Since it was
"running fast," she cautioned the driver to slow down but he merely stared at
her through the mirror. At around 3:30 p.m., in Trento, she heard something
explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the accident was
due to a fortuitous event. Abundio Salce, who was the bus conductor when
the incident happened, testified that the 42-seater bus was not full as there
were only 32 passengers, such that he himself managed to get a seat. He
added that the bus was running at a speed of "60 to 50" and that it was
going slow because of the zigzag road. He affirmed that the left front tire
that exploded was a "brand new tire" that he mounted on the bus on April
21, 1988 or only five (5) days before the incident. The Yobido Liner secretary,
Minerva Fernando, bought the new Goodyear tire from Davao Toyo Parts on
April 20, 1988 and she was present when it was mounted on the bus by Salce.
She stated that all driver applicants in Yobido Liner underwent actual driving
tests. before they were employed. Defendant Cresencio Yobido underwent
such test and submitted his professional driver's license and clearances from
the barangay, the fiscal and the police.
Lower courts ruled in favor of Yobido saying the blow out of the tire was
a fortuitous event. It held that the ruling in the La Mallorca and Pampanga
Bus Co. v. De Jesus that a tire blowout is "a mechanical defect of the
conveyance or a fault in its equipment which was easily discoverable if the
bus had been subjected to a more thorough or rigid check-up before it took
to the road that morning" is inapplicable to this case. It reasoned out that in
said case, it was found that the blowout was caused by the established fact
that the inner tube of the left front tire "was pressed between the inner circle
of the left wheel and the rim which had slipped out of the wheel." In this case,
however, "the cause of the explosion remains a mystery until at present."
Court of Appeals however reversed the decision saying the explosion of the
tire is not in itself a fortuitous event. On the other hand, there may have been
adverse conditions on the road that were unforeseeable and/or inevitable,
which could make the blow-out a caso fortuito. The fact that the cause of the
blow-out was not known does not relieve the carrier of liability.
Issue/s
W/N the common carrier Yobido is liable? - Yes
Ratio/Legal Basis
As a rule, when a passenger boards a common carrier, he takes the risks
incidental to the mode of travel he has taken. After all, a carrier is not an
insurer of the safety of its passengers and is not bound absolutely and at all
events to carry them safely and without injury. However, when a passenger
is injured or dies, while traveling, the law presumes that the common
carrier is negligent.
This disputable presumption may only be overcome by evidence
that the carrier had observed extraordinary diligence as prescribed by
Articles 1733, 1755 and 1756 of the Civil Code or that the death or injury
of the passenger was due to a fortuitous event. Consequently, the court
need not make an express finding of fault or negligence on the part of
the carrier to hold it responsible for damages sought by the passenger.
A fortuitous event is possessed of the following characteristics: (a)
the cause of the unforeseen and unexpected occurrence, or the failure of
the debtor to comply with his obligations, must be independent of
human will; (b) it must be impossible to foresee the event which
constitutes the caso fortuito, or if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner;
and (d) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor. As Article 1174
provides, no person shall be responsible for a fortuitous event which could
not be foreseen, or which, though foreseen, was inevitable. In other words,
there must be an entire exclusion of human agency from the cause of injury
or loss.
Under the circumstances of this case, the explosion of the new tire may
not be considered a fortuitous event. There are human factors involved in the
situation. The fact that the tire was new did not imply that it was entirely free
from manufacturing defects or that it was properly mounted on the vehicle.
Neither may the fact that the tire bought and used in the vehicle is of a brand
name noted for quality, resulting in the conclusion that it could not explode
within five days' use. Be that as it may, it is settled that an accident caused
either by defects in the automobile or through the negligence of its
driver is not a caso fortuito that would exempt the carrier from liability
for damages.
Moreover, a common carrier may not be absolved from liability in case
of force majeure or fortuitous event alone. The common carrier must still
prove that it was not negligent in causing the death or injury resulting from
an accident.
It is interesting to note that petitioners proved through the bus
conductor, Salce, that the bus was running at "60-50" kilometers per hour
only or within the prescribed lawful speed limit. However, they failed to rebut
the testimony of Leny Tumboy that the bus was running so fast that she
cautioned the driver to slow down. These contradictory facts must, therefore,
be resolved in favor of liability in view of the presumption of negligence of
the carrier in the law. Coupled with this is the established condition of the
road — rough, winding and wet due to the rain. It was incumbent upon the
defense to establish that it took precautionary measures considering partially
dangerous condition of the road.
Disposition
 WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED
subject to the modi􏰀cation that petitioners shall, in addition to the monetary
awards therein, be liable for the award of exemplary damages in the amount
of P20,000.00. Costs against petitioners.
Air France v CA
Recit-ready summary
Morales bought an Air France (AF) ticket covering 17 cities. The itinerary
included several cities wherein certain segments were restricted by markings
of “non-endorsable” and “valid on AF only.” While in New York, Morales
obtained 3 medical certificates attesting to ear infection which necessitated
medical treatment. Due to such ear infection, he informed Air France’ office
to shorten his trip by deleting some of the cities in the itinerary. His first
request to shorten trip was denied. After reiterating his need to fly home on a
shorter route, AF Amsterdam made another request to AF Manila but it was
again denied. Despite Morales’ protest and offer to pay any fare difference,
Air France did not relent in its position. Morales, therefore, had to buy an
entirely new set of tickets for the homeward route.
Upon arrival in Manila, Morales sent a letter-complaint to AF. He was advised
to surrender the unused flight coupons for a refund but Morales instead filed
a complaint for breach of contract of carriage and damages. CFI ruled in favor
of Morales and ruled that AF is in evident bad faith for violation of the
contract of carriage. CFI also considered the social and economic standing of
Morales as chairman of the Board of a multi-million corporation in awarding
damages. CA affirmed CFI but reduced the award of damages.
The issue is W/N there was a breach of contract of carriage on the part of AF
as to justify the award to Morales of actual, moral, and exemplary damages –
NO.
AF refutes this conclusion, claiming that the original ticket was discounted
and non-endorsable on certain segments. Voluntary changes to tickets, while
allowable, are also covered by IATA Resolution No. 1013, Art. II, which
provides: "1. changes to the ticket requested by the passenger will be
subject to carriers regulations." Considering the original restrictions
(non-endorsable and valid on AF only) on the ticket, it was not
unreasonable for AF to deny the request. AF employees in Hamburg
informed Morales that his tickets were partly stamped "non-endorsable" and
"valid on AF only." Mere refusal to accede to the passenger's wishes does
not necessarily translate into damages in the absence of bad faith. Of
importance is the fact that Morales is a lawyer, and the restriction box
clearly indicated the non-endorsable character of the ticket. Omissions by
ordinary passengers may be condoned but more is expected of members of
the bar who cannot feign ignorance of such limitations and restrictions.
I. Facts of the case
[Oct 1977] Narciso Morales thru his representative,Ms. Janet Tolentino,
purchased an airline ticket from Aspac Management Corporation, Air France’s
General Sales Agent in Makati, for P9,426.00 plus P413.90 travel tax, of which
P413.90 was later refunded to Ms. Tolentino.
The itinerary covered by the ticket included several cities certain segments
thereof restricted by markings of “non-endorsable” and “valid on AF (Air
France) only.”
Original Route: New York – Paris – Stockholm – Copenhagen – London –
Amsterdam – Hamburg – Frankfurt – Paris – Geneva – Madrid – Nice – Rome
– Athens – Tel Aviv – Bangkok – Manila.
While in New York, Morales obtained 3 medical certificates attesting to
ear infection which necessitated medical treatment.
From New York, he flew to Paris, Stockholm, and then Copenhagen where he
made representations with AF’s office to shorten his trip by deleting some of
the cities in the itinerary.
Morales was informed that, as a matter of procedure, confirmation of AF’s
office in Manila must be secured before shortening of the route (already paid
for)
AF Amsterdam telefaxed AF Manila requesting for rerouting of the passenger
to Amsterdam, Hamburg, Geneva, Rome, Hongkong, Manila.
As there was no immediate response to the telefax, Morales proceeded to
Hamburg where he was informed of AF Manila’s negative reply.
After reiterating his need to fly home on a shorter route due to his ear
infection and presentation of supporting medical certificates, AF Amsterdam
made the necessary request to AF Manila.
Morales’ request: Shorten his trip with this proposed route: Hamburg – Paris
– Geneva – Rome – Paris – Hong Kong – Manila. DENIED. Despite Morales’
protest and offer to pay any fare difference, AF did not relent in its position.
Morales bought an entirely new set of tickets, paying 1,914 German marks
for the homeward route: Hamburg – Frankfurt – Geneva – Rome – Hongkong
– Manila.
Upon arrival in Manila, Morales sent a letter-complaint to AF. He was advised
to surrender the unused flight coupons for a refund of its value but he kept
the same and instead filed a complaint for breach of contract of carriage and
damages.
CFI: AF is in evident bad faith for violation of the contract of carriage,
aggravated by the threatening attitude of its employees in Hamburg.
Considering the social and economic standing of Morales, who is a chairman
of the board of directors of a multi-million corporation and a member of
several civic and business organization, an award of moral and exemplary
damages, in addition to the actual damages, was deemed proper. (P1M –
moral, P800k – exemplary, attorney’s fees)
CA: The award of damages was modified. Actual damages – 1,914 German
marks in peso at prevailing rate of exchange, Moral damages – P500k,
Exemplary damages – 150k, attorney’s fees)
Questioning the factual findings of the respondent Court, AF cites 3 errors:
1. Conclusion of breach of contract is premised on a misapprehension
of facts
2. Failure to apply the doctrine of avoidable consequence
3. Award of exorbitant damages and attorney’s fees
Issue/s
W/N there was a breach of contract of carriage on the part of Air France as to
justify the award to Morales of actual, moral, and exemplary damages – NO.
Mere refusal to accede to the passenger’s wishes does not necessarily
translate into damages in the absence of bad faith
II. Ratio/Legal Basis
International Air Transportation Association (IATA) Resolution No. 275 e, 2.,
special note, reads: "Where a fare is restricted and such restrictions are not
clearly evident from the required entries on the ticket, such restrictions may
be written, stamped or reprinted in plain language in the
Endorsements/Restrictions box of the applicable flight coupon(s); or attached
thereto by use of an appropriate notice."
Voluntary changes to tickets, while allowable, are also covered by IATA
Resolution No. 1013, Art. II, which provides: "1. changes to the ticket
requested by the passenger will be subject to carriers regulations."
Morales wanted a rerouting which shortened the original itinerary on the
ticket issued by AF Manila through ASPAC, its general sales agent.
Considering the original restrictions (non-endorsable and valid on AF only)
on the ticket, it was not unreasonable for AF to deny the request.
Besides, a recurring ear infection was pleaded as the reason necessitating
urgent return to Manila. Assuming arguendo a worsening pain or discomfort,
Morales appears to have still proceeded to four (4) other cities covering a
period of at least six (6) days and leaving open his date of departure from
Hongkong to Manila. And, even if he claimed to have undergone medical
examination upon arrival in Manila, no medical certificate was presented. He
failed to even remember his date of arrival in Manila.
With a claim for a large amount of damages, the Court finds it unusual for
Morales, a lawyer, to easily forget vital information to substantiate his
plea. It is also essential before an award of damages that the claimant must
satisfactorily prove during the trial the existence of the factual basis of the
damages and its causal connection to defendant's acts.
Unlike in the KLM Royal Dutch Airline v CA case where the breach of contract
was aggravated by the discourteous and arbitrary conduct of an official of
the Aer Lingus which the KLM had engaged to transport the respondents,
here - AF employees in Hamburg informed Morales that his tickets were
partly stamped "non-endorsable" and "valid on AF only." condition was
printed in letters so small that one would have to use a magnifying glass to
read the words. KLM was chargeable with the duty and responsibility of
specifically informing the respondents of conditions prescribed in their tickets
or in the very least, to ascertain that the respondent read them before they
accepted their passage tickets.
Mere refusal to accede to the passenger's wishes does not necessarily
translate into damages in the absence of bad faith. Morales has failed to
show wanton, malevolent or reckless misconduct imputable to AF in its
refusal to reroute. AF Manila acted upon the advice of ASPAC in denying
Morales’ request. There was no evident bad faith when it followed the advice
not to authorize rerouting. At worst, the situation can be considered a case of
inadvertence on the part of ASPAC in not explaining the non-endorsable
character of the ticket.
Morales is a lawyer, and the restriction box clearly indicated the non-
endorsable character of the ticket. Omissions by ordinary passengers
may be condoned but more is expected of members of the bar who
cannot feign ignorance of such limitations and restrictions. An award of
moral and exemplary damages cannot be sustained under the circumstances,
but AF has to refund the unused coupons in the AF ticket to Morales.
Disposition
● REVERSED and SET ASIDE
Bayasen v CA
Recit-ready summary
Saturnino Bayasen was found guilty of Homicide through reckless
imprudence.
On the morning of August 15, 1963, Saturnino Bayasen, the Rural Health
Physician in Sagada, Mountain Province, went to barrio Ambasing to visit a
patient. Two nurses from the Saint Theodore's Hospital in Sagada, viz., Elena
Awichen and Dolores Balcita, rode with him in the jeep assigned for the use
of the Rural Health Unit as they had requested for a ride to Ambasing. Later,
at Ambasing, the girls, who wanted to gather flowers, again asked if they
could ride with him up to a certain place on the way to barrio Suyo which he
intended to visit anyway. Dr. Bayasen again allowed them to ride, Elena
sitting herself between him and Dolores. On the way, at barrio Langtiw, the
jeep went over a precipice About 8 feet below the road, it was blocked by a
pine tree. The three were thrown out of the jeep. Elena was found lying in a
creek further below. Among other injuries, she suffered a skull fracture which
caused her death.
Issue: Whether petitioner is should be acquitted on the ground that the CA
finding that petitioner’s negligence in driving at an unreasonable was the
proximate cause of the accident is contrary to the evidence of the prosecution?
Yes he should be acquitted.
There is no “legally sufficient” proof that the accused was negligent
in driving his jeep. The star witness of the prosecution, Dolores Balcita who
was one of the passengers in the jeep, testified that the accused-petitioner,
Saturnino Bayasen was driving his jeep moderately just before the accident
and categorically stated that she did not know what caused the jeep to fall
into the precipice. When asked whether the jeep hit anything before it
fell into the precipice, the witness answered that she did not feel any
bump or jolt. These answers of Dolores Balcita are all in the negative and
equivocal. They do not deny or preclude the truth of the positive testimony
of the accused. As held by this Court:
The testimony of a credible witness that he saw or heard at a particular
time and place is more reliable than that of an equally credible witness
who with the same opportunities, testified that he did not see or hear
the same thing at the same time and place. 
Hence as to the relative weight to be given to the positive and consistent.
testimony of the accused and to the negative and equivocal answers of
Dolores Balcita, the former is more worthy of credence .
It is a well known physical tact that cars may skid on greasy or slippery roads,
as in the instant case, without fault on account of the manner of handling the
car. Skidding means partial or complete loss of control of the car under
circumstances not necessarily implying negligence.
Under the particular circumstances of the instant case, the petitioner-
driver who skidded could not be regarded as negligent, the skidding
being an unforeseen event, so that the petitioner had a valid excuse for
his departure from his regular course. The negligence of the petitioner
not having been sufficiently established, his guilt of the crime charged
has not been proven beyond reasonable doubt.
Facts of the case
Saturnino Bayasen was charged by the Fiscal of Mountain Province of
Homicide through Reckless Imprudence. allegedly committed as follows:
After trial, the petitioner was found guilty. The petitioner then appealed to
the CA which affirmed the TC decision with modifications: the indemnity was
increased to P6,000.00; the award of attorney's fees was set aside, and the
maximum of the prison term was raised to One (1) Year, Seven (7) Months,
and Seventeen (17) Days of prision correccional.  condition of the jeep, Dolores said that she "did not notice anything
The facts, as found by the Court of Appeals, are:
On the morning of August 15, 1963, Saturnino Bayasen, the Rural Health
Physician in Sagada, Mountain Province, went to barrio Ambasing to visit a
patient. Two nurses from the Saint Theodore's Hospital in Sagada, viz., Elena
Awichen and Dolores Balcita, rode with him in the jeep assigned for the use
of the Rural Health Unit as they had requested for a ride to Ambasing. Later,
at Ambasing, the girls, who wanted to gather flowers, again asked if they
could ride with him up to a certain place on the way to barrio Suyo which he
intended to visit anyway. Dr. Bayasen again allowed them to ride, Elena
sitting herself between him and Dolores. On the way, at barrio Langtiw, the
jeep went over a precipice About 8 feet below the road, it was blocked by a
pine tree. The three were thrown out of the jeep. Elena was found lying in a
creek further below. Among other injuries, she suffered a skull fracture which
caused her death.
Issue/s
Whether petitioner is should be acquitted on the ground that the CA
finding that petitioner’s negligence in driving at an unreasonable was
the proximate cause of the accident is contrary to the evidence of the
prosecution? Yes he should be acquitted.
Ratio/Legal Basis
There is no “legally sufficient” proof that the accused was negligent in
driving his jeep. The star witness of the prosecution, Dolores Balcita who was
one of the passengers in the jeep, testified that the accused-petitioner,
Saturnino Bayasen was driving his jeep moderately just before the accident
and categorically stated that she did not know what caused the jeep to fall
into the precipice. When asked whether the jeep hit anything before it
fell into the precipice, the witness answered that she did not feel any
bump or jolt.
It is clear from the last part of the Testimony of the witness, Dolores Balcita,
that there was no conversation between the passengers in the jeep that could
have distracted the attention of the accused while driving the jeep. As to the
wrong" with it from the time they drove from Sagada to Ambasing, and from
there to the place where the jeep fell off the road. Regarding the road, she
said that it was fair enough to drive on, but that it was moist or wet, and the
weather was fair, too.  As to whether the accused-petitioner was under the
influence of liquor at the time of the accident, she testified that he was not.
The petitioner testified that before reaching the portion of the road where
the jeep fell he noticed that the rear wheel skidded, while driving from 8 to
10 kilometers per hour; that as a precautionary measure, he directed the jeep
towards the side of the mountain, along the side of the mountain, but not
touching the mountain; that while doing so, the late Elena Awichen suddenly
held the steering wheel and he felt that her foot stepped on his right foot
which was pressed then on the accelerator; and that immediately after, the
jeep suddenly swerved to the right and went off. The prosecution witness
(Dolores) when asked whether this was true, claimed she did not see. These
answers of Dolores Balcita are all in the negative and equivocal. They do not
deny or preclude the truth of the positive testimony of the accused. As held
by this Court:
The testimony of a credible witness that he saw or heard at a particular time
and place is more reliable than that of an equally credible witness who with
the same opportunities, testified that he did not see or hear the same thing
at the same time and place. 
Hence as to the relative weight to be given to the positive and consistent.
testimony of the accused and to the negative and equivocal answers of
Dolores Balcita, the former is more worthy of credence .
Furthermore , the statement of Dolores Balcita that the accused was driving
at moderate speed and not "an unreasonable ,speed' is bolstered by the
testimony, of Pablo Lizardo. then mayor of Sagada, Mountain Province, who
found the jeep at second gear when he examined it not long after the
incident.  Such fact shows that the accused-petitioner could not have been
driving the jeep at a fast rate of speed.
Mr. Justice Gatmaitan, in voting to grant the motion for reconsideration, said:
“... but that statement of the Majority would most clearly show that its information in Criminal Case No. 1056 of the Court of First Instance of
position is that appellant's negligence, the proximate cause of the tragedy, Mountain Province, with costs de oficio.
was appellant's unreasonable speed which has been refuted by the very SO ORDERED.
evidence of prosecution, for here, it can hardly be debated that the Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur
proximate cause was the skidding of the rear wheels, — there is nothing,
absolutely nothing in the entire record which would pin upon him the fault Gatchalian v Delim
for that, prosecution witnesses concede that he was driving moderately, —
the skidding of the rear wheels was to my mind, undisputably an unforeseen
Recit-ready summary
cause, because of this, I cannot rest easy on conviction and therefore register
Gatchalian boarded, as a paying passenger, respondent's "Thames" mini bus
my final vote for acquittal.”
at a point in San Eugenio, Aringay, La Union, bound for Bauang, of the same
province. On the way, while the bus was running along the highway in Barrio
It is obvious that the proximate cause of the tragedy was the skidding of the
Payocpoc, Bauang, Union, "a snapping sound" was suddenly heard at one
rear wheels of the jeep and not the "unreasonable speed" of the petitioner
part of the bus and, shortly thereafter, the vehicle bumped a cement flower
because there is no evidence on record to prove or support the finding that
pot on the side of the road, went off the road, turned turtle and fell into a
the petitioner was driving a at "an unreasonable speed".
ditch. Several passengers, including petitioner Gatchalian, were injured. Mrs.
Delim had the injured passengers, including petitioner, sign an already
It is a well known physical tact that cars may skid on greasy or slippery roads,
prepared Joint Affidavit.
as in the instant case, without fault on account of the manner of handling the
car. Skidding means partial or complete loss of control of the car under
Whether or not there is a valid waiver? NO.
circumstances not necessarily implying negligence. It may occur without fault.

A waiver, to be valid and effective, must in the first place be couched in clear
No negligence as a matter of law can, therefore, be charged to the petitioner.
and unequivocal terms which leave no doubt as to the intention of a person
In fact, the moment he felt that the rear wheels of the jeep skidded, he
to give up a right or benefit which legally pertains to him. A waiver may not
promptly drove it to the left hand side of the road, parallel to the slope of the
casually be attributed to a person when the terms thereof do not explicitly
mountain, because as he said, he wanted to play safe and avoid the
and clearly evidence an intent to abandon a right vested in such person.
embankment. 

Whether or not the common carrier is liable? YES.

Under the particular circumstances of the instant case, the petitioner-
driver who skidded could not be regarded as negligent, the skidding
To exempt a common carrier from liability for death or physical injuries to
being an unforeseen event, so that the petitioner had a valid excuse for
passengers upon the ground of force majeure, the carrier must clearly show
his departure from his regular course. The negligence of the petitioner not
not only that the efficient cause of the casualty was entirely independent of
having been sufficiently established, his guilt of the crime charged has not
the human will, but also that it was impossible to avoid. Any participation by
been proven beyond reasonable doubt. He is, therefore, entitled to acquittal.
the common carrier in the occurrence of the injury will defeat the defense of
force majeure.
Disposition
WHEREFORE, the decision of the Court of Appeals sought to be reviewed is
Upon the other hand, the record yields affirmative evidence of fault or
hereby set aside and the petitioner is ACQUITTED of the crime charged in the
negligence on the part of respondent common carrier. The obvious
continued failure of respondent to look after the roadworthiness and safety
of the bus, coupled with the driver's refusal or neglect to stop the mini-bus
after he had heard once again the "snapping sound" and the cry of alarm
from one of the passengers, constituted wanton disregard of the physical
safety of the passengers, and hence gross negligence on the part of
respondent and his driver.
Facts of the case
Gatchalian boarded, as a paying passenger, respondent's "Thames" mini bus
at a point in San Eugenio, Aringay, La Union, bound for Bauang, of the same
province. On the way, while the bus was running along the highway in Barrio
Payocpoc, Bauang, Union, "a snapping sound" was suddenly heard at one
part of the bus and, shortly thereafter, the vehicle bumped a cement flower
pot on the side of the road, went off the road, turned turtle and fell into a
ditch. Several passengers, including petitioner Gatchalian, were injured. They
were promptly taken to Bethany Hospital at San Fernando, La Union, for
medical treatment. Upon medical examination, petitioner was found to have
sustained physical injuries on the leg, arm and forehead, specifically
described as follows: lacerated wound, forehead; abrasion, elbow, left;
abrasion, knee, left; abrasion, lateral surface, leg, left.
While injured. passengers were confined in the hospital, Mrs. Adela Delim,
wife of respondent, visited them and later paid for their hospitalization and
medical expenses. She also gave petitioner P12.00 with which to pay her
transportation expense in going home from the hospital. However, before
Mrs. Delim left, she had the injured passengers, including petitioner, sign an
already prepared Joint Affidavit which stated, among other things:
That we were passengers of Thames with Plate No. 52-222 PUJ Phil.
73 and victims after the said Thames met an accident at Barrio
Payocpoc Norte, Bauang, La Union while passing through the
National Highway No. 3;
That after a thorough investigation the said Thames met the accident
due to mechanical defect and went off the road and turned turtle to
the east canal of the road into a creek causing physical injuries to us;
That we are no longer interested to file a complaint, criminal or civil
against the said driver and owner of the said Thames, because it was
an accident and the said driver and owner of the said Thames have
gone to the extent of helping us to be treated upon our injuries.
Notwithstanding this document, Gathalian filed with the then Court of First
Instance of La Union an action extra contractu to recover compensatory and
moral damages.
In defense, respondent averred that the vehicular mishap was due to force
majeure, and that petitioner had already been paid and moreover had waived
any right to institute any action against him (private respondent) and his
driver, when petitioner Gatchalian signed the Joint Affidavit
After trial, the trial court dismissed the complaint upon the ground that when
petitioner Gatchalian signed the Joint Affidavit, she relinquished any right of
action (whether criminal or civil) that she may have had against respondent
and the driver of the mini-bus.
On appeal by petitioner, the Court of Appeals reversed the trial court's
conclusion that there had been a valid waiver, but affirmed the dismissal of
the case by denying petitioner's claim for damages
VII. Issue/s
Whether or not there is a valid waiver? NO.
Whether or not the common carrier is liable? YES.
VIII. Ratio/Legal Basis
INVALID WAIVER
We agree with the majority of the Court of Appeals who held that no valid
waiver of her cause of action had been made by petitioner. The relevant
language of the Joint Affidavit may be quoted again:
 That we are no longer interested to file a complaint, criminal or civil
against the said driver and owner of the said Thames, because it was
an accident and the said driver and owner of the said Thames have
gone to the extent of helping us to be treated upon our injuries.
A waiver, to be valid and effective, must in the first place be couched in
clear and unequivocal terms which leave no doubt as to the intention of
a person to give up a right or benefit which legally pertains to him. A
waiver may not casually be attributed to a person when the terms
thereof do not explicitly and clearly evidence an intent to abandon a
right vested in such person.
The degree of explicitness which this Court has required in purported waivers
is illustrated in Yepes and Susaya v. Samar Express Transit (supra), where the
Court in reading and rejecting a purported waiver said:
. . . It appears that before their transfer to the Leyte Provincial
Hospital, appellees were asked to sign as, in fact, they signed the
document Exhibit I wherein they stated that "in consideration of the
expenses which said operator has incurred in properly giving us the
proper medical treatment, we hereby manifest our desire to waive
any and all claims against the operator of the Samar Express Transit."
If we apply the standard used in Yepes and Susaya, we would have to
conclude that the terms of the Joint Affidavit in the instant case cannot
be regarded as a waiver cast in "clear and unequivocal" terms. Moreover,
the circumstances under which the Joint Affidavit was signed by petitioner
Gatchalian need to be considered. Petitioner testified that she was still reeling
from the effects of the vehicular accident, having been in the hospital for only
three days, when the purported waiver in the form of the Joint Affidavit was
presented to her for signing; that while reading the same, she experienced
dizziness but that, seeing the other passengers who had also suffered injuries
sign the document, she too signed without bothering to read the Joint
Affidavit in its entirety. Considering these circumstances there appears
substantial doubt whether petitioner understood fully the import of the Joint
Affidavit (prepared by or at the instance of private respondent) she signed
and whether she actually intended thereby to waive any right of action
against private respondent.
Finally, because what is involved here is the liability of a common carrier
for injuries sustained by passengers in respect of whose safety a
common carrier must exercise extraordinary diligence, we must construe
any such purported waiver most strictly against the common carrier. For
a waiver to be valid and effective, it must not be contrary to law, morals,
public policy or good customs. To uphold a supposed waiver of any right to
claim damages by an injured passenger, under circumstances like those
exhibited in this case, would be to dilute and weaken the standard of
extraordinary diligence exacted by the law from common carriers and hence
to render that standard unenforceable. We believe such a purported waiver is
offensive to public policy.
COMMON CARRIER LIABILITY
We have already noted that a duty to exercise extraordinary diligence in
protecting the safety of its passengers is imposed upon a common carrier. In
case of death or injuries to passengers, a statutory presumption arises that
the common carrier was at fault or had acted negligently "unless it proves
that it [had] observed extraordinary diligence as prescribed in Articles 1733
and 1755." In fact, because of this statutory presumption, it has been held
that a court need not even make an express finding of fault or negligence on
the part of the common carrier in order to hold it liable. To overcome this
presumption, the common carrier must slow to the court that it had exercised
extraordinary diligence to prevent the injuries.
Thus, the question which must be addressed is whether or not private
respondent has successfully proved that he had exercised extraordinary
diligence to prevent the mishap involving his mini-bus. The records before
the Court are bereft of any evidence showing that respondent had exercised
the extraordinary diligence required by law. Curiously, respondent did not
even attempt, during the trial before the court a quo, to prove that he
had indeed exercised the requisite extraordinary diligence. Respondent
did try to exculpate himself from liability by alleging that the mishap
was the result of force majeure. But allegation is not proof and here again,
respondent utterly failed to substantiate his defense of force majeure. To
exempt a common carrier from liability for death or physical injuries to
passengers upon the ground of force majeure, the carrier must clearly
show not only that the efficient cause of the casualty was entirely
independent of the human will, but also that it was impossible to avoid.
Any participation by the common carrier in the occurrence of the injury will
defeat the defense of force majeure.
In legal sense and, consequently, also in relation to contracts, a "caso
fortuito" presents the following essential characteristics: (1) the cause of
the unforeseen and unexpected occurence, or of the failure of the
debtor to comply with his obligation, must be independent of the
human will; (2) it must be impossible to foresee the event which
constitutes the "caso fortuito", or if it can be foreseen, it must be
impossible to avoid; (3) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner;
and (4) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.
"snapping sound" and the cry of alarm from one of the passengers,
constituted wanton disregard of the physical safety of the passengers,
and hence gross negligence on the part of respondent and his driver.
Disposition
WHEREFORE, the Decision of the Court of Appeals dated 24 October 1980, as
well as the decision of the then Court of First Instance of La Union dated 4
December 1975 are hereby REVERSED and SET ASIDE.Respondent is hereby
ORDERED to pay petitioner Reynalda Gatchalian the following sums: 1)
P15,000.00 as actual or compensatory damages to cover the cost of plastic
surgery for the removal of the scar on petitioner's forehead; 2) P30,000.00 as
moral damages; and 3) P1,000.00 as attorney's fees, the aggregate amount to
bear interest at the legal rate of 6% per annum counting from the
promulgation of this decision until full payment thereof. Costs against private
respondent.
Fortune Express v CA
Recit-ready summary

Upon the other hand, the record yields affirmative evidence of fault or
Petitioner’s bus got into an accident with a jeepney which resulted in the
negligence on the part of respondent common carrier. In her direct
death of several passengers of the jeepney. After the investigation, it was
examination, petitioner Gatchalian narrated that shortly before the vehicle
found that the owner of the jeepney was a Maranao residing in Delabayan,
went off the road and into a ditch, a "snapping sound" was suddenly heard at
Lanao del Norte and that certain Maranaos were planning to take revenge on
one part of the bus. One of the passengers, an old woman, cried out, "What
the petitioner by burning some of its buses. Upon the instruction of Sgt.
happened?" The driver replied, nonchalantly, "That is only normal". The driver
Bastasa, the investigator went to see, the operations manager of petitioner, at
did not stop to check if anything had gone wrong with the bus. Moreover,
its main office in Cagayan de Oro City. Bravo assured him that the necessary
the driver's reply necessarily indicated that the same "snapping sound" had
precautions to insure the safety of lives and property would be taken.
been heard in the bus on previous occasions. This could only mean that the
bus had not been checked physically or mechanically to determine what was
Later, three armed Maranaos pretended to be passengers and seized
causing the "snapping sound" which had occurred so frequently that the
one of the buses owned by petitioner. Among the passengers of the bus was
driver had gotten accustomed to it. Such a sound is obviously alien to a
Atty. Caorong. The leader of the Maranaos, ordered the driver, to stop the
motor vehicle in good operating condition, and even a modicum of concern
bus on the side of the highway. Cabatuan was then shot on the arm, which
for life and limb of passengers dictated that the bus be checked and repaired.
caused him to slump on the steering wheel. Then one of the companions of
The obvious continued failure of respondent to look after the
Mananggolo started pouring gasoline inside the bus, as the other held the
roadworthiness and safety of the bus, coupled with the driver's refusal
passengers at bay with a handgun. Mananggolo then ordered the passengers
or neglect to stop the mini-bus after he had heard once again the
to get off the bus. The passengers stepped out of the bus and went behind
the bushes in a field some distance from the highway.
However, Atty. Caorong returned to the bus to retrieve something from
the overhead rack. Cabatuan, who had meantime regained consciousness,
heard Atty. Caorong pleading with the armed men to spare the driver as he
was innocent of any wrong doing and was only trying to make a living. The
armed men were, however, adamant as they repeated their warning that they
were going to burn the bus along with its driver. During this exchange
between Atty. Caorong and the assailants, Cabatuan climbed out of the left
window of the bus and crawled to the canal on the opposite side of the
highway. He heard shots from inside the bus. De la Cruz, one of the
passengers, saw that Atty. Caorong was hit. Then the bus was set on fire.
Whether there is a breach of contract of carriage. YES
Art. 1763 of the Civil Code provides that a common carrier is
responsible for injuries suffered by a passenger on account of the wilful
acts of other passengers, if the employees of the common carrier could
have prevented the act through the exercise of the diligence of a good
father of a family. In the present case, it is clear that because of the
negligence of petitioner's employees, the seizure of the bus by Mananggolo
and his men was made possible.
Despite warning by the Philippine Constabulary at Cagayan de Oro that
the Maranaos were planning to take revenge on the petitioner by burning
some of its buses and the assurance of petitioner's operation manager,
Diosdado Bravo, that the necessary precautions would be taken, petitioner
did nothing to protect the safety of its passengers.
Had petitioner and its employees been vigilant they would not have
failed to see that the malefactors had a large quantity of gasoline with them.
Under the circumstances, simple precautionary measures to protect the
safety of passengers, such as frisking passengers and inspecting their
baggages, preferably with non-intrusive gadgets such as metal detectors,
before allowing them on board could have been employed without violating
the passenger's constitutional rights. As this Court intimated in Gacal v. PAL.,
a common carrier can be held liable for failing to prevent a hijacking by
frisking passengers and inspecting their baggages.
It is also not a fortuitous event because it was not unforeseeable.
As already stated, despite the report of PC agent Generalao that the
Maranaos were planning to burn some of petitioner's buses and the
assurance of petitioner's operations manager (Diosdado Bravo) that the
necessary precautions would be taken, nothing was really done by
petitioner to protect the safety of passengers.
Facts of the case
Petitioner is a bus company while private respondent Paulie Caorong is
the widow of Atty. Caorong, and the other respondents are their minor
children.
On 18 November 1989, a bus of petitioner got into an accident with a
jeepney which resulted in the death of several passengers of the jeepney. A
volunteer field agent of the Constabulary Regional Security Unit No. X,
conducted an investigation of the accident. He found that the owner of the
jeepney was a Maranao residing in Delabayan, Lanao del Norte and that
certain Maranaos were planning to take revenge on the petitioner by burning
some of its buses. Upon the instruction of Sgt. Bastasa, the investigator went
to see Bravo, the operations manager of petitioner, at its main office in
Cagayan de Oro City. Bravo assured him that the necessary precautions to
insure the safety of lives and property would be taken.
At about 6:45 P.M. on November 22, 1989, three armed Maranaos who
pretended to be passengers, seized a bus of petitioner at Linamon, Lanao del
Norte while on its way to Iligan City. Among the passengers of the bus was
Atty. Caorong. The leader of the Maranaos, Mananggolo, ordered the driver,
Cabatuan, to stop the bus on the side of the highway. Cabatuan was then
shot on the arm, which caused him to slump on the steering wheel. Then one
of the companions of Mananggolo started pouring gasoline inside the bus,
as the other held the passengers at bay with a handgun. Mananggolo then
ordered the passengers to get off the bus. The passengers, including Atty.
Caorong, stepped out of the bus and went behind the bushes in a field some
distance from the highway.
However, Atty. Caorong returned to the bus to retrieve something from
the overhead rack. Cabatuan, who had meantime regained consciousness,
heard Atty. Caorong pleading with the armed men to spare the driver as he
was innocent of any wrong doing and was only trying to make a living. The
armed men were, however, adamant as they repeated their warning that they
were going to burn the bus along with its driver. During this exchange
between Atty. Caorong and the assailants, Cabatuan climbed out of the left
window of the bus and crawled to the canal on the opposite side of the
highway. He heard shots from inside the bus. De la Cruz, one of the
passengers, saw that Atty. Caorong was hit. Then the bus was set on fire.
Some of the passengers were able to pull Atty. Caorong out of the burning
bus and rush him to the Mercy Community Hospital in Iligan City, but he died
while undergoing operation.
The private respondents brought this suit for breach of contract of
carriage with the RTC.
Issue/s
Whether there is a breach of contract of carriage.
Ratio/Legal Basis
Breach of Contract of Carriage
Art. 1763 of the Civil Code provides that a common carrier is responsible
for injuries suffered by a passenger on account of the willful acts of other
passengers, if the employees of the common carrier could have prevented
the act through the exercise of the diligence of a good father of a family. In
the present case, it is clear that because of the negligence of petitioner's
employees, the seizure of the bus by Mananggolo and his men was made
possible.
Despite warning by the Philippine Constabulary at Cagayan de Oro that
the Maranaos were planning to take revenge on the petitioner by burning
some of its buses and the assurance of petitioner's operation manager,
Diosdado Bravo, that the necessary precautions would be taken, petitioner
did nothing to protect the safety of its passengers.
Had petitioner and its employees been vigilant they would not have
failed to see that the malefactors had a large quantity of gasoline with them.
Under the circumstances, simple precautionary measures to protect the
safety of passengers, such as frisking passengers and inspecting their
baggages, preferably with non-intrusive gadgets such as metal detectors,
before allowing them on board could have been employed without violating
the passenger's constitutional rights. As this Court intimated in Gacal v. PAL.,
a common carrier can be held liable for failing to prevent a hijacking by
frisking passengers and inspecting their baggages.
From the foregoing, it is evident that petitioner's employees failed to
prevent the attack on one of petitioner's buses because they did not exercise
the diligence of a good father of a family. Hence, petitioner should be held
liable for the death of Atty. Caorong.
Seizure of Petitioner's Bus not a Case of Force Majeure
Art. 1174 of the Civil Code defines a fortuitous event as an
occurrence which could not be foreseen or which though foreseen, is
inevitable. To be considered as force majeure, it is necessary that: (1) the
cause of the breach of the obligation must be independent of the human will;
(2) the event must be either unforeseeable or unavoidable; (3) the occurrence
must be such as to render it impossible for the debtor to fulfill the obligation
in a normal manner; and (4) the obligor must be free of participation in, or
aggravation of, the injury to the creditor. The absence of any of the requisites
mentioned above would prevent the obligor from being excused from
liability.
In this case, despite the report of PC agent Generalao that the
Maranaos were going to attack its buses, petitioner took no steps to
safeguard the lives and properties of its passengers. The seizure of the bus of
the petitioner was foreseeable and, therefore, was not a fortuitous event
which would exempt petitioner from liability.
 Petitioner invokes the ruling in Pilapil v. CA and De Guzman v. CA in
support of its contention that the seizure of its bus by the assailants
constitutes force majeure. In Pilapil v. CA, it was held that a common carrier is
not liable for failing to install window grills on its buses to protect passengers
from injuries caused by rocks hurled at the bus by lawless elements. On the
other hand, in De Guzman v. CA, it was ruled that a common carrier is not
responsible for goods lost as a result of a robbery which is attended by grave
or irresistible threat, violence, or force.
It is clear that the cases of Pilapil and De Guzman do not apply to the
present case. Art. 1755 of the Civil Code provides that "a common carrier is
bound to carry the passengers as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due regard
for all the circumstances." Thus, we held in Pilapil and De Guzman that the
respondents therein were not negligent in failing to take special precautions
against threats to the safety of passengers which could not be foreseen, such
as tortious or criminal acts of third persons. In the present case, this factor of
unforeseeability (the second requisite for an event to be considered force
majeure) is lacking.
As already stated, despite the report of PC agent Generalao that the
Maranaos were planning to burn some of petitioner's buses and the
assurance of petitioner's operations manager (Diosdado Bravo) that the
necessary precautions would be taken, nothing was really done by petitioner
to protect the safety of passengers.
Deceased not Guilty of Contributory Negligence
The petitioner contends that Atty. Caorong was guilty of contributory
negligence in returning to the bus to retrieve something. But Atty. Caorong
did not act recklessly. It should be pointed out that the intended targets of
the violence were petitioner and its employees, not its passengers. The
assailant's motive was to retaliate for the loss of life of two Maranaos as a
result of the collision between petitioner's bus and the jeepney in which the
two Maranaos were riding. Mananggolo, the leader of the group which had
hijacked the bus, ordered the passengers to get off the bus as they intended
to burn it and its driver. The armed men actually allowed Atty. Caorong to
retrieve something from the bus. What apparently angered them was his
attempt to help the driver of the bus by pleading for his life. He was playing
the role of the good Samaritan. Certainly, this act cannot be considered an
act of negligence, let alone recklessness.
DISPOSITION
WHEREFORE, the decision, dated July 29, 1994, of the Court of
Appeals is hereby AFFIRMED with the MODIFICATION that petitioner Fortune
Express, Inc. is ordered to pay the following amounts to private respondents
Paulie, Yasser King, Rose Heinni, and Prince Alexander Caorong:
1. death indemnity in the amount of fifty thousand pesos
(P50,000.00);
2. actual damages in the amount of thirty thousand pesos
(P30,000.00);
3. moral damages in the amount of one hundred thousand pesos
(P100,000.00);
4. exemplary damages in the amount of one hundred thousand
pesos (P100,000.00);
5. attorney's fees in the amount of fifty thousand pesos (P50,000.00);
6. compensation for loss of earning capacity in the amount of two
million one hundred twenty-one thousand four hundred four pesos and
ninety centavos (P2,121,404.90); and
7. costs of suits.
SO ORDERED.
Tan v Northwest Airlines
Recit-ready summary
Priscilla Tanand Connie Tan boarded a Northwest Airlines plane in Chicago
bound to the PH with a stop-over at Detroit. Upon arrival, they found out
that their baggage was missing. On June 3, they recovered the baggage
and discovered that some were destroyed and soiled. They filed an action
for damages, claiming that they suffered mental anguish, sleepless nights and
great damage. Northwest offered to to either (1) reimburse the cost or repair
of the bags; or (2) reimburse the cost for the purchase of new bags, upon
submission of receipts. RTC awarded actual, moral and exemplary damages,
and also attorney’s fees. CApartially affirmed the decision by deleting moral
and exemplary damages. Hence, Tan filed this instant petition.
WON respondent Airline is liable for moral and exemplary damages for willful
misconduct and breach of contract of carriage? - NO
SC agree with CA that respondent was not guilty of willful misconduct. For
willful misconduct to exist there must be a showing that the acts complained
of were impelled by an intention to violate the law, or were in persistent
disregard of one's rights. There was no showing of malice in such failure. By
its concern for safety, respondent had to ship the baggages in another flight
with the same date of arrival.
Facts of the case
Priscilla Tan and Connie Tan boarded Northwest Airlines Flight 29 in Chicago,
U.S.A. bound for the Philippines, with a stop-over at Detroit, U.S.A. They
arrived at NAIA on June 1, 1994 at about 10:40 pm.
Upon arrival, petitioner and Connie found that their baggages were missing.
They returned to the airport in the evening of the following day and they
were informed that their baggages might still be in another plane in Tokyo,
Japan.
On June 3, 1994, they recovered their baggages and discovered that some of
its contents were destroyed and soiled.
Claiming that they "suffered mental anguish, sleepless nights and great
damage" because of Northwest’s failure to inform them in advance that their
baggages would not be loaded on the same flight they boarded and because
of their delayed arrival, they demanded from the Airlines compensation for
the damages they suffered. Petitioner sent demand letters to the Airlines, but
the latter did not respond. Hence, the filing of the case with RTC.
Respondent Northwest Airlines did not deny that the baggages of petitioners
were not loaded on Northwest Flight 29. Petitioner’s baggages could not be
carried on the same flight because of "weight and balance restrictions”.
However, the baggages were loaded in another Northwest Airlines flight,
which arrived in the evening of June 2, 1994.
When petitioner received her baggages in damaged condition, Northwest
offered to either (1) reimburse the cost or repair of the bags; or (2) reimburse
the cost for the purchase of new bags, upon submission of receipts.
RTC awarded actual, moral and exemplary damages, and also attorney’s fees.
CA partially affirmed the decision by deleting moral and exemplary damages.
Hence, Tan filed this instant petition.
Issue/s
WON respondent Airline is liable for moral and exemplary damages for willful
misconduct and breach of contract of carriage- NO
Ratio/Legal Basis
The Supreme Courts agrees with the Court of Appeals that respondent
Northwest Airlines was not guilty of willful misconduct.
For willful misconduct to exist there must be a showing that the acts
complained of were impelled by an intention to violate the law, or were in
persistent disregard of one's rights. It must be evidenced by a flagrantly or
shamefully wrong or improper conduct.
Contrary to petitioner's contention, there was nothing in the conduct of
respondent which showed that they were motivated by malice or bad
faith in loading her baggages on another plane. Due to weight and
balance restrictions, as a safety measure, respondent airline had to
transport the baggages on a different flight, but with the same expected
date and time of arrival in the Philippines. It is admitted that respondent
failed to deliver petitioner's luggages on time. However, there was no
showing of malice in such failure. By its concern for safety, respondent had to
ship the baggages in another flight with the same date of arrival.
Disposition
WHEREFORE, the petition is PARTIALLY GRANTED. The July 23, 2010
Amended Decision and the October 31, 2012 Resolution of the Twentieth
Division of the Court of Appeals in CA G.R. SP No. 02636 are AFFIRMED with terminate its services; this amounted to accepting the benefit of
MODIFICATION. Morelia's services without paying for it.
China Airlines v CA
On the whole, CAL's negligence is not so gross to amount to bad faith.
Not every case of mental anguish, fright or serious anxiety calls for the award
Recit-ready summary
of moral damages.

Initially, Salvador & Lao engaged the services of Morelia to book their flight
Facts of the case
with CAL. But upon discovering that Morelia charged higher rates, Salvador &
Lao hired Amexco instead. Amexco used the record locator number,
Salvador & Lao planned to travel to LA, California to pursue a cable business
previously issued by Morelia. CAL confirmed the booking. However, on the
deal involving the distribution of Filipino films. Initially, Morelia Travel Agency
same day, CAL called up Morelia to reconfirm, but Morelia cancelled.
booked their flight with China Airlines, LTD (CAL). But upon discovering that
Morelia charged higher rates than Amexco, Salvador & Lao dropped the
On the day of their flight, CAL personnel prevented Salvador & Lao from
services of Morelia, and engaged the services of Amexco.
boarding the airplane. Accordingly, Salvador & Lao demanded from the
payment of moral damages in the amount of P500k. The RTC and CA
Amexco used the record locator number, previously issued by Morelia, in
wondered why CAL still called Morelia on the same afternoon that Amexco
confirming their reservations, and subsequently issued to Salvador & Lao the
had already finalized and the reservations.
tickets. On the same day, CAL called up Morelia to reconfirm the reservations,
but Morelia cancelled.
The chief issue is whether there was bad faith, amounting to gross
negligence, on the part of CAL, so as to warrant the grant of moral damages.
On the day of their flight, CAL personnel prevented Salvador & Lao from
The Court ruled in the negative.
boarding the airplane because their names were not in the passengers'
manifest. Salvador & Lao were only able to leave for Los Angeles the
Bad faith does not simply connote bad judgment or negligence. It
following day on a different airline, Northwest Airlines.
imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong. It means breach of a known duty through some
Accordingly, Salvador & Lao demanded from the payment of moral damages
motive, interest or ill will that partakes of the nature of fraud. It should
in the amount of P500k. CAL explained that since Salvador & Lao failed to
be established by clear and convincing evidence since the law always
pick up their tickets from its offices, CAL caused the cancellation of their
presumes good faith.
bookings. Thus, Salvador & Lao’s own negligence caused their failure to
board CAL.
In this case, it is the standard practice of CAL to re-confirm reservations by
calling up the travel agency or passenger 2 days or even as close as a day
The RTC found that CAL's cancellation of the reservations despite knowledge
before the intended departure date. This is the pre-flight checking procedure
of the prior confirmation by Amexco was unjustified and tainted with bad
of CAL. There is therefore nothing unusual or suspicious in CAL's initiative in
faith. It wondered why CAL took the initiative of calling up Morelia on the
calling up Morelia.
same afternoon that Amexco had already finalized and the reservations. Lea,
the booking agent of Amexco called up CAL, but CAL thought that Lea was
CAL was only guilty of simple negligence. Besides, Lao is also negligent
from Morelia.
in giving Morelia's record locator number to Amexco, after deciding to
 CAL and Salvador & Lao. The passenger then has every right to expect that
Issue/s he would fly on that flight and on that date. If he does not, then the carrier
opens itself to a suit for breach of contract of carriage.
1. Whether there was a breach of contract of carriage? YES
2. Whether there was bad faith, amounting to gross negligence, on Bad faith does not simply connote bad judgment or negligence. It
the part of CAL? NO imports a dishonest purpose or some moral obliquity and conscious
3. Whether the award of damages is proper? NO doing of a wrong. It means breach of a known duty through some
motive, interest or ill will that partakes of the nature of fraud. A finding
Ratio/Legal Basis
of bad faith entitles the offended party to moral damages.

The confusion with the confirmation and cancellation of the reservations

The confluence of the ff. circumstances proves that CAL acted in bad
began when Lao gave to Amexco the record locator number that CAL had
faith:
already assigned to Morelia. Industry practice prohibits a travel agency to
(1) Lea identified herself as "Lea-Amexco" when she called up CAL to
use the record locator number of another travel agency. It would have
confirm the reservations
been perfectly all right for Salvador & Lao to switch to Amexco, until (2) Lea was not a familiar caller of Morelia and yet CAL entertained her call
Lao gave to Amexco the record locator number previously assigned to (3) CAL called up Morelia on the very same afternoon that CAL had already
Morelia. confirmed the reservations made by Amexco
(4) CAL called up Morelia looking for a certain Joel to reconfirm the
Lao should have made it known to Amexco that the record locator number reservations
belonged to another travel agency, Morelia. On the other hand, Amexco (5) CAL told Joel that it was hesitant to cancel because the seating
should not have hastily presumed that Salvador & Lao obtained the record arrangements had already been finalized with Lea
locator number from CAL. Amexco should have inquired how Lao got hold of (6) CAL did not notify private respondents or Amexco that it was cancelling
the record locator number considering that it was difficult for a travel agency the reservations
at that time to secure reservations with the various airlines.
Bad faith should be established by clear and convincing evidence since the
law always presumes good faith. The person who seeks damages has the
Lao and Amexco are not blameless. Lao's act in giving Morelia's record
burden of proving that the other has acted in bad faith or with ill motive. Bad
locator number to Amexco, after deciding to terminate its services, amounted
faith is in essence a question of intention; hence, the courts must carefully
to accepting the benefit of Morelia's services without paying for it.
examine the evidence as to the conduct and outward acts from which the
inward motive may be determined.
However, the greater blame falls on CAL. When CAL confirmed the
reservations of Salvador & Lao, a contract of carriage arose between them.
Based on the testimonies of the reservations officers of CAL, not 1 but 2
The airline business is intended to serve the traveling public primarily and is
officers made the confirmation and pre-flight checking of the airline:
thus imbued with public interest. In an action based on breach of contract, all
Chang and Melo.
that the aggrieved party has to prove is the existence of the contract and the
fact of its non-performance by the carrier.
We will now point out why the circumstances mentioned by the RTC and
CA are inadequate to prove CAL's bad faith.
In this case, the confirmed tickets issued by Amexco upon CAL's confirmation
of the reservations is an undeniable proof of the contract of carriage between
 First, the RTC and CA stress that Lea identified herself as “Lea-Amexco”.
However, the testimonies of Chang and Melo do not show that they
heard or recorded that "Lea-Amexco" made the confirmation. What the
computer monitor recorded was the name Lea, not “Lea-Amexco.”
Second, CAL should not have accepted the confirmation of Lea who is
not a familiar caller from Morelia. CAL should have verified the name of
the person or travel agency. CAL should have informed Amexco to
secure first the endorsement of Morelia. However, both courts erred in
readily imputing bad faith when CAL was only guilty of simple
negligence.
Third, it is the standard practice of CAL to re-confirm reservations by
calling up the travel agency or passenger 2 days or even as close as a
day before the intended departure date. This is the pre-flight checking
procedure of CAL. There is therefore nothing unusual or suspicious in
CAL's initiative in calling up Morelia.
Fourth, Melo first tried to contact private respondents, showing CAL's
lack of malice. Since the number was not the contact number of
Salvador & Lao or Lea, Melo had no recourse but to check with Joel of
Morelia.
Fifth, Melo did express to Joel her reluctance to cancel the reservations
because Lea had already ended the seating arrangements. CA took
Melo's reluctance to cancel the reservations as an indication of CAL's
bad faith, when such fact is a badge of good faith. Despite Melo's
hesitation, the cancellation still pushed through for 3 reasons:
• Joel insisted on it
• Lea was not from Morelia
• Melo failed to contact Salvador & Lao and Lea
Finally, CAL did not have the addresses of Salvador & Lao. CAL still exerted its
best efforts to notify Salvador & Lao. In reconfirming the reservations, Melo
called up Morelia twice.
CAL's negligence is not so gross to amount to bad faith. Mere negligence,
even if it causes the plaintiff to suffer mental anguish or serious fright, is not
a ground for awarding moral damages.
Absent fraud or bad faith on defendant's party, his liability for damages
is limited to the natural and probable consequences of the breach of the
obligation, which the parties had foreseen or could have reasonably
foreseen. This does not include moral damages. Not every case of mental
anguish, fright or serious anxiety calls for the award of moral damages.
CAL was not in bad faith and its employees did not act in a wanton,
fraudulent, reckless, oppressive or malevolent manner. The award of
exemplary damages is therefore unwarranted.
As for actual damages, Salvador & Lao did not shell out any money for their
CAL tickets. Amexco voided the CAL tickets and then booked their flight with
Northwest. Salvador & Lao would have been entitled to the price difference
between the tickets of CAL and Northwest had the latter cost more than the
former; but it didn’t.
Undeniably, however, Salvador & Lao soldered some form of injury when
they went through the trouble of going to the airport at the appointed time
expecting that they would be able to fly. Thus, the court awarded nominal
damages in the amount of P5k.
Ultimately, when there is no basis to award moral and exemplary damages,
there is also no basis to award attorney's fees
Disposition
WHEREFORE, we AFFIRM the decision of the CAwith MODIFICATION by
deleting the award of moral and exemplary damages as well as attorney's
fees. CAL shall pay nominal damages.
Singson v CA
Recit-ready summary
CARLOS SINGSON and his cousin Crescentino Tiongson bought from
respondent Cathay Pacific Airways two (2) open-dated, identically routed,
round trip plane tickets (Manila to LA and vice versa). Each ticket consisted of
six (6) flight coupons, each would be detached at the start of each leg of the
trip.
Singson failed to obtain a booking in LA for their trip to Manila; apparently,
the coupon corresponding to the 5th leg of the trip was missing and instead
the 3rd was still attached. It was not until few days later that the defendant
finally was able to arrange for his return to Manila. Singson commenced an
action for damages based on breach of contract of carriage against CATHAY
before the Regional Trial Court.
CATHAY alleged that there was no contract of carriage since he was
holding an open book ticket, which meant he was not booked on a
specific flight on a particular date yet existing such that CATHAY’s refusal
to immediately book him could not be construed as breach of contract of
carriage since he was holding an open.
Whether a breach of contract was committed by CATHAY when it failed
to confirm the booking of petitioner Singson? YES
To begin with, the round trip ticket issued by the carrier to the passenger was
in itself a complete written contract by and between the carrier and the
passenger.
a. CONSENT: manifested by the fact that the passenger agreed to be
transported by the carrier.
b. CONSIDERATION: fare paid by the passenger as stated in his ticket.
c. OBJECT: transportation of the passenger from the place of departure to
the place of destination and back
It also appears that CATHAY was responsible for the loss of the ticket.
One of two (2) things may be surmised from the circumstances of this case:
first, US Air (CATHAY's agent) had mistakenly detached the San Francisco-
Hongkong flight coupon thinking that it was the San Francisco-Los Angeles
portion; or, second, petitioner's booklet of tickets did not from issuance
include a San Francisco-Hongkong flight coupon.
Whether the carrier was liable not only for actual damages but also for
moral and exemplary damages, and attorney’s fees? YES
There are situations where the negligence of the carrier is so gross and
reckless as to virtually amount to bad faith, in which case, the passenger
likewise becomes entitled to recover moral damages. Giving the
circumstances attendant in this case, Cathay was clearly grossly negligent.
However, the awards made by the trial court of the moral and exemplary
damages have to be reduced. The petition was therefore granted and the
Cathay was ordered to pay actual damages and a reduced amount of moral
and exemplary damages and attorney's fees.
Attorney’s fees may be awarded when the defendant’s act or omission has
compelled the plaintiff to litigate with third persons or to incur expenses to
protect his interest.
Facts of the case
Petitioner CARLOS SINGSON and his cousin Crescentino Tiongson bought
from respondent Cathay Pacific Airways two (2) open-dated, identically
routed, round trip plane tickets (Manila to LA and vice versa). Each ticket
consisted of six (6) flight coupons:
Flight coupon no. 1 — Manila to Hongkong; flight coupon no. 2 —
Hongkong to San Francisco; flight coupon no. 3 — San Francisco to Los
Angeles; flight coupon no. 4 — Los Angeles back to San Francisco; flight
coupon no. 5 — San Francisco to Hongkong; and, finally, flight coupon no. 6
— Hongkong to Manila.
The procedure was that at the start of each leg of the trip a flight coupon
corresponding to the particular sector of the travel would be removed from
the ticket booklet so that at the end of the trip no more coupon would be
left in the ticket booklet.
Singson failed to obtain a booking in LA for their trip to Manila; apparently,
the coupon corresponding to the 5th leg (San Francisco to HK) of the trip
was missing and instead the 3rd (San Francisco to LA) was still attached.
It was not until few days later that the defendant finally was able to arrange
for his return to Manila.
Singson commenced an action for damages based on breach of contract of
carriage against CATHAY before the Regional Trial Court.
CATHAY denied these allegations and averred that since SINGSON was
holding an open dated ticket, which meant that he was not booked on a
specific flight on a particular date, there was no contract of carriage yet
existing such that CATHAY's refusal to immediately book him could not
be construed as breach of contract of carriage.
It further alleged that in an attempt to verify the status of the lost ticket,
CATHAY tried to contact its Hong Kong Headquarters, but no response was
immediately received.
Moreover, SINGSON claims that CATHAY was guilty of gross negligence
amounting to malice and bad faith in: (a) detaching the wrong coupon; (b)
using that error to deny confirmation of his return flight; and, (c) directing
petitioner to prematurely return to San Francisco to verify his missing
coupon. He also underscores the scornful and demeaning posture of
CATHAY's employees toward him.
TC: rendered a decision in favor of petitioner herein holding that CATHAY
was guilty of gross negligence amounting to malice and bad faith for which it
was adjudged to pay petitioner P20,000.00 for actual damages with interest
at the legal rate of twelve percent (12%) per annum from 26 August 1988
when the complaint was filed until fully paid, P500,000.00 for moral damages,
P400,000.00 for exemplary damages, P100,000.00 for attorney’s fees, and, to
pay the costs.
CA: reversed the trial court’s finding that there was gross negligence
amounting to bad faith or fraud and, accordingly, modified its judgment by
deleting the awards for moral and exemplary damages, and the attorney’s
fees as well.
Issue
Whether a breach of contract was committed by CATHAY when it failed to
confirm the booking of petitioner Singson? YES
Whether the carrier was liable not only for actual damages but also for moral
and exemplary damages, and attorney’s fees? YES
Ratio/Legal Basis
On Breach of Contract
The round trip ticket issued by the carrier to the passenger was in itself a
complete written contract by and between the carrier and the passenger. It
had all the elements of a complete written contract, to wit:
(a) the consent of the contracting parties manifested by the fact that the
passenger agreed to be transported by the carrier to and from Los Angeles
via San Francisco and Hong Kong back to the Philippines, and the carrier’s
acceptance to bring him to his destination and then back home;
(b) cause or consideration, which was the fare paid by the passenger as
stated in his ticket; and,
(c) object, which was the transportation of the passenger from the place of
departure to the place of destination and back, which are also stated in his
ticket.
In fact, the contract of carriage in the instant case was already partially
executed as the carrier complied with its obligation to transport the
passenger to his destination, i.e., Los Angeles.
The loss of the coupon was attributable to the negligence of CATHAY’s
agents and was the proximate cause of the non-confirmation of
petitioner's return flight.
It also appears that CATHAY was responsible for the loss of the ticket.
One of two (2) things may be surmised from the circumstances of this case:
first, US Air (CATHAY's agent) had mistakenly detached the San Francisco-
Hongkong flight coupon thinking that it was the San Francisco-Los Angeles
portion; or, second, petitioner's booklet of tickets did not from issuance
include a San Francisco-Hongkong flight coupon.

In either case, the loss of the coupon was attributable to the negligence of
CATHAY's agents and was the proximate cause of the non-confirmation of
petitioner's return flight on 1 July 1988.
Had CATHAY been more diligent, there would be no reason for CATHAY not
to confirm petitioner's booking, as in the case of his cousin, Tiongson who
had no problems
On Damages
Although the rule is that moral damages predicated upon a breach of
contract of carriage may only be recoverable in instances where the mishap
results in the death of a passenger, or where the carrier is guilty of fraud or
bad faith, there are situations where the negligence of the carrier is so gross
and reckless as to virtually amount to bad faith, in which case, the passenger
likewise becomes entitled to recover moral damages.
In this case, the ff. circumstances are attendant:
1. The ticket coupon corresponding to the San Francisco-Hongkong
flight was missing either due to the negligence of CATHAY's agents in
improperly detaching petitioner's flight coupons or failing to issue
the flight coupon for San Francisco-Hongkong in the ticket booklet;
2. SINGSON and his cousin presented their respective ticket booklets
bearing identical itineraries to prove that there had been a mistake in
removing the coupons of petitioner.
3. CATHAYs reservation and ticketing agent was even able to ascertain
from his flight reservations computer that SINGSON indeed had
reservations booked for travel on their return flight.
4. CATHAY endeavored to show that it undertook the verification of the
lost coupon by sending a telex to its Hong Kong office. The SC noted,
however, that CATHAY already had access to all records and facilities
that would enable them to verify in a matter of minutes, yet it still
took CATHAY 24 hrs to verify.
To be stranded for five (5) days in a foreign land because of an air carrier's
negligence is too exasperating an experience for a plane passenger.
SINGSON, for sure, underwent profound distress and anxiety.
These circumstances reflect the carrier’s utter lack of care and sensitivity
to the needs of its passengers, clearly constitutive of gross negligence,
recklessness and wanton disregard of the rights of the latter, acts
evidently indistinguishable or no different from fraud, malice and bad
faith. As the rule now stands, where in breaching the contract of
carriage the defendant airline is shown to have acted fraudulently, with
malice or in bad faith, the award of moral and exemplary damages, in
addition to actual damages, is proper.
However, the P500,000.00 moral damages and P400,000.00 exemplary
damages awarded by the trial court have to be reduced. The well-entrenched
principle is that the grant of moral damages depends upon the discretion of
the court based on the circumstances of each case. This discretion is limited
by the principle that the "amount awarded should not be palpably and
scandalously excessive" as to indicate that it was the result of prejudice or
corruption on the part of the trial court. Damages are not intended to enrich
the complainant at the expense of the defendant. They are awarded only to
alleviate the moral suffering that the injured party had undergone by reason
of the defendant's culpable action. There is no hard-and-fast rule in the
determination of what would be a fair amount of moral damages since each
case must be governed by its own peculiar facts.
In the instant case, the injury suffered by petitioner is not so serious
or extensive as to warrant an award amounting to P900,000.00. The
assessment of P200,000.00 as moral damages and P50,000.00 as exemplary
damages in his favor is, in our view, reasonable and realistic.
On the issue of actual damages, we agree with the Court of Appeals that
the amount of P20,000.00 granted by the trial court to petitioner should not
be disturbed. 
With regard to attorney's fees, they may be awarded when the
defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest. It was therefore
erroneous for the Court of Appeals to delete the award made by the trial
court; consequently, petitioner should be awarded attorney's fees and the
amount of P25,000.00, instead of P100,000.00 earlier awarded, may be
considered rational, fair and reasonable.
Disposition
WHEREFORE, the petition is GRANTED and the 14 July 1994 Decision of the
Court of Appeals is REVERSED. Private respondent is ordered to pay
petitioner P20,000.00 for actual damages as fixed by the trial court, plus
P200,000.00 for moral damages, P50,000.00 for exemplary damages and
P25,000.00 for attorney's fees. No costs.
Bachelor Express Inc v CA
Recit-ready summary
However, in order that a common carrier may be absolved from liability
in case of force majeure, it is not enough that the accident was caused
by force majeure. The common carrier must still prove that it was not
negligent in causing the injuries resulting from such accident.
Considering the factual findings of the Court of Appeals, the bus driver did
not immediately stop the bus at the height of the commotion; the bus was
speeding from a full stop; the victims fell from the bus door when it was
opened or gave way while the bus was still running; the conductor panicked
and blew his whistle after people had already fallen off the bus; and the bus
was not properly equipped with doors in accordance with law. It is clear that
the petitioners have failed to overcome the presumption of fault and
negligence found in the law governing common carriers.

Facts of the case

A passenger on a Bachelor Express, Inc. bus stabbed another passenger,
Bachelor Express, Inc.’s Bus No. 800, which was being driven at the time by
causing commotion and panic as the passengers pushed and shoved each
Cresencio Rivera, was en route from Davao City and passing through Butuan
other in a rush to get off the vehicle. After the commotion, passengers
City to get to Cagayan de Oro. While at Tabon-Tabon, Butuan City, the bus
Ornominio Beter and Narcisa Rautraut were discovered on the road,
picked up a passenger. Fifteen minutes later, a passenger at the rear
presumably having died after falling off the vehicle.
suddenly stabbed a Philippine Constabulary soldier, causing a commotion
and panic among the other passengers.
Is Bachelor Express liable? Yes.

A stampede ensued, and when the bus stopped, two passengers – Ornominio
The liability, if any, of Bachelor Express is anchored on culpa contractual
Beter and Narcisa Rautraut – were found lying on the road. Beter was already
or breach of contract of carriage. There is no question that Bachelor Express,
dead as a result of head injuries, while Rautraut was suffering from severe
Inc. is a common carrier. Hence, from the nature of its business and for
injuries that eventually resulted in her death. The assailant alighted from the
reasons of public policy, Bachelor Express, Inc. is bound to carry its
bus and ran towards the bushes but was later killed by the police.
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 heirs of the deceased filed a complaint for a sum of money against
the circumstances. The running amuck of the passenger was the proximate
Bachelor Express, its owner Samson Yasay, and the driver Rivera. Bachelor
cause of the incident as it triggered commotion and panic among the
Express denied liability for the deaths of the two passengers. They alleged
passengers who started running to the sole exit. The passengers shoving
that the driver was able to transport his passengers safely to their places of
each other in a rush to get off the bus resulted in Beter and Rautraut falling
destination, except for Beter and Rautraut, who jumped off the bus without
off the bus, causing them fatal injuries. The sudden act of the passenger
the knowledge, consent, and (much less) the fault of the driver and
who stabbed another passenger in the bus is within the context of force
conductor.
majeure.
Bachelor Express argued that it was necessary first to answer several reasons of public policy, Bachelor Express, Inc. is bound to carry its
questions to arrive at a fair, just, and equitable judgment – 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
1) What was the proximate cause of the whole incident? circumstances.
2) Why did the passengers on board the bus panic and why were they
shoving each other? In the case at bar, Ornominio Beter and Narcisa Rautraut were
3) Why did Narcisa Rautraut and Ornominio Beter jump off the running passengers of a bus belonging to petitioner Bachelor Express, Inc. and, while
bus? passengers of the bus, suffered injuries which caused their death.
Consequently, pursuant to Article 1756 of the Civil Code, petitioner Bachelor
With respect to proximate cause, Bachelor Express argued that it was the act
Express, Inc. is presumed to have acted negligently unless it can prove that it
of the passenger who ran amuck and stabbed another passenger. Bachelor
had observed extraordinary diligence in accordance with Articles 1733 and
Express maintained that they should not be made liable for damages arising
1755 of the New Civil Code.
from acts of a third person over whom they had no control or supervision.
They contended that the stabbing incident triggered the commotion and
Bachelor Express, denies liability on the ground that the deaths of the
panic, leading the passengers to push each other. Beter and Rautraut jumped
passengers were caused by a third person who was beyond its control and
off the bus while it was still moving presumably out of fear and moved by the
supervision. In effect, the company, in order to overcome the
human instinct of self-preservation, which led to their untimely death.
presumption of fault or negligence under the law, states that the
vehicular incident resulting in the death of the passengers was caused
Considering the circumstances, Bachelor Express asseverate that they were
by force majeure or caso fortuito over which the common carrier did not
not negligent in the performance of their duties and that the incident was
have any control.
completely and absolutely attributable to a third person – the passenger who
ran amuck – for without his criminal act, the two victims would not have been
The running amuck of the passenger was the proximate cause of the
subjected to fear and shock that eventually compelled them to jump off the
incident as it triggered commotion and panic among the passengers who
moving bus.
started running to the sole exit. The passengers shoving each other in a rush
to get off the bus resulted in Beter and Rautraut falling off the bus, causing
Further, Bachelor Express argued that the driver of the bus was driving
them fatal injuries. The sudden act of the passenger who stabbed another
cautiously before, during, and after the incident, cautiously giving due regard
passenger in the bus is within the context of force majeure.
to traffic rules, laws, and regulations. Moreover, they were not insurers of
their passengers.
However, in order that a common carrier may be absolved from
liability in case of force majeure, it is not enough that the accident was
Issue/s
caused by force majeure. The common carrier must still prove that it was
Is Bachelor Express liable? Yes.
not negligent in causing the injuries resulting from such accident.

Ratio/Legal Basis
Therefore, the next question to be determined is whether or not the
Bachelor Express observed extraordinary diligence to safeguard the lives of
The liability, if any, of Bachelor Express is anchored on culpa contractual
its passengers. The trial court and the appellate court, however, arrived at
or breach of contract of carriage. There is no question that Bachelor Express,
conflicting factual findings.
Inc. is a common carrier. Hence, from the nature of its business and for

The trial court held that the two deceased could have fallen off the
bus when their own witnesses testified that when the commotion
ensued inside the bus, the passengers pushed and shoved each
other towards the door apparently in order to get off from the bus
through the door. But the passengers also could not pass through
the door because according to the evidence the door was locked.
The trial court also gave credence to the evidence adduced by
Bachelor Express showing that when the commotion ensued inside
the bus, the two deceased panicked and, in state of shock and fear,
they jumped off from the bus by passing through the window.
It is the prevailing rule and settled jurisprudence that transportation
companies are not insurers of their passengers. The evidence on
record does not show that defendants' personnel were negligent in
their duties. The defendants' personnel have every right to accept
passengers absent any manifestation of violence or drunkenness. If
and when such passengers harm other passengers without the
knowledge of the transportation company's personnel, the latter
should not be faulted.
The appellate court, however, held that there were material facts ignored
by the trial court showing that the petitioner common carrier was negligent
in the provision of safety precautions so that its passengers may be
transported safely to their destinations. The appellate court states:
The lower court concluded that the door of the bus was closed;
secondly, the passengers, specifically the two deceased, jumped out
of the window. The lower court therefore concluded that the
defendant common carrier is not liable for the death of the said
passengers which it implicitly attributed to the unforeseen acts of
the unidentified passenger who went amuck.
There is nothing in the record to support the conclusion that the
solitary door of the bus was locked as to prevent the passengers
from passing through. Leonila Cullano, testifying for the defense,
clearly stated that the conductor opened the door when the
passengers were shouting that the bus stop while they were in a
state of panic. Sergia Beter categorically stated that she actually
saw her son fall from the bus as the door was forced open by the
force of the onrushing passengers.
Pedro Collango, on the other hand, testified that he shut the
door after the last passenger had boarded the bus. But he had
quite conveniently neglected to say that when the passengers
had panicked, he himself panicked and had gone to open the
door.
Considering the factual findings of the Court of Appeals, the bus driver
did not immediately stop the bus at the height of the commotion; the
bus was speeding from a full stop; the victims fell from the bus door when it
was opened or gave way while the bus was still running; the conductor
panicked and blew his whistle after people had already fallen off the
bus; and the bus was not properly equipped with doors in accordance
with law. It is clear that the petitioners have failed to overcome the
presumption of fault and negligence found in the law governing common
carriers.
Bachelor Express’ argument that the petitioners "are not insurers of their
passengers" deserves no merit in view of the failure of the petitioners to
prove that the deaths of the two passengers were exclusively due to force
majeure and not to the failure of the petitioners to observe extraordinary
diligence in transporting safely the passengers to their destinations as
warranted by law.
Disposition
WHEREFORE, lower court’s orders are reversed.
Nocum v BLTB
Recit-ready summary
Nocum was a passenger in LTBC’s Bus No. 120 then making a trip within the
barrio of Dita, Municipality of Bay, Laguna, was injured as a consequence of
the explosion of firecrackers, contained in a box, loaded in said bus and
declared to its conductor as containing clothes and miscellaneous items by a
co-passenger. Nocum sued Laguna Tayabas for breach of contract of
carriage.
The lower court ruled that Laguna Tayabas was liable since it did not observe
the extraordinary or utmost diligence of a very cautious person required by
the Civil Code.
The issue before the Court is whether or not LTBC failed to exercise
extraordinary diligence, thereby making it liable for damages? The
Court ruled in the negative.
Fairness demands that in measuring a common carrier's duty towards its
passengers, allowance must be given to the reliance that should be
reposed on the sense of responsibility of all the passengers in regard to
their common safety. It is to be presumed that a passenger will not take
with him anything dangerous to the lives and limbs of his co-
passengers, not to speak of his own. Not to be lightly considered must
be the right to privacy to which each passenger is entitled, he cannot be
subjected to any unusual search, when he protests the innocuousness of
his baggage and nothing appears to indicate the contrary, as in the case
at bar.
In other words, inquiry may be verbally made as to the nature of a
passenger's baggage when such is not outwardly perceptible, but
beyond this, constitutional boundaries are already in danger of being
transgressed. Calling a policeman to his aid, as suggested by the service
manual invoked by the trial judge, in compelling the passenger to submit to
more rigid inspection, after the passenger had already declared that the box
contained mere clothes and other miscellaneous, could not have justified
invasion of a constitutionally protected domain.
There is need for evidence of circumstances indicating cause or causes for
apprehension that the passenger's baggage is dangerous and that it is failure
of the common carrier's employee to act in the face of such evidence that
constitutes the cornerstone of the common carrier's liability.
Facts of the case
Nocum, who was a passenger in Laguna Tayabas Bus Company (LTBC)’s Bus
No. 120 then making a trip within the barrio of Dita, Municipality of Bay,
Laguna, was injured as a consequence of the explosion of firecrackers,
contained in a box, loaded in said bus. A total of 37 passengers were injured.
The bus conductor testified that the box belonged to a passenger whose
name he does not know and who told him that it contained
miscellaneous items and clothes. He also said that from its appearance
there was no indication at all that the contents were explosives or
firecrackers. Neither did he open the box because he just relied on the
word of the owner.
Dispatcher Nicolas Cornista added that they were not authorized to open the
baggages of passengers because instruction from the management was to
call the police if there were packages containing articles which were against
regulations.
The trial court ruled in favor of Nocum, making LTBC liable for damages. It
declared that LTBC did not observe the extraordinary or utmost diligence of a
very cautious person as required by the articles 1733, 1755, & 1756 of the
Civil Code. Hence, this case before the Supreme Court.
Issue
Whether or not Laguna Tayabas Bus Company is liable for damages for
failing to exercise extraordinary diligence? No.
Ratio/Legal Basis
We are not convinced that the exacting criterion of said provisions has not
been met by appellant in the circumstances of this particular case.
Article 1755 provides: "A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the
circumstances."
In this particular case before Us, it must be considered that while it is true the
passengers of appellant's bus should not be made to suffer for something
over which they had no control, as enunciated in the decision of this Court
cited by His Honor, fairness demands that in measuring a common
carrier's duty towards its passengers, allowance must be given to the
reliance that should be reposed on the sense of responsibility of all the
passengers in regard to their common safety. It is to be presumed that a
passenger will not take with him anything dangerous to the lives and
limbs of his co-passengers, not to speak of his own . Not to be lightly
considered must be the right to privacy to which each passenger is entitled.
He cannot be subjected to any unusual search, when he protests the
innocuousness of his baggage and nothing appears to indicate the contrary,
as in the case at bar. In other words, inquiry may be verbally made as to
the nature of a passenger's baggage when such is not outwardly
perceptible, but beyond this, constitutional boundaries are already in
danger of being transgressed.
Decisions in other jurisdictions cited by appellant in its brief, evidently
because of the paucity of local precedents squarely in point, emphasize that
there is need, as We hold here, for evidence of circumstances indicating
cause or causes for apprehension that the passenger's baggage is dangerous
and that it is failure of the common carrier's employee to act in the face of
such evidence that constitutes the cornerstone of the common carrier's
liability in cases similar to the present one.
Explosive or Dangerous Contents. — A carrier is ordinarily not liable for
injuries to passengers from fires or explosions caused by articles brought into
its conveyances by other passengers, in the absence of any evidence that the
carrier, through its employees, was aware of the nature of the article or had
any reason to anticipate danger therefrom.
Since We hold that appellant has succeeded in rebutting the
presumption of negligence by showing that it has exercised
extraordinary diligence for the safety of its passengers, "according to the
circumstances of the (each) case," We deem it unnecessary to rule whether or
not there was any fortuitous event in this case.
Disposition
ACCORDINGLY, the appealed judgment of the trial court is reversed and the
case is dismissed, without costs.
SO ORDERED.
Notes
ART. 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. Such extraordinary
diligence in the vigilance over the goods is further expressed in articles 1734,
1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the
safety of the passengers is further set forth in articles 1755 and 1756.
ART. 1755. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.
ART 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as prescribed in articles
1733 and 1755.
Smith Bell v Borja
Recit-ready summary
Smith Bell filed a written request with the Bureau of Customs for the
attendance of the latter's inspection team on vessel M/T King Family
which was due to arrive at the port of Manila containing 750 metric tons of
alkyl benzene and methyl methacrylate monomer. Catalino Borja, the
customs inspector of the Bureau of Customs boarded said vessel to perform
his duties as inspector upon the vessel's arrival until its departure. At about
11 o'clock in the morning on September 24, 1987, while M/T King Family
was unloading chemicals unto two (2) barges owned by [Respondent]
ITTC, a sudden explosion occurred setting the vessel afire. Upon hearing
the explosion, Borja who was inside the cabin preparing reports, ran
outside to check what happened. Borja jumped overboard and swam for
one hour until he was rescued by the people living in the squatters area and
sent to San Juan De Dios Hospital. As a result of the fire and the explosion
during the unloading of the chemicals from petitioner's vessel,
Respondent Borja suffered the following damage and injuries such as
chemical burns of the face and arms and inhalation of fumes from
burning chemicals.
WON Smith Bell is liable for Borja’s injuries.
Negligence is conduct that creates undue risk of harm to another. It is
the failure to observe that degree of care, precaution and vigilance that
the circumstances justly demand, whereby that other person suffers
injury. Petitioners vessel was carrying chemical cargo (alkyl benzene and
methyl methacrylate monomer), its officers and crew failed to take all the
necessary precautions to prevent an accident. Petitioner was, therefore,
negligent.
Elements of QD:
(1) damages suffered by the plaintiff,
(2) fault or negligence of the defendant, and
(3) the connection of cause and effect between the fault or
negligence of the defendant and the damages inflicted on
the plaintiff.
All these elements were established in this case. Knowing fully well that it was
carrying dangerous chemicals, petitioner was negligent in not taking all the
necessary precautions in transporting the cargo.
As a result of the fire and the explosion during the unloading of
the chemicals from petitioners vessel, Borja suffered the following
damage: and injuries: (1) chemical burns of the face and arms; (2) inhalation
of fumes from burning chemicals; (3) exposure to the elements [while]
floating in sea water for about three (3) hours; (4) homonymous hemianopsia
or blurring of the right eye which was of possible toxic origin; and (5) cerebral
infract with neo-vascularization, left occipital region with right sided
headache and the blurring of vision of right eye.
Hence, the owner or the person in possession and control of a vessel
and the vessel are liable for all natural and proximate damage caused to
persons and property by reason of negligent management or navigation.
Facts of the case
Smith Bell filed a request with the. Bureau of Customs for the inspection
on vessel M/T King Family due to arrive at the port of Manila on September
24, 1987, containing 750 metric tons of alkyl benzene and methyl
methacrylate monomer.
On the same day, Supervising Customs Inspector Manuel Ma. D. Nalgan
instructed Catalino Borja to board said vessel and perform his duties as
inspector upon the vessels arrival until its departure.
At about 11 oclock in the morning on September 24, 1987, while M/T
King Family was unloading chemicals unto two (2) barges ITTC 101 and CLC-
1002 owned by ITTC, a sudden explosion occurred setting the vessels afire.
Borja, who was at that time inside the cabin preparing reports, ran outside to
check what happened. Again, another explosion was heard. Borja jumped
over board to save himself. However, the water was likewise on fire due
mainly to the spilled chemicals. Borja swam his way for one (1) hour until he
was rescued by the people living in the squatters area and sent to San Juan
De Dios Hospital.
Borja was diagnosed to be permanently disabled due to the incident. He
made demands against Smith Bell and ITTC for the damages caused by the
explosion. However, both denied liabilities and attributed to each other
negligence.
RTC ruled in favor of Borja and held Smith Bell liable for damages and
loss of income.
CA affirmed. Contrary to the claim of petitioner that no physical
evidence was shown to prove that the explosion had originated from its
vessel, the CA held that the fire had originated from M/T King Family. This
conclusion was amply supported by the testimonies of Borja and Eulogio
Laurente (the eyewitness of International Towage and Transport Corporation
or ITTC) as well as by the investigation conducted by the Special Board of
Marine Inquiry and affirmed by the secretary of the Department of National
Defense.
Issue/s
WoN Smith Bell is liable for Borja’s injuries?
Ratio/Legal Basis
Smith Bell claims that the documents adduced in the RTC conclusively
revealed that the explosion that caused the fire on M/T King Family had
originated from the barge ITTC-101.
The attempts of Smith Bell to shift the blame on ITTC were all for
naught.
1. testimony of its alleged eyewitness was stricken off the record
for his failure to appear for cross-examination
2. the documents offered to prove that the fire originated from
barge ITTC-101 were all denied admission by the court for being
hearsay
There is nothing in the record to support the contention that the fire and
explosion originated from barge ITTC-101.
Negligence is conduct that creates undue risk of harm to another. It
is the failure to observe that degree of care, precaution and vigilance that the
circumstances justly demand, whereby that other person suffers injury.
Petitioners vessel was carrying chemical cargo (alkyl benzene and methyl
methacrylate monomer), its officers and crew failed to take all the necessary
precautions to prevent an accident. Petitioner was, therefore, negligent.
Elements of QD:
(4) damages suffered by the plaintiff,
(5) fault or negligence of the defendant, and
(6) the connection of cause and effect between the fault or
negligence of the defendant and the damages inflicted on the
plaintiff.
All these elements were established in this case. Knowing fully well that it was
carrying dangerous chemicals, petitioner was negligent in not taking all the
necessary precautions in transporting the cargo.
As a result of the fire and the explosion during the unloading of the
chemicals from petitioners vessel, Borja suffered the following damage: and
injuries: (1) chemical burns of the face and arms; (2) inhalation of fumes from
burning chemicals; (3) exposure to the elements [while] floating in sea water
for about three (3) hours; (4) homonymous hemianopsia or blurring of the
right eye which was of possible toxic origin; and (5) cerebral infract with neo-
vascularization, left occipital region with right sided headache and the
blurring of vision of right eye.
Hence, the owner or the person in possession and control of a vessel
and the vessel are liable for all natural and proximate damage caused to
persons and property by reason of negligent management or navigation.
Disposition
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision is
AFFIRMED with the following MODIFICATIONS: petitioner is ordered to pay
the heirs of the victim damages in the amount of P320,240 as loss of earning
capacity, moral damages in the amount of P100,000, plus another P50,000 as
attorneys fees. Costs against petitioner.
SO ORDERED.
Philippine First Insurance v Wallem Philippine
Shipping
Recit-ready summary
Anhui Chemicals Import & Export Corporation loaded on board M/S Offshore
Master a shipment consisting of 10,000 bags of sodium sulphate
anhydrous 99 PCT Min., complete and in good order for transportation to
and delivery at the port of Manila for consignee, L.G. Atkimson Import-
Export, Inc., covered by a Clean Bill of Lading. 2,426 poly bags were in bad
order and condition, having sustained various degrees of spillages and
losses. This is evidenced by the Turn Over Survey of Bad Order Cargoes of
the arrastre operator, Asian Terminals, Inc. Asia Star Freight Services, Inc.
undertook the delivery of the subject shipment from the pier to L.G.
Atkimson’s warehouse in Quezon City. During the unloading, it was found
and noted that the bags had been discharged in damaged and bad order
condition L. G. Atkimson filed a formal claim with Wallem for the value of the
damaged shipment, to no avail. Since the shipment was insured with
petitioner Philippines First Insurance Co., Inc. against all risks . G. Atkimson
filed a formal claim with Phil First Insurance for the damage and losses
sustained by the shipment. Phil First Insurance, in the exercise of its right of
subrogation, sent a demand letter to Wallem for the recovery of the amount
paid to no avail. Phil First Insurance instituted an action before the RTC for
damages against Wallem for its recovery.
Issue is WoN Wallem Shipping’s vessel as a common carrier should be
held liable for the cost of the damaged shipment?
SC held that it is because the duty of care of the cargo is non-delegable,
and the carrier is accordingly responsible for the acts of the master, the
crew, the stevedore, and his other agents. The records are replete with
evidence which show that the damage to the bags happened before and
after their discharge and it was caused by the stevedores of the arrastre
operator who were then under the supervision of Wallem. It is settled in
maritime law jurisprudence that cargoes while being unloaded generally
remain under the custody of the carrier. In the instant case, the damage
or losses were incurred during the discharge of the shipment while
under the supervision of the carrier. Consequently, the carrier is liable
for the damage or losses caused to the shipment.
Doctrine: It is settled in maritime law jurisprudence that cargoes while
being unloaded generally remain under the custody of the carrier. In the
instant case, the damage or losses were incurred during the discharge of the
shipment while under the supervision of the carrier. Consequently, the carrier
is liable for the damage or losses caused to the shipment.
Facts of the case
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation
loaded on board M/S Offshore Master a shipment consisting of 10,000 bags
of sodium sulphate anhydrous 99 PCT Min. (shipment), complete and in good
order for transportation to and delivery at the port of Manila for consignee,
L.G. Atkimson Import-Export, Inc. (consignee), covered by a Clean Bill of
Lading.
The Owner and/or Charterer of M/V Offshore Master is unknown while the
shipper of the shipment is Shanghai Fareast Ship Business Company. Both
foreign firms are doing business in the Philippines, thru its local ship agent,
respondent Wallem Philippines Shipping, Inc. (Wallem).
On October 16, the shipment arrived at the port of Manila on board the
vessel M/S Offshore Master from which it was subsequently discharged.
It was disclosed during the discharge of the shipment from the carrier that
2,426 poly bags (bags) were in bad order and condition, having sustained
various degrees of spillages and losses.
Asia Star Freight Services, Inc. undertook the delivery of the subject shipment
from the pier to the consignee's warehouse in Quezon City, while the final
inspection was conducted jointly by the consignee's representative and the
cargo surveyor.
During the unloading, it was found and noted that the bags had been
discharged in damaged and bad order condition.
The consignee filed a formal claim with Wallem for the value of the damaged
shipment, to no avail. Since the shipment was insured with Philippines First
Insurance Co., Inc. against all risks in the amount of P2,470,213.50, 12 the
consignee filed a formal claim with Phil First for the damage and losses
sustained by the shipment.
Phil First, in the exercise of its right of subrogation, sent a demand letter to
Wallem for the recovery of the amount paid by petitioner to the consignee.
However, despite receipt of the letter, Wallem did not settle nor even send a
response to Phil First's claim.
RTC ruled in favor of Phil. First stating. CA set aside and reversed the RTC
decision.
Issue
Whether or not the Court of Appeals erred in not holding that as a common
carrier, the carrier's duties extend to the obligation to safely discharge the
cargo from the vessel?
Whether or not the carrier should be held liable for the cost of the damaged
shipment;
Ratio/Legal Basis

It is beyond question that Wallem's vessel is a common carrier. Thus, the
standards for determining the existence or absence of the Wallem’s liability
will be gauged on the degree of diligence required of a common carrier.
Moreover, as the shipment was an exercise of international trade, the
provisions of the Carriage of Goods by Sea Act 21 (COGSA), together with the
Civil Code and the Code of Commerce, shall apply
It is undisputed that the shipment was damaged prior to its receipt by the
insured consignee. The damage to the shipment was documented by the
turn-over survey and Request for Bad Order Survey.
The turn-over survey, in particular, expressly stipulates that 2,426 bags of the
shipment were received by the arrastre operator in damaged condition. While
it is established that damage or losses were incurred by the shipment during
the unloading, it is disputed who should be liable for the damage incurred at
that point of transport.
Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the
goods transported by them. Subject to certain exceptions enumerated under
Article 1734 of the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods.
The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of and received by the
carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a
right to receive them.
For marine vessels, Article 619 of the Code of Commerce provides that the
ship captain is liable for the cargo from the time it is turned over to him at
the dock or afloat alongside the vessel at the port of loading, until he delivers
it on the shore or on the discharging wharf at the port of unloading, unless
agreed otherwise.
Lastly, Section 2 of the COGSA provides that under every contract of carriage
of goods by sea, the carrier in relation to the loading, handling, stowage,
carriage, custody, care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities set
forth in the Act.
Section 3 (2) thereof then states that among the carriers' responsibilities are
to properly and carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.
Lastly, Section 2 of the COGSA provides that under every contract of carriage
of goods by sea, the carrier in relation to the loading, handling, stowage,
carriage, custody, care, and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities set
forth in the Act. 30 Section 3 (2) thereof then states that among the carriers'
responsibilities are to properly and carefully load, handle, stow, carry, keep,
care for, and discharge the goods carried.
The above doctrines are in fact expressly incorporated in the bill of lading
between the shipper Shanghai Fareast Business Co., and the consignee.
On the other hand, the functions of an arrastre operator involve the handling
of cargo deposited on the wharf or between the establishment of the
consignee or shipper and the ship's tackle.
Being the custodian of the goods discharged from a vessel, an arrastre
operator's duty is to take good care of the goods and to turn them over to
the party entitled to their possession. Handling cargo is mainly the arrastre
operator's principal work so its drivers/operators or employees should
observe the standards and measures necessary to prevent losses and damage
to shipments under its custody.
The liability of the arrastre operator was reiterated in Eastern Shipping Lines,
Inc. v. Court of Appeals with the clarification that the arrastre operator and
the carrier are not always and necessarily solidarily liable as the facts of
a case may vary the rule.
Thus, in this case the appellate court is correct insofar as it ruled that an
arrastre operator and a carrier may not be held solidarily liable at all
times.
In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,
it was ruled that like the duty of seaworthiness, the duty of care of the
cargo is nondelegable, and the carrier is accordingly responsible for the
acts of the master, the crew, the stevedore, and his other agents.
It has also been held that it is ordinarily the duty of the master of a vessel to
unload the cargo and place it in readiness for delivery to the consignee, and
there is an implied obligation that this shall be accomplished with sound
machinery, competent hands, and in such manner that no unnecessary injury
shall be done thereto. And the fact that a consignee is required to furnish
persons to assist in unloading a shipment may not relieve the carrier of its
duty as to such unloading. The exercise of the carrier's custody and
responsibility over the subject shipment during the unloading actually
transpired in the instant case during the unloading of the shipment.
The records are replete with evidence which show that the damage to the
bags happened before and after their discharge and it was caused by the
stevedores of the arrastre operator who were then under the supervision of
Wallem. It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier.
In the instant case, the damage or losses were incurred during the discharge
of the shipment while under the supervision of the carrier. Consequently, the
carrier is liable for the damage or losses caused to the shipment. As the cost
of the actual damage to the subject shipment has long been settled, the trial
court's finding of actual damages in the amount of P397,879.69 has to be
sustained.
Disposition
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
dated 22 June 2004 and its Resolution dated 11 October 2004 are REVERSED
and SET ASIDE. Wallem is ordered to pay petitioner the sum of P397,879.69,
with interest thereon at 6% per annum from the filing of the complaint on 7
October 1996 until the judgment becomes final and executory. Thereafter, an
interest rate of 12% per annum shall be imposed. Respondents are also
ordered to pay petitioner the amount of P20,000.00 for and as attorney's
fees, together with the costs of the suit.
SO ORDERED.
Regional Container Lines v Netherlands Insurance
Recit-ready summary
Petitioner RCL had a charter agreement with Pacific Eagle Lines PTE. Ltd.
(Pacific Eagle who, in turn, was was contracted by U-Freight Singapore PTE
Ltd. (U-Freight Singapore), a forwarding agent based in Singapore, to
transport 405 cartons of Epoxy Molding Compound for Temic Telefuncken
Microelectronics Philippines (Temic), to be shipped from Singapore to
Manila. The cargo had to be kept at a temperature of 0 degrees Celsius.
This was insured by Netherlands Insurance. When it arrived in Manila, it was
plugged in the power terminal of the pier. The surveyors found that the
temperature was constant on a certain date but when the cargo was
unloaded from the ship, the temperature fluctuated. It was believed that
the cause was the burnt condenser fan of the refrigerated container. Due
to this, when Temic received the cargo, it was damaged. Netherlands
Insurance paid for it was subrogated to the rights of Temic. When it was
demanding for payment, it was refused. So, they filed a complaint against
EDSA Shipping RCL, Eagle Liner Shipping Agencies, U-Freight Signapore, and
U-Ocean Phils, Inc. (U-Ocean) and Pacific Eagle in substitution of Eagle Liner
Shipping Agencies.
WON CA correctly held that RCL and EDSA Shipping liable as common carriers
under the theory of presumption of negligence – YES
RCL and EDSA Shipping failed to prove that they did exercise that
degree of diligence required by law over the goods they transported.
There is sufficient evidence showing that the fluctuation of the
temperature in the refrigerated container van, as recorded in the
temperature chart, occurred after the cargo had been discharged from
the vessel and was already under the custody of the arrastre operator,
ICTSI. This evidence, however, does not disprove that the condenser fan
— which caused the fluctuation of the temperature in the refrigerated
container — was not damaged while the cargo was being unloaded from
the ship. It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier; RCL and EDSA
Shipping failed to dispute this.
Facts of the case
Parties: RCL is a foreign corporation based in Singapore. It does business in
the Philippines through its agent, EDSA Shipping, a domestic corporation
organized and existing under Philippine laws. Respondent Netherlands
Insurance Company (Philippines), Inc. (Netherlands Insurance) is likewise a
domestic corporation engaged in the marine underwriting business.
Petitioner RCL had a charter agreement with Pacific Eagle Lines PTE. Ltd.
(Pacific Eagle who, in turn, was was contracted by U-Freight Singapore PTE
Ltd. (U-Freight Singapore), a forwarding agent based in Singapore, to
transport 405 cartons of Epoxy Molding Compound for Temic Telefuncken
Microelectronics Philippines (Temic), to be shipped from Singapore to Manila.
The cargo was packed, stored, and sealed by Pacific Eagle in their refrigerator,
which had to be kept at a temperature of 0 degree Celsius. Pacfic Eagle then
loaded the refrigerated container on board the M/V Piya Bhum, a vessel
owned by RCL. RCL duly issued its own Bill of Lading in favor of Pacific Eagle.
To insure the cargo against loss and damage, Netherlands Insurance issued a
Marine Open Policy in favor of Temic and Marine Risk Note MRN-21 14022,
to cover all losses/damages to the shipment.
On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading
the refrigerated container, it was plugged to the power terminal of the pier to
keep its temperature constant. Fidel Rocha (Rocha), Vice-President for
Operations of Marines Adjustment Corporation, accompanied by two
surveyors, conducted a protective survey of the cargo. They found that based
on the temperature chart, the temperature reading was constant from
October 18, 1995 to October 25, 1995 at 0 degrees Celsius. However, at
midnight of October 25, 1995 — when the cargo had already been unloaded
from the ship — the temperature fluctuated with a reading of 33 degrees
Celsius. Rocha believed the fluctuation was caused by the burnt condenser
fan motor of the refrigerated container.
When Temic received it, they found that it was completely damaged.
Netherlands Insurance paid Temic the sum of P1,036,497.00 under the terms
of the Marine Open Policy. Temic then executed a loss and subrogation
receipt in favor of Netherlands Insurance. 7 months from the delivery of the
cargo, Netherlands filed a complaint for subrogation of insrance settlement
with the RTC of Manila, against "the unknown owner of M/V Piya Bhum" and
TMS Ship Agencies (TMS), the latter thought to be the local agent of M/V
Piya Bhum's unknown owner.
Netherlands filed an amended complaint to implead EDSA Shipping RCL,
Eagle Liner Shipping Agencies, U-Freight Signapore, and U-Ocean Phils, Inc.
(U-Ocean) as additional defendants. A 3rd Amended Complaint was filed
impleading Pacific Eagle in substitution of Eagle Liner Shipping Agencies.
The defendants all disclaimed liability for the damage caused to the cargo.
RCL and EDSA Shipping denied negligence in the transport and imputed any
negligence to their co-defendnats. They also asserted that no valid
subrogation exists since the payment made by Netherlands to the consignee
was invalid. RCL and EDSA also averred that Netherlands has no cause of
action and is not the real party-in-interest and that the claim was already
barred by laches/prescription.
Trial court held that while there was a valid subrogation, the defendants can’t
be held liable for the loss or damage since their respective liabilities ended at
the time of the discharge of the cargo from the ship at the Port of Manila. CA
reversed the findings of the RTC and ordered RCL and EDSA Shipping Agency
to reimburse the plaintiff the sum of the insurance with interest. CA
dismissed Netherland Insurance's complaint against the other defendants
after finding that the claim had already been barred by prescription.
Issue/s
WON CA correctly held that RCL and EDSA Shipping liable as common
carriers under the theory of presumption of negligence – YES
Ratio/Legal Basis
SC doesn’t find the arguments of RCL and EDSA Shipping meritorious.
RCL and EDSA Shipping contend that the cause of the damage to the cargo
was the "fluctuation of the temperature in the reefer van", which fluctuation
occurred after the cargo had already been discharged from the vessel. They
hold that no fluctuation arose when the cargo was still on board M/V Piya
Bhum. As the cause of the damage to the cargo occurred after the same was
already discharged from the vessel and was under the custody of the arrastre
operator (International Container Terminal Services, Inc. or ICTSI), RCL and
EDSA Shipping argue that the presumption of negligence provided in Article
1735 of the Civil Code should not apply.
They hold that what applies in this case is Article 1734, particularly
paragraphs 3 and 4 thereof, which exempts the carrier from liability for loss
or damage to the cargo when it is caused either by an act or omission of the
shipper or by the character of the goods or defects in the packing or in the
containers. Thus, RCL and EDSA Shipping seek to lay the blame at the feet of
other parties.
A common carrier is presumed to have been negligent if it fails to prove that
it exercised extraordinary vigilance over the goods it transported. When the
goods shipped are either lost or arrived in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence,
and there need not be an express finding of negligence to hold it liable
To overcome such presumption, the common carrier must establish
adequate proof that it exercised extraordinary diligence over the goods.
It must do more than merely show that some other party could be
responsible for the damage.
In the present case, RCL and EDSA Shipping failed to prove that they did
exercise that degree of diligence required by law over the goods they
transported. There is sufficient evidence showing that the fluctuation of the
temperature in the refrigerated container van, as recorded in the temperature
chart, occurred after the cargo had been discharged from the vessel and was
already under the custody of the arrastre operator, ICTSI. This evidence,
however, does not disprove that the condenser fan — which caused the
fluctuation of the temperature in the refrigerated container — was not
damaged while the cargo was being unloaded from the ship. It is settled in
maritime law jurisprudence that cargoes while being unloaded generally
remain under the custody of the carrier; RCL and EDSA Shipping failed to
dispute this.
RCL and EDSA Shipping could have offered evidence before the trial
court to show that the damage to the condenser fan did not occur: (1)
while the cargo was in transit; (2) while they were in the act of
discharging it from the vessel; or (3) while they were delivering it
actually or constructively to the consignee. They could have presented
proof to show that they exercised extraordinary care and diligence in
the handling of the goods, but they opted to file a demurrer to
evidence. As the order granting their demurrer was reversed on appeal, the
CA correctly ruled that they are deemed to have waived their right to present
evidence, and the presumption of negligence must stand.
To exculpate itself from liability for the loss/damage to the cargo under
any of the causes, the common carrier is burdened to prove any of the
causes in Article 1734 claimed by it by a preponderance of evidence. If
the carrier succeeds, the burden of evidence is shifted to the shipper to
prove that the carrier is negligent.
RCL and EDSA Shipping, however, failed to satisfy this standard of evidence
and in fact offered no evidence at all on this point; a reversal of a dismissal
based on a demurrer to evidence bars the defendant from presenting
evidence supporting its allegations.
Dispositive Portion
WHEREFORE, we DENY the petition for review on certiorari 􏰙led by the
Regional Container Lines of Singapore and EDSA Shipping Agency. The
decision of the Court of Appeals dated May 26, 2004 in CA-G.R. CV No.
76690 is AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
Sulpicio v Curso
Recit Ready
Dr. Curso went on a voyage on the MV Dona Marilyn (operated by Sulpicio
Lines) from Manila to Tacloban City. Unfortunately, Typhoon Unsang hit them
while on transit and the ship sank. He didn’t survive. Now the brothers and
sisters (since he had no other closer relatives) are asking for moral damages
from Sulpicio Lines (CC). The CC argues that brothers and sisters can’t get
moral damages.

WoN the brothers and sisters can make a claim for moral damages for the
death of the deceased? NO
DOCTRINE: As a general rule, moral damages are not recoverable in actions
for damages predicated on a breach of contract, unless there is fraud or bad
faith. As an exception, moral damages may be awarded in case of breach of
contract of carriage that results in the death of a passenger in accordance
with 1764 and 2206 (3). The persons that may claim moral damages is found
in 2219. Brothers and Sisters are not included in 2219
IN THIS CASE: Brothers and Sisters were claiming even if they were not
persons specified in 2219. They do not have a right based on law to recover
moral damages. Art 1003 is not concerned with the recovery of moral
damages. (Art 1003 talks about entitlement to the estate of the deceased.) CC
wins.
Facts of the case
Dr. Curso boarded at the port of Manila the MV Doña Marilyn, an inter-
island vessel owned and operated by petitioner Sulpicio Lines, Inc., bound for
Tacloban City. Unfortunately, the MV Doña Marilyn sank in the afternoon of
October 24, 1988 while at sea due to the inclement sea and weather
conditions brought about by Typhoon Unsang.
The body of Dr. Curso was not recovered, along with hundreds of other
passengers of the ill-fated vessel. At the time of his death, Dr. Curso was 48
years old, and employed as a resident physician at the Naval District Hospital
in Naval, Biliran. He had a basic monthly salary of P3,940.00, and would have
retired from government service by December 20, 2004 at the age of 65.
The surviving brothers and sisters of Dr. Curso, sued the petitioner in the RTC
in Naval, Biliran to claim damages based on breach of contract of carriage by
sea, averring that the petitioner had acted negligently in transporting Dr.
Curso and the other passengers.
Common carrier argued force majeure (Typhoon) and that the MV Dona
Marylin was sea worthy, cleared by the Cost Guard for voyage. They also
conducted operations for search and rescue, and aid for the victims.
CC also argued that moral damages should not be given to the brothers and
sisters of Dr. Curso, going against Art 1764 and 2206 and the ruling in
Receiver for North Negros Sugar Co., Inc. v. Ybañez , whereby the Supreme
Court disallowed the award of moral damages in favor of the brothers and
sisters of a deceased passenger in an action upon breach of a contract of
carriage.
RTC: In favor of common carrier due to force majeure and acted with
diligence.
CA: In favor of the brothers and sisters (reversed the ruling): CC didn’t
practice the diligence required since:
 The crew didn’t apprise themselves of the incoming storm.
 Ship’s hydraulic system failed and had to be repaired mid
voyage.
Issues
W/N the brothers and sisters of the deceased are entitled to moral damages of
Dr. Curso? NO
Ratio/Legal Basis
DOCTRINE: As a general rule, moral damages are not recoverable in actions
for damages predicated on a breach of contract, unless there is fraud or bad
faith. As an exception, moral damages may be awarded in case of breach of
contract of carriage that results in the death of a passenger in accordance
with 1764 and 2206 (3).
2206 “(3) The spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages for
mental anguish by reason of the death of the deceased.”
The omission from Article 2206 (3) of the brothers and sisters of the
deceased passenger reveals the legislative intent to exclude them from
the recovery of moral damages for mental anguish by reason of the
death of the deceased
Elements of awarding moral damages (Villanueva v. Salvador):
1. there must be an injury, whether physical, mental, or
psychological, clearly substantiated by the claimant;
2. there must be a culpable act or omission factually established;
3. the wrongful act or omission of the defendant must be the
proximate cause of the injury sustained by the claimant; and
4. the award of damages is predicated on any of the cases stated in
Article 2219 of the Civil Code (check notes for 2219)
IN THIS CASE: It was the brothers and sisters making a claim for moral
damages. While the brothers and sisters argue that Art 1003 of the Civil Code
says that they succeded to the entire estate of Dr. Curso in the absence of the
other relatives, the brothers and sisters ARE NOT included among those
entitled to moral damages in Art 2219.
Disposition
WHEREFORE, the petition for review on certiorari is granted, and the award
made to the respondents in the decision dated September 16, 2002 of the
Court of Appeals of moral damages amounting to P100,000.00 is deleted and
set aside.
Notes
Article 2219. Moral damages may be recovered in the following and
analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in article 309;
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34 and
35.
The parents of the female seduced, abducted, raped or abused referred to in
No. 3 of this article, may also recover moral damages.
The spouse, descendants, ascendants and brothers and sisters may bring the
action mentioned in No. 9 of this article, in the order named.
Air France v Gillego
Co, Calvin O.
AIR FRANCE vs. BONIFACIO H. GILLEGO, substituted by his
surviving heirs represented by DOLORES P. GILLEGO
Facts:
Respondent Congressman Gillego was invited to participate as one of the
keynote speakers at the 89th Inter-Parliamentary Conference Symposium on
Parliament Guardian of Human Rights to be held in Budapest, Hungary and
Tokyo, Japan on May 19 to 22, 1993.
On May 16, 1993, respondent left Manila on board petitioner Air France’s
aircraft bound for Paris, France. He arrived in Paris early 5 in the morning
of May 17th. While waiting for his connecting flight to Budapest, respondent
learned that petitioner had another aircraft bound for Budapest with an
earlier departure time than his scheduled flight. He then went to
petitioner’s counter at the airport and made arrangements for the change in
his booking. He was given a corresponding ticket and boarding pass for
and also a new baggage claim stub for his checked-in luggage. However,
upon arriving in Budapest, respondent was unable to locate his luggage at
the claiming section. He sought assistance from petitioner’s counter at the
airport and was advised to just wait for his luggage at his hotel and that
petitioner’s representatives would take charge of delivering the same to him
that same day. But said luggage was never despite follow-up inquiries.
Upon his return to the Philippines, respondent immediately wrote petitioner’s
Station Manager complaining about the lost luggage and the resulting
damages he suffered while in Budapest; that his single luggage contained his
personal effects such as clothes, toiletries, medicines for his hypertension,
and the speeches he had prepared, He was thus left with only his travel
documents, pocket money and the clothes he was wearing. Respondent was
forced to shop for personal items including new clothes and his medicines.
Aside from these unnecessary expenditures of about $1,000, respondent had
to prepare another speech, in which he had difficulty due to lack of data and
information. Petitioner continued to ignore respondent’s repeated follow-
ups regarding his lost luggage.
Respondent filed a complaint for damages against the petitioner alleging
that by reason of its negligence and breach of obligation to transport and
deliver his luggage, respondent suffered inconvenience, serious anxiety,
physical suffering and sleepless nights. Petitioner averred that it has taken all
necessary measures to avoid loss of respondent’s baggage, the contents of
which respondent did not declare, and that it has no intent to cause such
loss, much less knew that such loss could occur. The loss of respondent’s
luggage is due to or occasioned by force majeure or fortuitous event or other
causes beyond the carrier’s control. Diligent, sincere and timely efforts were
exerted by petitioner to locate respondent’s missing luggage and attended
to his problem with utmost courtesy, concern and dispatch. Petitioner further
asserted that it exercised due diligence in the selection and supervision of its
employees and acted in good faith in denying respondent’s demand for
damages. The claims for actual, moral and exemplary damages and attorney’s
fees therefore have no basis in fact and in law, and are, moreover speculative
and unconscionable.
Issue:
Was there legal and factual basis that Air France's actions were attended by
gross negligence, bad faith and willful misconduct and that it acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner to justify
award of moral and exemplary damages?
Ruling:
The petition is partly meritorious. A business intended to serve the travelling
public primarily, a contract of carriage is imbued with public interest. The law
governing common carriers consequently imposes an exacting standard.
Article 1735 of the Civil Code provides that in case of lost or damaged
goods, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed extraordinary
diligence as required by Article 1733. Thus, in an action based on a
breach of contract of carriage, the aggrieved party does not have to
prove that the common carrier was at fault or was negligent. All that he
has to prove is the existence of the contract and the fact of its non-
performance by the carrier.
That respondent’s checked-in luggage was not found upon arrival at his
destination and was not returned to him until about two years later is
not disputed. The action filed by the respondent is founded on such breach
of the contract of carriage with petitioner who offered no satisfactory
explanation for the unreasonable delay in the delivery of respondent’s
baggage. The presumption of negligence was not overcome by the
petitioner and hence its liability for the delay was sufficiently
established. However, upon receipt of the said luggage during the pendency
of the case in the trial court, respondent did not anymore press on his claim
for actual or compensatory damages and neither did he adduce evidence of
the actual amount of loss and damage incurred by such delayed delivery of
his luggage. Consequently, the trial court proceeded to determine only the
propriety of his claim for moral and exemplary damages, and attorney’s fees.
In awarding moral damages for breach of contract of carriage, the
breach must be wanton and deliberately injurious or the one responsible
acted fraudulently or with malice or bad faith. Not every case of mental
anguish, fright or serious anxiety calls for the award of moral damages.
Where in breaching the contract of carriage the airline is not shown to have
acted fraudulently or in bad faith, liability for damages is limited to the
natural and probable consequences of the breach of the obligation which the
parties had foreseen or could have reasonably foreseen. In such a case the
liability does not include moral and exemplary damages.
In repeatedly ignoring respondent’s inquiries, petitioner’s employees
exhibited an indifferent attitude without due regard for the
inconvenience and anxiety he experienced after realizing that his
luggage was missing. Petitioner was thus guilty of bad faith in breaching
its contract of carriage with the respondent, which entitles the latter to the
award of moral damages. However, we agree with petitioner that the sum of
₱1,000,000.00 awarded by the trial court is excessive and not proportionate
to the loss or suffering inflicted on the passenger under the circumstances.
Northwest Airlines v Catapang
Recit-ready summary
Respondent Catapang requested First United Travel, Inc. (FUT) to issue
him a ticket that would allow rebooking or rerouting of flights within the
United States. FUT informed him that Northwest Airlines, Inc. (petitioner)
was willing to accommodate his request provided he would pay an
additional US$50 for every rebooking or rerouting of flight. He agreed.
When Catapang arrived in New York, he called Northwest’s office which
informed him that his ticket was not "rebookable or reroutable". Catapang
proceeded to Northwest’s ticket office where he was treated in a rude
manner by an employee who informed him that his ticket was not
rebookable or reroutable. He filed a complaint for damages. RTC awarded
Catapang damages and CA affirmed.
The issue is whether award for damages is correct? YES, except for filing
fees and attorney’s fees.
Instead of civilly informing respondent that his ticket could not be
rebooked, petitioner's agent in New York exhibited rudeness in the
presence of respondent's brother-in-law and other customers.
Passengers have the right to be treated by a carrier's employees with
kindness, respect, courtesy and due consideration. Any discourteous conduct
on the part of these employees toward a passenger gives the latter an action
for damages against the carrier. The award of moral and exemplary damages
to respondent is thus justified.
Facts of the case
Respondent Delfin Catapang is a lawyer and at the time of the case,
Assistant Vice President and Head of the Special Projects Department,
Corporate Services Division of the United Coconut Planters Bank (UCPB). He
was directed by UCPB to go to Paris for a business trip. He intended to go to
US to visit his siblings after Paris. So, he requested First United Travel, Inc.
(FUT) to issue him a ticket that would allow rebooking or rerouting of flights
within the United States.
FUT informed him, via telephone, that Northwest Airlines, Inc.
(petitioner) was willing to accommodate his request provided he would pay
an additional US$50 for every rebooking or rerouting of flight. He agreed and
was given a ticket covering the New York to Los Angeles via Detroit and the
Los Angeles to Manila segments of his travel. The rebooking/rerouting
scheme was annotated on the restriction portion of the ticket:
No end./7 days adv. Purchase
US$50 — rebooking/re-routing/cancellation fee
When Catapang arrived in New York, he called Northwest’s office which
informed him that his ticket was not "rebookable or reroutable". Catapang
proceeded to Northwest’s ticket office at the World Trade Center where he
was treated in a rude manner by an employee who informed him that his
ticket was not rebookable or reroutable since it was of a "restricted type", and
that unless he upgraded it by paying US$644.00, he could not rebook. Left
with no choice, respondent paid that amount for rebooking.
Upon his return to the Philippines, Catapang wrote to petitioner in a letter
(see notes). His letter of demand remained unanswered, so he filed a
complaint for damages against Northwest. Northwest claimed that
respondent's ticket was a discounted one, subject to the rules which
petitioner's agents have to abide by. Thus, with respect to the annotation on
respondent's ticket of the US$50.00 rebooking charge, petitioner explained
that the same was subject to the "rules of applicability", which rules could not
be reflected on the ticket.
RTC ruled in favor of Catapang and awarded actual (including filing
fees), moral, exemplary damages, attorney’s fees, and cost of suit. CA
affirmed except it reduced the moral damages, totalling now to P700,000.
Issue/s
Whether the award for damages is correct? YES, except for filing fees and
attorney’s fees.
Ratio/Legal Basis
Northwest assails that moral damages should not be awarded as there is
no breach of contract and exemplary damages as it did not commit wanton
or malevolent conduct. Further, attorney’s fees cannot be recovered under
Art. 2208 of the Civil Code, there is no pecuniary loss so actual damages
could not be recovered, the reimbursement of filing fees has no basis and
P700,000 in damages is excessive.
The Court disagrees. When respondent inquired from petitioner's
agent FUT if he would be allowed to rebook/reroute his flight, FUT
advised him that he could, on the condition that he would pay $50 for
every rebooking. He was not told by FUT and the ticket did not reflect it
that the ticket being issued to him was a "restricted type" to call for its
upgrading before a rebooking/rerouting. But Northwest’s reservation
supervisor, Amelia Merris, admitted that the only restriction on the ticket
refers to non-endorsement. (It means ticket cannot be transferred to another
airline)
Petitioner's breach in this case was aggravated by the undenied
treatment received by respondent when he tried to rebook his ticket. Instead
of civilly informing respondent that his ticket could not be rebooked,
petitioner's agent in New York exhibited rudeness in the presence of
respondent's brother-in-law and other customers, insulting respondent by
telling him that he could not understand English.
Passengers have the right to be treated by a carrier's employees
with kindness, respect, courtesy and due consideration. They are entitled
to be protected against personal misconduct, injurious language,
indignities and abuses from such employees. So it is that any discourteous
conduct on the part of these employees toward a passenger gives the latter
an action for damages against the carrier. The award of moral and exemplary
damages to respondent is thus justified.
But the inclusion of filing fees as part of the actual damages is
superfluous, if not erroneous, as it is already chargeable in the “cost of suit”
as per Secs. 8 and 10 of the Rules of Court. As for the award of attorney's
fees, the trial court did not state the factual and legal basis thereof. The
transcript of stenographic notes of the lower court's proceedings do not
show that respondent adduced proof to sustain his general averment of a
retainer agreement in the amount of P200,000.00. The award must thus be
deleted.
I. Disposition
WHEREFORE, the Court of Appeals Decision of June 30, 2006 is
AFFIRMED with MODIFICATION in that the award of attorney's fees is deleted
for lack of basis. And the award of actual damages of P7,372.50 representing
filing fees is deleted.
II. Notes
At about 9:30 in the morning of March 11, 1992, I went to the sales
office in the World Trade Center where I explained to your black woman
representative my predicament. Your representative rudely told me that my
ticket is the restrictive type and that my flight can not be rebooked or
rerouted. I explained that the only restriction on my ticket is that I should pay
US$50.00 if I have to rebook or reroute my flight and asked your
representative to read the restriction. Your representative rudely and
impolitely retorted that I could not understand English and that unless I pay
the amount of US$644.00, I cannot get a rebooking and rerouting. Despite
my appeal and protestation, she did not reconsider her decision. As I was
badly needed in Detroit on the evening of the same day and had to be back
in Manila on the 14th of March, I was compelled to pay, under protest, the
amount of US$644.00 using my American Express Card as my cash was
insufficient to cover the amount. It was only then that I was issued ticket no.
012:4488:504:099.
Considering that my ticket was cleared with you prior to its issuance
and that FUT is your duly accredited agent, you are bound by the terms of
the ticket issued by FUT in your behalf. You have no right to unilaterally
change the tenor of your contract during its effectivity without my consent.
Your airline’s willful breach of the terms and conditions of my ticket
and the shabby treatment that I received from your personnel hurt my
feeling, humiliated and embarrassed me in the presence of my brother-in-law
and other people nearby who witnessed the incident. The fact that your
employee did that to a bank officer and a lawyer like me only shows that your
airline can also do the same to others, not to mention the poor and hapless
persons.
 Because I could not bear my wounded feeling, the shabby treatment,
the humiliation and the embarrassment that I received from your employee, I
asked for the cancellation and refund of my ticket covering my trip from Los
Angeles to the Philippines for which I was given a refund application slip no.
012 0230189256 3 by your ticket counter at the Los Angeles airport on March
12, 1992.
To compensate me for the expenses that I incurred, and the
wounded feeling, humiliation and embarrassment that were caused by your
airline’s willful breach of contract with me, I demand that you pay me
damages in the amount of ₱1,000,000.00 within a period of five (5) days from
your receipt hereof. Otherwise, I shall have no alternative but to seek redress
from our court of justice and to hold you liable for all other expenses
attendant thereto.
KMU v Garcia
Recit-ready summary
In 1990, DOTC Sec. Oscar Orbos issued Memo Circular to LTFRB Chair
Remedios Fernando to allow provincial bus to change passenger rates
w/in a fare range of 15% above or below the LTFRB official rate for a
1yr. period. This is in line with the liberalization of regulation in the
transport sector which the government intends to implement and to
make progress towards greater reliance on free market forces.
Fernando respectfully called attention of DOTC Sec. that the Public Service
Act requires publication and notice to concerned parties and public
hearing. In Dec. 1990, Provincial Bus Operators Assoc. of the Phils.
(PBOAP) filed an application for across the board fare rate increase,
which was granted by LTFRB. In 1992, then DOTC Sec. Garcia issued a memo
to LTFRB suggesting a swift action on adoption of procedures to implement
the Department Order & to lay down deregulation policies. Pursuant to
LTFRB Guideline, PBOAP, w/o benefit of public hearing announced a
20% fare rate increase.
Petitioner Kilusang Mayo Uno (KMU) opposed the move and filed a petition
before LTFRB w/c was denied. Hence the instant petition for certiorari w/
urgent prayer for a TRO, w/c was readily granted by the Supreme Court.
Whether the authority granted by LTFB to provincial buses to set a fare range
above existing authorized fare range is unconstitutional and invalid.
The grant of power by LTFRB of its delegated authority is
unconstitutional.
The doctrine of Potestas delegate non delegari (what has been delegated
cannot be delegated) is applicable because a delegated power constitutes
not only a right but a duty to be performed by the delegate thru
instrumentality of his own judgment. To delegate this power is a negation of
the duty in violation of the trust reposed in the delegate mandated to
discharge such duty. Also, to give provincial buses the power to charge their
fare rates will result to a chaotic state of affairs and this would leave the
riding public at the mercy of transport operators who can increase their rates
arbitrarily whenever it pleases or when they deem it necessary.
Main takeaway from the case: A memorandum issued by the DOTC and
LTFRB allowing provincial bus operators, except those operating in Metro
Manila, to charge passengers rates within a range of 15% above and 15%
below the LTFRB official rate or a period of 1 year is unconstitutional, invalid
and illegal as it is tantamount to an undue delegation of legislative authority.
Facts of the case
On June 26, 1990 Secretary of DOTC issued Memorandum Circular No. 90-
395 to LTFRB Chairman allowing provincial bus operators to charge
passengers rates within a range of 15% above and 15% below the LTFRB
official rate for a period of one (1) year.
Fernando respectfully called attention of DOTC Sec. that the Public Service
Act requires publication and notice to concerned parties and public hearing.
In Dec. 1990, Provincial Bus Operators Assoc. of the Phils. (PBOAP) filed an
application for across the board fare rate increase, which was granted by
LTFRB. Private respondent PBOAP, availing itself of the deregulation policy of
the DOTC allowing provincial bus operators to collect plus 20% and minus
25% of the prescribed fare without first having filed a petition for the
purpose and without the benefit of a public hearing, announced a fare
increase of twenty (20%) percent of the existing fares. Said increased fares
were to be made effective on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB
opposing the upward adjustment of bus fares.
LTFRB issued one of the assailed orders dismissing the petition for lack of
merit.
Issue/s
Whether or not administrative issuances and orders of the LTFRB and DOT
giving public utilities the power to determine rate fare is valid and
constitutional—NO.
Ratio/Legal Basis
The Legislature delegated to the defunct Public Service Commission the
power of fixing the rates of public services. Respondent LTFRB, the existing
regulatory body today, is likewise vested with the same under Executive
Order No. 202 dated June 19, 1987. Section 5(c) of the said executive
order authorizes LTFRB “to determine, prescribe, approve and periodically
review and adjust, reasonable fares, rates and other related charges, relative
to the operation of public land transportation services provided by motorized
vehicles.”
Such delegation of legislative power to an administrative agency is permitted
in order to adapt to the increasing complexity of modern life. With this
authority, an administrative body and in this case, the LTFRB, may
implement broad policies laid down in a statute by “filling in” the details
which the Legislature may neither have time or competence to provide.
However, nowhere under the aforesaid provisions of law are the
regulatory bodies, the PSC and LTFRB alike, authorized to delegate that
power to a common carrier, a transport operator, or other public
service.
In the case at bench, the authority given by the LTFRB to the provincial
bus operators to set a fare range over and above the authorized existing
fare, is illegal and invalid as it is tantamount to an undue delegation of
legislative authority. Potestas delegata non delegari potest. What has been
delegated cannot be delegated. This doctrine is based on the ethical principle
that such a delegated power constitutes not only a right but a duty to be
performed by the delegate through the instrumentality of his own judgment
and not through the intervening mind of another. A further delegation of
such power would indeed constitute a negation of the duty in violation of the
trust reposed in the delegate mandated to discharge it directly. The policy of
allowing the provincial bus operators to change and increase their fares
at will would result not only to a chaotic situation but to an anarchic
state of affairs. This would leave the riding public at the mercy of
transport operators who may increase fares every hour, every day, every
month or every year, whenever it pleases them or whenever they deem
it “necessary” to do so.
Moreover, rate making, or rate fixing is not an easy task. It is a delicate and
sensitive government function that requires dexterity of judgment and sound
discretion with the settled goal of arriving at a just and reasonable rate
acceptable to both the public utility and the public. Several factors, in fact,
have to be taken into consideration before a balance could be achieved. A
rate should not be confiscatory as would place an operator in a situation
where he will continue to operate at a loss. Hence, the rate should enable
public utilities to generate revenues sufficient to cover operational costs and
provide reasonable return on the investments. On the other hand, a rate
which is too high becomes discriminatory. It is contrary to public
interest. A rate, therefore, must be reasonable and fair and must be
affordable to the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-
reaching effects on millions of commuters, government must not relinquish
this important function in favor of those who would benefit and profit from
the industry. Neither should the requisite notice and hearing be done away
with. The people, represented by reputable oppositors, deserve to be given
full opportunity to be heard in their opposition to any fare increase.
Disposition
Petition is hereby GRANTED and the challenged administrative issuances and
orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum
Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB
are hereby DECLARED contrary to law and invalid insofar as they affect
provisions therein (a) delegating to provincial bus and jeepney operators
the authority to increase or decrease the duly prescribed transportation
fares; and (b) creating a presumption of public need for a service in favor
of the applicant for a certificate of public convenience and placing the
burden of proving that there is no need for the proposed service to the
oppositor.
LTO v City of Butuan
SUMMARY: Pursuant to the LGC, the City of Butuan enacted an Ordinance
which provides for the payment of franchise fees for the grant of the
franchise of tricycle-for-hire, fees for the registration of the vehicle, and fees
for the issuance of a permit for the driving thereof. Since these functions
belong to the LTO, LTO contested the Ordinance. LTO conceded that the
franchising authority over tricycles-form-hire of the LTFRB had been
transferred to the LGUs, however, that is not the case with the authority of
LTO to register all motor vehicles and to issue to qualified persons licenses of
such vehicles. The City Mayor filed a petition praying for the declaration of
the validity of Ordinance and to enjoin the LTO from performing the said
functions. The RTC ruled in favor of the City of Butuan holding that the
authority to register tricycles, the grant of the corresponding franchise, the
issuance of tricycle drivers’ license, and the collection of fees therefor had all
been vested in the LGUs. On appeal, the CA sustained the trial court.
Issue is whether the power of the LTO to register, tricycles in particular, as well
as to issue licenses for the driving thereof, has devolved to local government
units.
NO because the LGC clearly provides that what has been granted to the LGUs
is the authority to regulate the operation of tricycles and the grant of
franchises.
The Court ruled that under the LGC, certain functions of the DOTC were
transferred to the LGUs. According to Sec. 458, LGUs have the authority to
regulate the operation of tricycles and grant franchises for the operation
thereof within the territorial jurisdiction of the city, subject to the
guidelines prescribed by the DOTC. The devolution of the functions of the
DOTC, performed by the LTFRB, to the LGU is aimed at curbing the alarming
increase of accidents in national highways involving tricycles. It has been the
perception that local governments are in good position to achieve the end
desired by the law-making body because of their proximity to the situation.
FACTS:
1. 1987 Constitution: "Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments."
2. Local Government Code:
SEC. 129. Power to Create Sources of Revenue. - Each local government unit
shall exercise its power to create its own sources of revenue and to levy taxes,
fees, and charges subject to the provisions herein, consistent with the basic
policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government units.
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units. - Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the levy
of
the following:
xxx.......xxx.......xxx
(I) Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except
tricycles."
3. Pursuant to the above provisions, the Sangguniang Panglungsod of Butuan
passed an Ordinance entitled “An Ordinance Regulating the Operation of
Tricycles-for-Hire, providing mechanism for the issuance of Franchise,
Registration and Permit, and Imposing Penalties for Violations thereof and for
other Purposes. The ordinance provided for, among others, the payment of
franchise fees for the grant of the franchise of tricycles-for-hire, fees for the
registration of the vehicle, and fees for the issuance of a permit for the
driving thereof.
4. LTO contested this Ordinance. LTO concedes that the franchising
authority over tricycles-for-hire of the Land Transportation Franchising and
Regulatory Board (LTFRB) had been transferred from the national
government to the local government units. However, the same is not true
with regard to the authority of the LTO to register all motor vehicles and
to issue to qualified persons of licenses of such vehicles.
5. The City Mayor filed a petition seeking the declaration of the validity of the
ordinance and the prohibition of the registration of tricycles-for-hire and the
issuance of licenses for the driving thereof by the LTO.

6. The RTC of Butuan City held that the authority to register tricycles, the
grant of the corresponding franchise, the issuance of tricycle drivers’ license,
and the collection of fees therefor had all been vested in the LGUs. The lower
court issued a permanent writ of injunction prohibiting and enjoining LTO
from registering tricycles and issuing licenses to drivers of tricycles.
7. On appeal, the CA sustained the rulings of the lower court. Hence, the
instant petition. Hence, LTO filed the instant petition to annul and set aside
the decision of the CA.
8. City of Butuan’s arguments:
a. One of the salient provisions introduced by the Local Government Code
(LGC) is in the area of local taxation which allows LGUs to collect registration
fees or charges along with, in its view, the corresponding issuance of all kinds
of licenses or permits for the driving of tricycles.
ISSUE:
Whether the power of the LTO to register, tricycles in particular, as well as to
issue licenses for the driving thereof, has devolved to local government units.
NO because the LGC clearly provides that what has been granted to the
LGUs is the authority to regulate the operation of tricycles and the grant
of franchises.
RULING: The assailed decision which enjoins the LTO from requiring the due
registration of tricycles and a license for the driving thereof is REVERSED and
SET ASIDE.
RATIO:
1. While the Constitution seeks to strengthen local units and ensure their
viability, clearly, however, it has never been the intention of that organic law
to create an imperium in imperio and install an intra sovereign political
subdivision independent of a single sovereign state.
2. Both the LTO and LTFRB are gover”nment agencies under the Department
of Transportation and Communication (DOTC). Registration and licensing
functions are vested in the LTO while franchising and regulatory
responsibilities had been vested in the LTFRB.
3. Under the LGC, certain functions of the DOTC were transferred to the LGUs.
According to Sec. 458, LGUs have the authority to regulate the operation
of tricycles and grant franchises for the operation thereof within the
territorial jurisdiction of the city, subject to the guidelines prescribed by
the DOTC.
4. “To regulate” means to fix, establish, or control; to adjust by rule, method,
or established mode; to direct by rule or restriction; or to subject to
governing principles or laws. A franchise is defined to be a special privilege to
do certain things conferred by government on an individual or corporation,
and which does not belong to citizens generally of common right. On the
other hand, "to register" means to record formally and exactly, to enroll, or to
enter precisely in a list or the like, and a "driver's license" is the certificate or
license issued by the government which authorizes a person to operate a
motor vehicle.
5. The devolution of the functions of the DOTC, performed by the LTFRB,
to the LGU is aimed at curbing the alarming increase of accidents in
national highways involving tricycles. It has been the perception that
local governments are in good position to achieve the end desired by
the law-making body because of their proximity to the situation that can
enable them to address that serious concern better than the national
government.
6. As can be gleaned from the explicit language of the statute, the newly
delegated powers pertain to the franchising and regulatory powers
exercised by the LTFRB and not to the functions of the LTO relative to
the registration of motor vehicles and issuance of licenses for the
driving thereof.
7. Moreover, if the functions of the LTO were to devolve to local
governments, there will be unnecessary consequences and ineffectiveness.
For instance, if the tricycle registration function of LTO is decentralized, the
incidence of theft of tricycles will most certainly go up, and stolen tricycles
registered in one local government could be registered in another with ease.
Also, fake driver’s license will proliferate. This will likely unfold when a tricycle
driver, not qualified by LTO’s testing, could secure a license from one
municipality, and when the same is confiscated, could just go to another
municipality to secure another license.
8. The reliance made by respondents on the broad taxing power of local
government units, specifically under Section 133 of the Local Government
Code, is tangential. Police power and taxation, along with eminent domain,
are inherent powers of sovereignty which the State might share with local
government units by delegation given under a constitutional or a statutory
fiat. All these inherent powers are for a public purpose and legislative in
nature but the similarities just about end there
9. Although correlative to each other in many respects, the grant of one
power does not necessarily carry with it the grant of the other. The two
powers are, by tradition and jurisprudence, separate and distinct powers,
varying in their respective concepts, character, scopes and limitations. To
construe the tax provisions of Section 133(1) indistinctively would result in
the repeal to that extent of LTO's regulatory power which evidently has not
been intended.
10. The power over tricycles granted under Section 458(a)(3)(VI) of the Local
Government Code to LGUs is the power to regulate their operation and to
grant franchises for the operation thereof is still subject to the guidelines
prescribed by the DOTC.
11. The exclusionary clause contained in the tax provisions of Section 133(1)
of the Local Government Code must not be held to have had the effect of
withdrawing the express power of LTO to cause the registration of all motor
vehicles and the issuance of licenses for the driving thereof. These functions
of the LTO are essentially regulatory in nature, exercised pursuant to the
police power of the State, whose basic objectives are to achieve road safety.
12. In compliance therewith, the DOTC issued "Guidelines to Implement the
Devolution of LTFRBs Franchising Authority over Tricycles-For-Hire to Local
Government units pursuant to the Local Government Code." Pertinent
provisions of the guidelines state:
In lieu of the LTFRB in the DOTC, the Sangguniang Bayan/Sangguniang
Panglungsod (SB/SP) shall perform the following:
(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe the
appropriate terms and conditions therefor;
xxx
Operating Conditions:
1. For safety reasons, no tricycles should operate on national highways
utilized by
4 wheel vehicles greater than 4 tons and where normal speed exceed 40 KPH.
However, the SB/SP may provide exceptions if there is no alternative routs.
2. Zones must be within the boundaries of the municipality/city. However,
existing zones within more than one municipality/city shall be maintained,
provided that operators serving said zone shall secure MTOP's from each of
the
municipalities/cities having jurisdiction over the areas covered by the zone.
3. A common color for tricycles-for-hire operating in the same zone may be
imposed. Each unit shall be assigned and bear an identification number, aside
from its LTO license plate number.
4. An operator wishing to stop service completely, or to suspend service for
more
than one month, should report in writing such termination or suspension to
the
SB/SP which originally granted the MTOP prior thereto. Transfer to another
zone may be permitted upon application.
5. The MTOP shall be valid for three (3) years, renewable for the same period.
Transfer to another zone, change of ownership of unit or transfer of MTOP
shall be construed as an amendment to an MTOP and shall require
appropriate
approval of the SB/SP.
6. Operators shall employ only drivers duly licensed by LTO for tricycles-
forhire.
7. No tricycle-for-hire shall be allowed to carry more passengers and/or
goods
than it is designed for.
8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e., service
is
rendered upon demand and without a fixed route within a zone."
13. The newly delegated powers pertain to the franchising and
regulatory powers theretofore exercised by the LTFRB and not to the
functions of the LTO relative to the registration of motor vehicles and
issuance of licenses for the driving thereof. Clearly unaffected by the Local
Government Code are the powers of LTO under R.A. No.4136 requiring the
registration of all kinds of motor vehicles "used or operated on or upon any
public highway" in the country.
SEC. 5. All motor vehicles and other vehicles must be registered. - (a) No
motor vehicle shall be used or operated on or upon any public highway of
the Philippines unless the same is properly registered for the current year in
accordance with the provisions of this Act (Article 1, Chapter II, R.A. No.
4136).
14. The Commissioner of Land Transportation and his deputies are
empowered at anytime to examine and inspect such motor vehicles to
determine whether said vehicles are registered, or are unsightly, unsafe,
improperly marked or equipped, or otherwise unfit to be operated on
because of possible excessive damage to highways, bridges and other
infrastructures. The LTO is additionally charged with being the central
repository and custodian of all records of all motor vehicles
21. These functions of the LTO are essentially regulatory in nature, exercised
pursuant to the police power of the state, whose basic objectives are to
achieve road safety by insuring the road worthiness of these motor vehicles
and the competence of drivers prescribed by RA 4136. Not insignificant is the
rule that a statute must not be construed in isolation but must be taken in
harmony with the extent body of laws.
22. The Court cannot end this decision without expressing its own serious
concern over the seeming laxity in the grant of franchises for the operation of
tricycles-for-hire and in allowing the indiscriminate use by such vehicles on
public highways and principal thoroughfares.
transportation service, and to encourage and develop commercial air
transportation, RESOLVED, to grant, as the Board hereby grants, the said
Filipinas Orient Airways, Inc., provisional authority to operate scheduled
and non-scheduled domestic air services with the use of DC- 3 aircraft,
subject to the following conditions:
The term of the provisional authority herein granted shall be until such time
as the main application for a certificate of public convenience and
necessity is finally decided or for such period as the Board may at any
time determine;
A reconsideration of this resolution having been denied, PAL filed the present
civil action alleging that, in issuing said resolution, CAB had acted illegally
and in excess of its jurisdiction or with grave abuse of discretion, because:
(1) CAB is not empowered to grant any provisional authority to operate,
prior to the submission for decision of the main application for a
certi􏰁cate of public convenience and necessity;
(2) CAB had no evidence before it that could have justified the granting
of the provisional authority complained of;

23. Sen. Aquilino Pimentel: Tricycles are a popular means of transportation, (3) PAL was denied due process when CAB granted said authority before the
specially in the countryside. They are, unfortunately, being allowed to drive presentation of its evidence on Fairways' main application; and
along highways and principal thoroughfares where they pose hazards to their
passengers arising from potential collisions with buses, cars and jeepneys.
(4) In granting said provisional authority, the CAB had prejudged the merits
The operation of tricycles within a municipality may be regulated by the
of said application.
Sangguniang Bayan. In this connection, the Sangguniang concerned would
do well to consider prohibiting the operation of tricycles along or across
highways invite collisions with faster and bigger vehicles and impede the flow Whether or not in issuing said resolution, CAB has acted illegally and in excess of
of traffic. its jurisdictions or with grave abuse of discretion? NO

The law explicitly authorizes CAB to issue a "temporary operating

PAL v Civil Aeronautics Board
permit," and nothing contained, either in said section, or in Chapter IV of
Republic Act No. 776, negates the power to issue said "permit", before
Recit Ready
the completion of the applicant's evidence and that of the oppositor
"Filipinas Orient Airways, Inc., (FAIRWAYS) having presented to the Board
thereto on the main petition. Indeed, the CAB's authority to grant a
evidence showing prima facie its fitness, willingness and ability to
temporary permit "upon its own initiative," strongly suggests the power
operate the services applied for and the public need for more air
to exercise said authority, even before the presentation of said evidence
has begun.
Facts of the case
Pursuant to Republic Act No. 4147, granting thereto "a franchise to
establish, operate and maintain transport services for the carriage of
passengers, mail, industrial flights and cargo by air in and between any
and all points and places throughout the Philippines and other
countries", on September 16, 1964, Fairways filed with CAB the
corresponding application for a "certificate of public convenience and
necessity", which was docketed as economic proceedings (EP) No. 625, and
was objected to by herein petitioner, Philippine Air Lines, Inc., hereinafter
referred to as PAL. Subsequently, a CAB hearing officer began to receive
evidence on said application. After several hearings before said officer, or on
December 14, 1964, Fairways filed an "urgent petition for provisional
authority to operate" under a detailed "program of implementation"
attached to said petition, and for the approval of its bond therefor, as well
as the provisional approval of its "tariff regulations and the conditions of
carriage to be printed at the back of the passenger tickets." Despite PAL's
opposition thereto, in a resolution issued on January 5, 1965, CAB granted
said urgent petition of Fairways. The pertinent part of said resolution
provides:
"Filipinas Orient Airways, Inc., (FAIRWAYS) having presented to the Board
evidence showing prima facie its fitness, willingness and ability to operate the
services applied for and the public need for more air transportation service,
and to encourage and develop commercial air transportation, RESOLVED, to
grant, as the Board hereby grants, the said Filipinas Orient Airways, Inc.,
provisional authority to operate scheduled and non-scheduled domestic air
services with the use of DC- 3 aircraft, subject to the following conditions:
1. The term of the provisional authority herein granted shall be until
such time as the main application for a certificate of public
convenience and necessity is finally decided or for such period as the
Board may at any time determine;
A reconsideration of this resolution having been denied, PAL filed the present
civil action alleging that, in issuing said resolution, CAB had acted illegally
and in excess of its jurisdiction or with grave abuse of discretion, because:
(1) CAB is not empowered to grant any provisional authority to operate, prior
to the submission for decision of the main application for a certi􏰁cate of
public convenience and necessity;
(2) CAB had no evidence before it that could have justified the granting of
the provisional authority complained of;
(3) PAL was denied due process when CAB granted said authority before the
presentation of its evidence on Fairways' main application; and
(4) In granting said provisional authority, the CAB had prejudged the merits
of said application.
Issue/s
Whether or not in issuing said resolution, CAB has acted illegally and in excess of
its jurisdictions or with grave abuse of discretion? NO
Legal Basis
The first ground is devoid of merit. Section 10-C(1) of Republic Act No. 776,
reading:
"(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny,
amend, revise, alter, modify, cancel, suspend or revoke, in whole or in
part, upon petitioner complaint, or upon its own initiative, any
temporary operating permit or Certi􏰁cate of Public Convenience and
Necessity; Provided, however, That in the case of foreign air carriers, the
permit shall be issued with the approval of the President of the Republic of
the Philippines . . ."
explicitly authorizes CAB to issue a "temporary operating permit," and
nothing contained, either in said section, or in Chapter IV of Republic Act No.
776, negates the power to issue said "permit", before the completion of the
applicant's evidence and that of the oppositor thereto on the main petition.
Indeed, the CAB's authority to grant a temporary permit "upon its own
initiative," strongly suggests the power to exercise said authority, even before
the presentation of said evidence has begun.
Moreover, we perceive no cogent reason to depart, in connection with
the commercial air transport service, from the policy of our public
service law, which sanctions the issuance of temporary or provisional
permits or certificates of public convenience and necessity, before the
submission of a case for decision on the merits. The overriding
considerations in both instances are the same, namely, that the service be Republic v Express Telecom
required by public convenience and necessity, and, that the applicant is
FIt, as well as willing and able to render such service properly, in
Recit-ready summary
conformity with law and the pertinent rules, regulations and
requirements.
International Communications Corp. (now Bayantel) filed an application
As regards PAL's second contention, we have no more than PAL's assertion
with the National Telecommunications Commission (NTC) for a
and conclusion regarding the absence of substantial evidence in support of
Certificate of Public Convenience or Necessity (CPCN) to install, operate
the finding, in the order complained of, to the effect that Fairways' evidence
and maintain a digital Cellular Mobile Telephone System/Service (CMTS)
had established " prima facie" its fitness, willingness and ability to operate the
with prayer for a Provisional Authority (PA).
services applied for and the public need for more transportation service . . ."
Apart from PAL's assertion being contradicted by the tenor of said order,
NTC issued an Order archiving the case until the requisite frequency
there is the legal presumption that official duty has been duly performed.
becomes available. NTC then re-allocated extra frequencies.
Such presumption is particularly strong as regards administrative agencies,
Subsequently, Bayantel filed an Ex-Parte Motion to Revive Case which was
like the CAB, vested with powers said to be quasi-judicial in nature, in
granted along with a provisional authority. Extelcomm opposed this revival,
connection with the enforcement of laws affecting particular fields of activity,
arguing that no public need for the service applied for by Bayantel as
the proper regulation and/or promotion of which requires a technical or
special training, aside from a good knowledge and grasp of the overall the present five CMTS operators, that there were no available
conditions, relevant to said 􏰁eld, obtaining in the nation. The consequent frequencies that could accommodate a BayanTel as the frequency bands
policy and practice underlying our Administrative Law is that courts of justice allocated were intended for and had in fact been applied for by the
should respect the findings of fact of said administrative agencies, unless existing CMTS operators.
there is absolutely no evidence in support thereof or such evidence is clearly,
manifestly and patently insubstantial. This, in turn, is but a recognition of WON the NTC erred in granting Bayantel’s provisional authority?
the necessity of permitting the executive department to adjust law No because NTC has the sole discretion whether to grant it or not.
enforcement to changing conditions, without being unduly hampered
by the rigidity and the delays often attending ordinary court The NTC has the sole authority to issue Certificates of CPCNs for the
proceedings or the enactment of new or amendatory legislations. In the
installation, operation, and maintenance of communications facilities
case at bar, petitioner has not satisfactorily shown that the aforementioned
and services, radio communications systems, telephone and telegraph
findings of the CAB are lacking in the necessary evidentiary support.
systems. This includes the authority to determine the areas of operations
Lastly, the provisional nature of the permit granted to Fairways refutes the
of applicants for telecommunications services.
assertion that it prejudges the merits of Fairways' application and PAL's
Section 16 of the Public Service Act authorizes the then PSC, upon notice and
opposition thereto. As stated in the questioned order, CAB's findings therein
hearing, to issue Certificates of Public Convenience for the operation of
made re􏰃ect its view merely on the prima facie effect of the evidence so far
public services within the Philippines "whenever the Commission finds
introduced and do not connote a pronouncement or an advanced expression
that the operation of the public service proposed and the authorization
of opinion on the merits of the case.
to do business will promote the public interests in a proper and suitable
|||Dispositive Portion
manner."
WHEREFORE, the petition herein should be, as it is hereby dismissed, and the
writ prayed for denied, with costs against petitioner, Philippine Air Lines, Inc.
Furthermore, Extelcom does not enjoy the grant of any vested interest
It is so ordered.
on the right to render a public service. Art. XII, Sec. 11 of the Constitution
provides: No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted to citizens of the Philippines or
to corporations organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens, nor shall such franchise,
certificate or authorization be exclusive in character or for a longer period
than fifty years. Neither shall any such franchise or right be granted except
under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires.
Among the declared national policies under Republic Act No. 7925, otherwise
known as the Public Telecommunications Policy Act of the Philippines, is the
healthy competition among telecommunications carriers. The NTC has
sufficient discretion to act on matters solely within its competence. The need
for a healthy competitive environment in telecommunications is sufficient for
the NTC to consider all those applicants who are willing to offer competition,
develop the market and provide the environment necessary for greater public
service.
Facts of the case
On December 29, 2992, International Communications Corporation (now
Bayantel) filed an application with the National Telecommunications
Commission (NTC) for a Certificate of Public Convenience or Necessity
(CPCN) to install, operate and maintain a digital Cellular Mobile Telephone
System/Service (CMTS) with prayer for a Provisional Authority (PA).
On January 22, 1993, the NTC issued Memorandum Circular No. 4-1-93
directing all applicants for a CMTS to file their applications before the NTC,
and deferring the acceptance of any application thereafter until further
orders. Prior to the notice of hearing by the NTC with respect to Bayantel's
original application, Bayantel filed an amended application.
On May 17, 1993, the notice of hearing issued by the NTC was published in
the Manila Chronicle. Copies of the application and as the notice of hearing
were mailed to all affected parties. Hearings were conducted on the
amended application. Before Bayantel could complete the presentation of its
evidence, the NTC issued an Order dated December 19, 1993 stating:
● In view of the recent grant of two Provisional Authorities in favor of
ISLACOM and GMCR, Inc., which resulted in the closing of all
available frequencies for the service being applied for , and in order
that this case may not remain pending for an indefinite period of
time, let this case be ordered archived without prejudice to its
reinstatement when the requisite frequency becomes available.
NTC issued Memorandum Circular No. 5-6-98 re-allocating five (5)
megahertz (MHz) of the radio frequency spectrum for the expansion of CMTS
networks.
On March 23, 1999, Memorandum Circular No. 3-3-99 was issued by the NTC
re-allocating an additional five (5) MHz frequencies for CMTS service.
On May 17, 1999, Bayantel filed an Ex-Parte Motion to Revive Case, citing the
availability of new frequency bands for CMTS operators. NTC granted
BayanTel's motion to revive the latter's application and set the case for
hearings on February 9, 10, 15, 17 and 22, 2000. Express Telecommunication
Co., Inc. (Extelcom) filed a case in the NTC praying for the dismissal of
Bayantel's application.
Extelcom argued that:
1. Bayantel's motion sought the revival of an archived application filed
almost eight years ago. The documentary evidence and the allegations
of respondent Bayantel in this application are all outdated and should no
longer be used as basis of the necessity for the proposed CMTS service.
2. There was no public need for the service applied for by Bayantel as the
present five CMTS operators —Extelcom, Globe Telecom, Inc., Smart
Communication, Inc., Pilipino Telephone Corporation, and Isla
Communication Corporation, Inc. — adequately addressed the market
demand, and all are in the process of enhancing and expanding their
networks based on technological developments.
3. There were no available frequencies that could accommodate a BayanTel
as the frequency bands allocated were intended for and had in fact been
applied for by the existing CMTS operators.
4. Bayantel is its substantial stockholder to the extent of about 46% of its
outstanding capital stock, and Bayantel's application undermines the very
operations of Extelcom.
On March 13, 2000, Bayantel filed a Consolidated Reply/Comment, stating
that the opposition sought a reconsideration of the NTC Order reviving the
instant application, and cannot dwell on the material allegations or the merits
of the case. Also, Extelcom cannot claim that frequencies were not available
inasmuch as the allocation and assignment thereof rest solely on the
discretion of the NTC.
In the meantime, the NTC issued Memorandum Circular No. 9-3-2000,
reallocating the following radio frequency bands for assignment to existing
CMTS operators and to telecommunication entities which shall be authorized
to install, operate and maintain CMTS networks.
On May 3, 2000, the NTC issued an Order granting in favor of Bayantel a
provisional authority to operate CMTS service which stated:
a) BayanTel was formerly named International Communications Corp.
Bayantel and ICC Telecoms, Inc. are the same entity, and it follows
that what legal capacity ICC Telecoms has acquired is also the legal
capacity that Bayantel possesses.
b) On the allegation that the Commission has committed an error in
allowing the revival of the instant application, it appears that the
Order archiving the same was based on the non-availability of
frequencies for CMTS. It was expressly stated that the archival was
without prejudice to its reinstatement "if and when the requisite
frequency becomes available." It is the prerogative of the
Commission to revive the same, subject to prevailing conditions. The
previous Order, cited the availability of frequencies for CMTS, and
based thereon, the Commission, revived the application. The fact that
the motion for revival hereof was made ex-parte by the applicant is
immaterial, so long as the oppositors are given the opportunity to be
later heard and present the merits of their respective oppositions.
c) On the allegation that the instant application is already obsolete and
overtaken by developments, the issue is whether applicant has the
legal, financial and technical capacity to undertake the project. The
determination of such capacity lies solely within the discretion of the
Commission. The oppositors are not precluded from showing
evidence disputing their capacity. On the non-availability of
frequencies for the proposed service, the Commission takes note that
it has issued Memorandum.
The NTC also made the following comments:
a) Due to the mergers between Smart and Piltel and between Globe
and Islacom, free and effective competition in the CMTS market is
threatened. The fifth operator, Extelcom, cannot provide good
competition in as much as it provides service using the analog AMPS.
The GSM system dominates the market.
b) There are two applicants for the assignment of the frequencies in the
1.7 Ghz and 1.8 Ghz allocated to CMTS - Globe and Extelcom. Based
on the number of subscribers Extelcom has, there seems to be no
congestion in its network - a condition that is necessary for an
applicant to be assigned additional frequencies. Globe has yet to
prove that there is congestion in its network considering its merger
with Islacom.
c) 48% of the total number of cities and municipalities are still without
telephone service despite the more than 3 million installed lines
waiting to be subscribed.
NTC’s Conclusions:
d) To ensure effective competition in the CMTS market, new CMTS
operators must be allowed to provide the service.
e) The re-allocated frequencies for CMTS is sufficient for the number of
applicants.
f) There is a need to provide service to some or all of the remaining
cities and municipalities without telephone service.
g) The submitted documents are sufficient to determine compliance to
the technical requirements. BayanTel appears to be technically
qualified to undertake the project and offer the service.
Extelcom filed with the CA a petition for certiorari and prohibition, seeking
the annulment of the revival of the application of Bayantel, and granting
Bayantel a provisional authority maintain a nationwide CMTS, and the order
allocating frequency bands to new telecommunication entities which are
authorized to maintain CMTS. The CA granted this so BayanTel and NTC, via
OSG, filed an MR.
Issue/s
WON NTC erred in giving BayanTel a provisional authority?
No because NTC has the sole discretion whether to grant it or not.
Ratio/Legal Basis
Nature and Functions of the NTC;
Powers and Authority; Rules and Regulations
In the regulatory telecommunications industry, the NTC has the sole
authority to issue Certificates of CPCNs for the installation, operation,
and maintenance of communications facilities and services, radio
communications systems, telephone and telegraph systems. Such power
includes the authority to determine the areas of operations of applicants
for telecommunications services. Section 16 of the Public Service Act
authorizes the then PSC, upon notice and hearing, to issue Certificates of
Public Convenience for the operation of public services within the Philippines
"whenever the Commission finds that the operation of the public service
proposed and the authorization to do business will promote the public
interests in a proper and suitable manner."
In granting Bayantel the provisional authority to operate a CMTS, the NTC
applied Rule 15, Section 3 of its 1978 Rules of Practice and Procedure, which
provides:
Sec. 3. Provisional Relief. --- Upon the filing of an application,
complaint or petition or at any stage thereafter, the Board may
grant on motion of the pleader or on its own initiative, the relief
prayed for, based on the pleading, together with the affidavits and
supporting documents attached thereto, without prejudice to a final
decision after completion of the hearing which shall be called within
thirty (30) days from grant of authority asked for.
The 1978 Rules
Extelcom contends that the NTC should have applied the Revised Rules which
were filed with the Office of the National Administrative Register on February
3, 1993. These Revised Rules deleted the phrase "on its own initiative;".
Therefore a provisional authority may be issued only upon filing of the
proper motion. Since there was no publication, the NTC was still governed by
the 1978 Rules.
This issue has already been settled in Tañada v. Tuvera which stated that all
statutes must be published as a condition for their effectivity. It begins fifteen
days after publication unless a different effectivity is fixed by the law.
This also covers by this rule are presidential decrees and executive orders
promulgated by the President in the exercise of legislative power or, at
present, directly conferred by the Constitution. Administrative Rules and
Regulations must also be published if their purpose is to enforce or
implement existing law pursuant also to a valid delegation.
Until the 1993 Rules are published in the Official Gazette or in a newspaper of
general circulation, it cannot take effect. Regardless, BayanTel’s application
included a motion for the issuance of a provisional authority anyway.
The CA also erred when it said that the NTC's Order archiving Bayantel's
application was null and void. The archiving of cases is a widely accepted
measure designed to shelve cases in which no immediate action is expected
but no grounds exist for their outright dismissal, even without prejudice. It
saves the applicant from the added trouble and expense of re-filing a
dismissed case. Under this scheme, an inactive case is kept alive but held in
abeyance until the situation obtains wherein action thereon can be taken.
Here, the said application was archived because of lack of available
frequencies at the time, and was subject to reinstatement upon
availability of the requisite frequency. There was nothing irregular in the
revival of the application after the condition therefor was fulfilled.
Rule 1, Section 2 of the 1978 Rules, states:
Sec. 2. Scope.— These rules govern pleadings, practice and
procedure before the NTC in all matters of hearing, investigation
and proceedings within the jurisdiction of the Board. However, in
the broader interest of justice and in order to best serve the public
interest, the Board may, in any particular matter, except it from these
rules and apply such suitable procedure to improve the service in
the transaction of the public business.
Sec. 5 states:
Sec. 5. Ex-parte Motions. --- Except for motions for provisional
authorization of proposed services and increase of rates, ex-parte
motions shall be acted upon by the Board only upon showing of
urgent necessity therefor and the right of the opposing party is not
substantially impaired.
Therefore, the NTC may entertain ex-parte motions only where there is an
urgent necessity to do so and no rights of the opposing parties are impaired.
The CA ruled that there was a violation of Extelcom’s right to due process
when it was not afforded the opportunity to question the motion for the
revival of the application. However, NTC’s Order was only a simple revival of
the archived application of Bayantel. At this stage, it cannot be said that
Extelcom's right to procedural due process was prejudiced. It still has the
opportunity to be heard during the full-blown hearings.
NTC has scheduled several hearing dates mainly for this purpose, at which all
interested parties shall be allowed to raise their opposition. There is no denial
of due process where full-blown adversarial proceedings are conducted
before an administrative body.
With Extelcom fully participating in the proceedings, one given the
opportunity to file its opposition to the application, there was clearly no
denial of its right to due process. Extelcom entered its appearance as a party
and filed its opposition to the application. It was neither precluded nor
barred from participating in the hearings. The revival was a preliminary step
for the resumption of the hearings on the application of Bayantel. The latter
will still have to prove its capability to undertake the proposed CMTS. Notice
of these hearings were sent to all parties concerned, including Extelcom.
NTC with the Discretion to Grant the CMTS
Among the declared national policies under Republic Act No. 7925,
otherwise known as the Public Telecommunications Policy Act of the
Philippines, is the healthy competition among telecommunications carriers.
The NTC has sufficient discretion to act on matters solely within its
competence. The need for a healthy competitive environment in
telecommunications is sufficient for the NTC to consider all those
applicants who are willing to offer competition, develop the market and
provide the environment necessary for greater public service.
This memorandum circular enumerated the conditions prevailing and the
reasons which necessitated its issuance as follows:
a) The international accounting rates are rapidly declining, threatening
the subsidy to the local exchange service as mandated in EO 109 and
RA 7925;
b) The public telecommunications entities which were obligated to
install, operate and maintain local exchange network have performed
their obligations in varying degrees;
c) After more than three years from the performance of the obligations
only 52% of the total number of cities and municipalities are
provided with local telephone service.
d) There are mergers and consolidations among the existing cellular
mobile telephone service (CMTS) providers threatening the efficiency
of competition;
e) There is a need to hasten the installation of local exchange lines in
unserved areas;
f) There are existing CMTS operators which are experiencing
congestion in the network resulting to low grade of service;
g) The consumers/customers shall be given the freedom to choose
CMTS operators from which they could get the service.
No Exclusive Right over a Public Utility
Furthermore, Extelcom does not enjoy the grant of any vested interest on the
right to render a public service. Art. XII, Sec. 11 of the Constitution provides:
No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted to citizens of the
Philippines or to corporations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by
such citizens, nor shall such franchise, certificate or authorization be
exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires.
The Constitution mandates that a franchise cannot be exclusive in nature nor
can a franchise be granted except that it must be subject to amendment,
alteration, or even repeal by the legislature when the common good so
requires.
The CA was also wrong in annulling Bayantel’s provisional authority. The
general rule is that purely administrative and discretionary functions may
not be interfered with by the courts. Courts have no supervising power
over the proceedings and actions of the administrative departments of
the government. This is true with respect to acts involving the exercise of
judgement or discretion and findings of fact.
An exception to this is where the issuing authority has gone beyond its
statutory authority, exercised unconstitutional powers or clearly acted
arbitrarily and without regard to his duty or with grave abuse of discretion.
This does not apply here.
Courts will not interfere in matters which are addressed to the sound
discretion of the government agency entrusted with the regulation of
activities coming under the special and technical training and knowledge of
such agency.
It has also been held that the exercise of administrative discretion is a policy
decision and a matter that can best be discharged by the government agency
concerned, and not by the courts.
As found by the NTC, Bayantel has been granted several provisional and
permanent authorities before to operate various telecommunications
services. It was established that Bayantel was the first company to comply
with its obligation to install local exchange lines pursuant to E.O. 109
and R.A. 7925.
\The provisional authority awarded in favor of Bayantel to operate Local
Exchange Services in Quezon City, Malabon, Valenzuela and the entire Bicol
region was made permanent and a CPCN for the said service was granted in
its favor. There is also prima facie evidence showing Bayantel's legal, financial
and technical capacity to undertake the service.
Disposition
WHEREFORE, in view of the foregoing, the consolidated petitions are
GRANTED. The Court of Appeals' Decision dated September 13, 2000 and
Resolution dated February 9, 2001 are REVERSED and SET ASIDE. The
permanent injunction issued by the Court of Appeals is LIFTED. The Orders of
the NTC dated February 1, 2000 and May 3, 2000 are REINSTATED. No
pronouncement as to costs.
Associated Communication v NTC
Recit-ready summary
Congress enacted RA 4551 granting Marcos J. Villaverde, Jr. and
Winfred E. Villaverde a franchise to operate a public radiotelephone and
radiotelegraph stations. The franchise is for 50 years. In 1969, the franchise
was transferred to petitioner Associated Communications & Wireless
Services — United Broadcasting Network, Inc. (ACWS). P.D. No. 576-A
was issued that stated existing franchises will terminate on Dec. 31,
1981. Petitioner’s franchise expired. It filed for an application of a new
franchise and pending approval, it was issued a temporary permit by
NTC. In 1996, the NTC authorized petitioner to increase the power output
of Channel 25 from 1.0 kilowatt to 25 kilowatts after finding it financially and
technically capable. Before the expiration of its temporary permit, it applied
for a renewal in May 1997.
Despite the absence of a franchise, NTC notified petitioner that its May
1997 application for renewal of its temporary permit to operate
television Channel 25 was approved and would be released upon
payment of the prescribed fee of P3,600.00. After paying said amount,
however, the NTC refused to release to petitioner its renewed permit.
Instead, the NTC commenced against petitioner Administrative Case No. 98-
009. In January 1999, NTC rendered a decision on Administrative Case No.
98-009 against petitioner which recalled Channel 25 and denied the
renewal of their temporary permit to operate Channel 25. Thus, this
petition for review on certiorari.
The issue is whether a franchise is a condition sine qua non in the operation of
a radio and television broadcasting system? YES.
Petitioner argues that Act. 3846 does not mention television stations. In
upholding the NTC decision, CA held that franchise requirement under
Act No. 3846 was not expressly repealed by P.D. No. 576-A nor E.O. No.
546. CA correctly ruled that a congressional franchise is necessary for
petitioner to operate television Channel 25. Even assuming that Act No.
3846 applies only to radio stations and not to television stations as petitioner
adamantly insists, the subsequent P.D. No. 576-A clearly shows in Section 1
that a franchise is required to operate radio as well as television stations,
“No radio station or television channel…”
Dispensing the requirement of a congressional franchise is not in line
with the declared purposes of P.D. No. 576-A. The purpose was because
some public utilities, especially radio and television stations, have a tendency
toward monopoly in ownership. Therefore, it is necessary to regulate the
ownership and operation of radio and television stations.
I. Facts of the case
On November 11, 1931, Act No. 3846, entitled "An Act Providing for
the Regulation of Radio Stations and Radio Communications in the
Philippines and for Other Purposes," was enacted. Sec. 1 of the law reads,
“No person, firm, company, association, or corporation shall construct,
install, establish, or operate a radio transmitting station, or a radio
receiving station used for commercial purposes, or a radio broadcasting
station, without having first obtained a franchise therefor from the
Congress of the Philippines. . ."
Pursuant to the provision, Congress enacted RA 4551 granting Marcos J.
Villaverde, Jr. and Winfred E. Villaverde a franchise to operate a public
radiotelephone and radiotelegraph stations. The franchise is for 50 years. In
1969, the franchise was transferred to petitioner Associated Communications
& Wireless Services — United Broadcasting Network, Inc. (ACWS) through
Congress' Concurrent Resolution No. 58.
In 1974, P.D. No. 576-A, "Regulating the Ownership and Operation of
Radio and Television Stations and for other Purposes" was issued which
stated in its provision that no radio station or television channel may obtain a
franchise unless it has sufficient capital for its operation for at least one year.
Another provision stated that “All franchises, grants, licenses, permits,
certificates or other forms of authority to operate radio or television
broadcasting systems shall terminate on December 31, 1981. Thereafter,
irrespective of any franchise, grant, license, permit, certificate or other forms
of authority to operate granted by any office, agency or person, no radio or
television station shall be authorized to operate without the authority of the
Board of Communications and the Secretary of Public Works and
Communications or their successors…”
In 1979, EO 546 was issued. It integrated the Board of Communications
and the Telecommunications Control Bureau under the Integrated
Reorganization Plan of 1972 into the NTC. The NTC was given the power
to issue Certificate of Public Convenience for the operation of
communication utilities and services, radio communications systems,
wire or wireless telephone or telegraph system, radio and television
broadcasting system and other similar public utilities.
Upon termination of petitioner’s franchise on Dec. 31, 1981, it continued
operating its radio stations under permits granted by NTC. As the
mentioned laws caused confusion whether NTC could issue permits
without legislative franchise, the NTC sought the opinion of DOJ on the
matter. The DOJ answered, “We believe that E.O. No. 546 is one law which
authorizes an administrative agency, the NTC, to issue authorizations for
the operation of radio and television broadcasting systems without need
of a prior franchise issued by Congress.”
However, NTC, the Committee on Legislative Franchises of Congress, and the
Kapisanan ng mga Brodkaster sa Pilipinas of which petitioner is a member of
good standing, entered into a Memorandum of Understanding (MOU)
that requires a congressional franchise to operate radio and television
stations. Stated in the MOU that “such temporary permits or
authorization to operate shall be valid for two (2) years within which the
permittee shall be required to file an application for legislative franchise
with Congress not later than December 31, 1994; provided finally, that if
the permittee of the temporary permit or authorization to operate fails
to secure the legislative franchise with Congress within this period, the
NTC shall not extend or renew its permit or authorization to operate any
further.”
Prior to the Dec. 31 deadline, petitioner filed an application for franchise.
Pending approval, the NTC issued a temporary permit. In 1996, the NTC
authorized petitioner to increase the power output of Channel 25 from 1.0
kilowatt to 25 kilowatts after finding it financially and technically capable.
Before the expiration of its temporary permit, it applied for a renewal in May
1997.
On Oct. 1997, the House Committee on Legislative Franchises of Congress
replied to an inquiry of the NTC's Broadcast Division Chief regarding the
franchise application of ACWS filed on December 20, 1994. The Committee
certified that petitioner's franchise application was not deliberated on
by the 9th Congress because petitioner failed to submit the required
supporting documents. In the next Congress, petitioner did not refile its
application. The next month, November 1997, NTC wrote to petitioner
informing it that pending compliance of a franchise, its application for
temporary permit would be held in abeyance. Petitioner claims it did not
receive the letter.
Despite the absence of a franchise, NTC notified petitioner that its May 1997
application for renewal of its temporary permit to operate television Channel
25 was approved and would be released upon payment of the prescribed fee
of P3,600.00. After paying said amount, however, the NTC refused to release
to petitioner its renewed permit. Instead, the NTC commenced against
petitioner Administrative Case No. 98-009 based on the November 1997
letter. Petitioner was also directed to cease and desist from operating
Channel 25 unless subsequently authorized by the NTC.
In the meantime, the NTC issued Memorandum Circular No. 14-10-98 which
states that “existing broadcast operators who were not able to secure a
legislative franchise up to this date are given up to December 31, 1999
within which to have their application for a legislative franchise bill
approved by Congress. The franchise bill must be filed immediately but not
later than November 30th of this year to give both Houses time to deliberate
upon and recommend approval/disapproval thereof.” The Circular was
published in the Philippine Star.
Before the Nov. 30, 1998 deadline, House Bill No. 3216, entitled "An Act
Granting the ACWS-United Broadcasting Network, Inc. a Franchise to
Construct, Install, Operate and Maintain Radio and Television
Broadcasting Stations within the Philippines, and for other Purposes,"
was filed with the Congress.
In January 1999, NTC rendered a decision on Administrative Case No. 98-009
against petitioner which recalled Channel 25 and denied the renewal of their
temporary permit to operate Channel 25. Thus, this petition for review on
certiorari.
Issue/s
Whether or not a franchise is a condition sine qua non in the operation of a
radio and television broadcasting system? YES.
Ratio/Legal Basis
Petitioner argues that Act. 3846 does not mention television stations.
The law was enacted in 1931 where there were no television stations in the
Philippines yet. Therefore, television stations are excluded.
In upholding the NTC decision, CA held that franchise requirement
under Act No. 3846 was not expressly repealed by P.D. No. 576-A nor E.O.
No. 546. CA correctly ruled that a congressional franchise is necessary for
petitioner to operate television Channel 25. Even assuming that Act No. 3846
applies only to radio stations and not to television stations as petitioner
adamantly insists, the subsequent P.D. No. 576-A clearly shows in Section 1
that a franchise is required to operate radio as well as television stations, “No
radio station or television channel…”
Shortly after the declaration of Martial Law, then President Marcos
issued P.D. No. 1 dated September 24, 1972, through which the Integrated
Reorganization Plan for the executive branch was adopted. Under the Plan,
the Public Service Commission was abolished and its functions transferred to
special regulatory boards, among which was the Board of Communications
which granted the power to issue CPCs for the operation of communications
utilities and services, radio communications systems, etc. Thus, it was no
longer sufficient to secure authorization from the Secretary of Public Works
and Communications as provided in Act No. 3846. The Board's authorization
was also necessary. Thus, P.D. No. 576-A provides in Section 6 that radio and
television station operators must secure authorization from both the
Secretary of Public Works and Communications and the Board of
Communications.
Dispensing the requirement of a congressional franchise is not in line
with the declared purposes of P.D. No. 576-A. The purpose was because
some public utilities, especially radio and television stations, have a tendency
toward monopoly in ownership. Therefore, it is necessary to regulate the
ownership and operation of radio and television stations.
Contrary to the opinion of the Secretary of Justice in DOJ Opinion No.
98, Series of 1991, the appellate court was correct in ruling that E.O. No. 546
which came after P.D. No. 576-A did not dispense with the requirement of a
congressional franchise. It merely abolished the Board of Communications
and the Telecommunications Control Bureau under the Reorganization Plan
and transferred their functions to the NTC, including the power to issue
Certificates of Public Convenience (CPC) and grant permits for the use of
frequencies.
In Radio Communication of the Philippines case, the Court held that a
franchise is distinguished from a CPC in that the former is a grant or privilege
from the sovereign power, while the latter is a form of regulation through the
administrative agencies. “A franchise started out as a "royal privilege or (a)
branch of the King's prerogative, subsisting in the hands of a subject.”
Even prior to E.O. No. 546, the NTC's precursor, i.e., the Board of
Communications, already had the function of issuing CPC. The function
of the NTC to issue CPC under E.O. No. 546 is thus nothing new and
exists alongside the requirement of a congressional franchise under P.D.
No. 576-A. The cardinal rule in statutory construction that statutes in pare
materia, although in apparent conflict, or containing apparent
inconsistencies, should, as far as reasonably possible, be construed in
harmony with each other, so as to give force and effect to each.
Petitioner argues that DOJ Opinion No. 98 was binding and conclusive.
The Court held that this opinion is merely persuasive and not necessarily
controlling. As shown above, the opinion is erroneous insofar as it holds that
E.O. No. 546 dispenses with the requirement of a congressional franchise to
operate radio and television stations.
In Albano where the Court held that a congressional franchise is not
required before "each and every public utility may operate." The Court
clarified that where there is a law such as P.D. No. 576-A which requires a
franchise for the operation of radio and television stations, that law must be
followed until subsequently repealed. In Albano, the law applicable for the
Philippine Ports Authority to take over, manage and operate the Manila
International Port Complex and undertake the providing of cargo handling
and port related services does not require a franchise. A franchise is also not
necessary for the operation of domestic air transport. Thus, while it is correct
to say that specifoed agencies in the Executive Branch have the power to
issue authorization for certain classes of public utilities, this does not mean
that the authorization or CPC issued by the NTC dispenses with the
requirement of a franchise as this is clearly required under P.D. No. 576-A.
The legislative intent is to continue requiring a franchise for the
operation of radio and television broadcasting stations is clear from the
franchises granted by Congress after the effectivity of E.O. No. 546. It
granted franchises to Iddes Broadcast Group, Inc., Hypersonic Broadcatting
Center, Inc., and Digital Telecommunication Philippines. All three franchises
require the grantees to secure a CPCN/license/permit to construct and
operate their stations/systems. Also, the Tax Reform Act of 1997 provides in
Section 119 for tax on franchise of radio and/or television broadcasting
companies.
Petitioner argues that the cancellation of its permit to operated when it was
already approved was unreasonable. The Court held that the 1994 MOU
states in unmistakable terms that petitioner's temporary permit to operate
Channel 25 would be valid for only two years, i.e., from June 29, 1995 to June
28, 1997. During these two years, petitioner was supposed to have secured a
congressional franchise, otherwise "the NTC shall not extend or renew its
permit or authorization to operate any further." The NTC's approval of
petitioner's application to renew its temporary permit in January 1998 was
thus erroneous. Further, petitioner had the opportunity to present its case
and submit evidence on why its assigned frequency Channel 25 should not
be recalled and its application for renewal denied. The requirements of due
process were satisfied therefore, it is not unreasonable.
Petitioner argues that the NTC decision on the admin case “slammed the
door” on its application for a franchise. The Court held that the process of
securing a congressional franchise is separate and distinct from the
process of applying for renewal of a temporary permit with the NTC.
The latter is not a prerequisite to the former. In fact, in the normal course
of securing authorizations to operate a television and radio station, the
application for a CPC with the NTC comes after securing a franchise
from Congress. The CPC is not a condition for the grant of a
congressional franchise.
The criticism against the requirement of a franchise is expressed by a public
utilities lawyer, “What exactly is the reason or rationale for imposing a prior
congressional franchise? There seems to be no valid reason for it except to
impose added burden and expenses on the part of the applicant. The
justification appears to be simply because this was required in the past so it is
now.”
The call to dispense with the requisite legislative franchise must,
however, be addressed to Congress as the lawmaker of the land for the
Court's function is to interpret and not to rewrite the law. As long as the
law remains unchanged, the requirement of a franchise to operate a
television station must be upheld.
Disposition
WHEREFORE, the petition is DENIED and the Court of Appeals' January
13, 2000 decision and February 21, 2000 resolution are AFFIRMED. No costs.
PLDT v National Telecommunication
Recit-ready summary
Petitioner Philippine Long Distance Telephone Company (PLDT) assails, by
way of certiorari and Prohibition under Rule 65, two (2) Orders of public
respondent National Telecommunications Commission (NTC), namely, the
Order of 12 December 1988 granting private respondent Express
Telecommunications Co., Inc. (ETCI) provisional authority to install, operate
and maintain a Cellular Mobile Telephone System in Metro-Manila.
Rep. Act No. 2090, was enacted, otherwise known as "An Act Granting Felix
Alberto and Company, Incorporated, a Franchise to Establish Radio
Stations for Domestic and Transoceanic Telecommunications." Felix
Alberto & Co., Inc. (FACI) was the original corporate name, which was
changed to ETCI with the amendment of the Articles of Incorporation in 1964.
Much later, "CELLCOM, Inc." was the name sought to be adopted before
the Securities and Exchange Commission, but this was withdrawn and
abandoned.  i.e., Section 20(h) of the Public Service Act (Commonwealth Act No.
ETCI then filed with the NTC an application for a CPCN which PLDT filed
an opposition.
Does NTC have jurisdiction to hear?
Yes, NTC has provisional jurisdiction and did not act beyond its
authority.
Is the same order validated stock transactions of a public service enterprise
contrary to and/or in direct violation of Section 20(h) of the Public Service Act?
No
The provisional authority was issued after due hearing, reception of evidence
and evaluation thereof, with the hearings attended by various oppositors,
including PLDT. It was granted only after a prima facie showing that ETCI has
the necessary legal, financial and technical capabilities and that public
interest, convenience and necessity so demanded.  authority, seeking approval of the increase in its capital stock from
PLDT argues, however, that a provisional authority is nothing short of a
Certificate of Public Convenience and Necessity (CPCN) and that it is
merely a "distinction without a difference." That is not so. Basic
differences do exist, which need not be elaborated on. What should be
borne in mind is that provisional authority would be meaningless if the
grantee were not allowed to operate. Moreover, it is clear from the very
Order of 12 December 1988 itself that its scope is limited only to the first
phase, out of four, of the proposed nationwide telephone system. The
installation and operation of an alpha numeric paging system was not
authorized. The provisional authority is not exclusive. Its lifetime is
limited and may be revoked by the NTC at any time in accordance with
law. The initial expenditure of P130M more or less, is rendered necessary
even under a provisional authority to enable ETCI to prove its capability. And
as pointed out by the Solicitor General, on behalf of the NTC, if what had
been granted were a CPCN, it would constitute a final order or award
reviewable only by ordinary appeal to the Court of Appeals pursuant to
Section 9(3) of BP Blg. 129, and not by certiorari before this Court.  transfers was involved from 1964 to 1987. And, contrary to PLDT's
The final outcome of the application rests within the exclusive
prerogative of the NTC. Whether or not a CPCN would eventually issue
would depend on the evidence to be presented during the hearings still to be
conducted, and only after a full evaluation of the proof thus presented.
The sale of shares of stock of a public utility is governed by another law,
146). Pursuant thereto, the Public Service Commission (now the NTC) is
the government agency vested with the authority to approve the
transfer of more than 40% of the subscribed capital stock of a
telecommunications company to a single transferee.
In other words, transfers of shares of a public utility corporation need
only NTC approval, not Congressional authorization. What transpired in
ETCI were a series of transfers of shares starting in 1964 until 1987. The
approval of the NTC may be deemed to have been met when it
authorized the issuance of the provisional authority to ETCI. There was
full disclosure before the NTC of the transfers. In fact, the NTC Order of 12
November 1987 required ETCI to submit its "present capital and ownership
structure." Further, ETCI even filed a Motion before the NTC, dated 8
December 1987, or more than a year prior to the grant of provisional
P360,000.00 to P40M, and the stock transfers made by its stockholders.
A distinction should be made between shares of stock, which are owned
by stockholders, the sale of which requires only NTC approval, and the
franchise itself which is owned by the corporation as the grantee
thereof, the sale or transfer of which requires Congressional sanction.
Since stockholders own the shares of stock, they may dispose of the same as
they see fit. They may not, however, transfer or assign the property of a
corporation, like its franchise. In other words, even if the original stockholders
had transferred their shares to another group of shareholders, the franchise
granted to the corporation subsists as long as the corporation, as an
entity, continues to exist The franchise is not thereby invalidated by the
transfer of the shares. A corporation has a personality separate and distinct
from that of each stockholder. It has the right of continuity or perpetual
succession
To all appearances, the stock transfers were not just for the purpose of
acquiring the ETCI franchise, considering that, as heretofore stated, a series of
assertion, the franchise was not the only property of ETCI of meaningful
value. The "zero" book value of ETCI assets, as reflected in its balance sheet,
was plausibly explained as due to the accumulated depreciation over the
years entered for accounting purposes and was not reflective of the actual
value that those assets would command in the market.
But again, whether ETCI has offended against a provision of its franchise, or
has subjected it to misuse or abuse, may more properly be inquired into
in quo warranto  proceedings instituted by the State. It is the condition of
every franchise that it is subject to amendment, alteration, or repeal when the
common good so requires (1987 Constitution, Article XII, Section 11).
Facts of the case
Petitioner Philippine Long Distance Telephone Company (PLDT) assails, by
way of certiorari and Prohibition under Rule 65, two (2) Orders of public
respondent National Telecommunications Commission (NTC), namely, the
Order of 12 December 1988 granting private respondent Express
Telecommunications Co., Inc. (ETCI) provisional authority to install, operate
and maintain a Cellular Mobile Telephone System in Metro-Manila (Phase A)
in accordance with specified conditions, and the Order, dated 8 May 1988,
denying reconsideration.
Rep. Act No. 2090, was enacted, otherwise known as "An Act Granting Felix
Alberto and Company, Incorporated, a Franchise to Establish Radio Stations
for Domestic and Transoceanic Telecommunications." Felix Alberto & Co., Inc.
(FACI) was the original corporate name, which was changed to ETCI with the
amendment of the Articles of Incorporation in 1964. Much later, "CELLCOM,
Inc." was the name sought to be adopted before the Securities and Exchange
Commission, but this was withdrawn and abandoned.  and the public switched telephone network and shall jointly submit such
On 13 May 1987, alleging urgent public need, ETCI filed an application with
public respondent NTC (docketed as NTC Case No. 87-89) for the issuance of
a Certificate of Public Convenience and Necessity (CPCN) to construct, install,
establish, operate and maintain a Cellular Mobile Telephone System and an
Alpha Numeric Paging System in Metro Manila and in the Southern Luzon
regions, with a prayer for provisional authority to operate Phase A of its
proposal within Metro Manila.
PLDT filed an Opposition with a Motion to Dismiss, based primarily on the
following grounds: (1) ETCI is not capacitated or qualified under its legislative
franchise to operate a systemwide telephone or network of telephone service
such as the one proposed in its application; (2) ETCI lacks the facilities needed
and indispensable to the successful operation of the proposed cellular mobile
telephone system; (3) PLDT has itself a pending application with NTC, Case
No. 86-86, to install and operate a Cellular Mobile Telephone System for
domestic and international service not only in Manila but also in the
provinces and that under the "prior operator" or "protection of investment"
doctrine, PLDT has the priority or preference in the operation of such service;
and (4) the provisional authority, if granted, will result in needless,
uneconomical and harmful duplication, among others.
NTC overruled PLDT's Opposition and declared that Rep. Act No. 2090 (1958)
should be liberally construed as to include among the services under said
franchise the operation of a cellular mobile telephone service.
On 12 December 1988, NTC issued the first challenged Order. Opining that
"public interest, convenience and necessity further demand a second cellular
mobile telephone service provider and finds PRIMA FACIE evidence showing
applicant's legal, financial and technical capabilities to provide a cellular
mobile service using the AMPS system," NTC granted ETCI provisional
authority to install, operate and maintain a cellular mobile telephone system
initially in Metro Manila, Phase A only, subject to the terms and conditions set
forth in the same Order. One of the conditions prescribed (Condition No. 5)
was that, within ninety (90) days from date of the acceptance by ETCI of the
terms and conditions of the provisional authority, ETCI and PLDT "shall enter
into an interconnection agreement for the provision of adequate
interconnection facilities between applicant's cellular mobile telephone switch
interconnection agreement to the Commission for approval." 
In a "Motion to Set Aside the Order" granting provisional authority, PLDT
alleged essentially that the interconnection ordered was in violation of due
process and that the grant of provisional authority was jurisdictionally and
procedurally infirm. On 8 May 1989, NTC denied reconsideration and set the
date for continuation of the hearings on the main proceedings. This is the
second questioned Order. 
PLDT urges us now to annul the NTC Orders of 12 December 1988 and 8 May
1989 and to order ETCI to desist from, suspend, and/or discontinue any and
all acts intended for its implementation.  such relief even in the absence of a motion from an applicant.
On 15 June 1989, we resolved to dismiss the petition for its failure to comply
fully with the requirements of Circular No. 1-88. Upon satisfactory showing,
however, that there was, in fact, such compliance, we reconsidered the order,
reinstated the Petition, and required the respondents NTC and ETCI to submit
their respective Comments.
On 27 February 1990, we issued a Temporary Restraining Order enjoining
NTC to "Cease and Desist from all or any of its on-going proceedings and
ETCI from continuing any and all acts intended or related to or which will
amount to the implementation/execution of its provisional authority." This
was upon PLDT's urgent manifestation that it had been served an NTC Order,
dated 14 February 1990, directing immediate compliance with its Order of 12
December 1988, "otherwise the Commission shall be constrained to take the
necessary measures and bring to bear upon PLDT the full sanctions provided
by law."  "distinction without a difference." That is not so. Basic differences do exist,
We required PLDT to post a bond of P 5M. It has complied, with the
statement that it was "post(ing) the same on its agreement and/or consent to
have the same forfeited in favor of Private Respondent ETCI/CELLCOM should
the instant Petition be dismissed for lack of merit." ETCI took exception to the
sufficiency of the bond considering its initial investment of approximately P
225M, but accepted the forfeiture proferred.  alpha numeric paging system was not authorized. The provisional authority is
ETCI moved to have the TRO lifted, which we denied on 6 March 1990. We
stated, however, that the inaugural ceremony ETCI had scheduled for that day
could proceed, as the same was not covered by the TRO.
Issue/s
Does NTC have jurisdiction? Yes
Is the same order validated stock transactions of a public service
enterprise contrary to and/or in direct violation of Section 20(h) of the
Public Service Act? No
Ratio/Legal Basis
There can be no question that the NTC is the regulatory agency of the
national government with jurisdiction over all telecommunications entities. It
is legally clothed with authority and given ample discretion to grant a
provisional permit or authority. In fact, NTC may, on its own initiative, grant
What the NTC granted was such a provisional authority, with a definite expiry
period of eighteen (18) months unless sooner renewed, and which may be
revoked, amended or revised by the NTC. It is also limited to Metro Manila
only. What is more, the main proceedings are clearly to continue as stated in
the NTC Order of 8 May 1989.
The provisional authority was issued after due hearing, reception of evidence
and evaluation thereof, with the hearings attended by various oppositors,
including PLDT. It was granted only after a prima facie showing that ETCI has
the necessary legal, financial and technical capabilities and that public
interest, convenience and necessity so demanded. 
PLDT argues, however, that a provisional authority is nothing short of a
Certificate of Public Convenience and Necessity (CPCN) and that it is merely a
which need not be elaborated on. What should be borne in mind is that
provisional authority would be meaningless if the grantee were not allowed
to operate. Moreover, it is clear from the very Order of 12 December 1988
itself that its scope is limited only to the first phase, out of four, of the
proposed nationwide telephone system. The installation and operation of an
not exclusive. Its lifetime is limited and may be revoked by the NTC at any
time in accordance with law. The initial expenditure of P130M more or less, is
rendered necessary even under a provisional authority to enable ETCI to
prove its capability. And as pointed out by the Solicitor General, on behalf of
the NTC, if what had been granted were a CPCN, it would constitute a final
order or award reviewable only by ordinary appeal to the Court of Appeals
pursuant to Section 9(3) of BP Blg. 129, and not by certiorari before this
Court. 
The final outcome of the application rests within the exclusive prerogative of
the NTC. Whether or not a CPCN would eventually issue would depend on
the evidence to be presented during the hearings still to be conducted, and
only after a full evaluation of the proof thus presented.
The Coverage of ETCI's Franchise
Rep. Act No. 2090 grants ETCI (formerly FACI) "the right and privilege of
constructing, installing, establishing and operating in the entire Philippines
radio stations for reception and transmission of messages on radio stations in
the foreign and domestic public fixed point-to-point and public base,
aeronautical and land mobile stations, ... with the corresponding relay
stations for the reception and transmission of wireless messages on
radiotelegraphy and/or radiotelephony ...." PLDT maintains that the scope of
the franchise is limited to "radio stations" and excludes telephone services
such as the establishment of the proposed Cellular Mobile Telephone System
(CMTS). However, in its Order of 12 November 1987, the NTC construed the
technical term "radiotelephony" liberally as to include the operation of a
cellular mobile telephone system.
The foregoing is the construction given by an administrative agency
possessed of the necessary special knowledge, expertise and experience and
deserves great weight and respect (Asturias Sugar Central, Inc. v.
Commissioner of Customs, et al., L-19337, September 30, 1969, 29 SCRA 617).
It can only be set aside on proof of gross abuse of discretion, fraud, or error
of law (Tupas Local Chapter No. 979 v. NLRC, et al., L-60532-33, November 5,
1985, 139 SCRA 478). We discern none of those considerations sufficient to
warrant judicial intervention.
The Status of ETCI Franchise
PLDT alleges that the ETCI franchise had lapsed into nonexistence for failure
of the franchise holder to begin and complete construction of the radio
system authorized under the franchise as explicitly required in Section 4 of its
franchise, Rep. Act No. 2090.
PLDT also invokes Pres. Decree No. 36, enacted on 2 November 1972, which
legislates the mandatory cancellation or invalidation of all franchises for the
operation of communications services, which have not been availed of or
used by the party or parties in whose name they were issued.
However, whether or not ETCI, and before it FACI, in contravention of its
franchise, started the first of its radio telecommunication stations within (2)
years from the grant of its franchise and completed the construction within
ten (10) years from said date; and whether or not its franchise had remained
unused from the time of its issuance, are questions of fact beyond the
province of this Court, besides the well-settled procedural consideration that
factual issues are not subjects of a special civil action for certiorari 
Moreover, neither Section 4, Rep. Act No. 2090 nor Pres. Decree No. 36
should be construed as self-executing in working a forfeiture. Franchise
holders should be given an opportunity to be heard, particularly so, where, as
in this case, ETCI does not admit any breach, in consonance with the
rudiments of fair play. 
The determination of the right to the exercise of a franchise, or whether the
right to enjoy such privilege has been forfeited by non-user, is more properly
the subject of the prerogative writ of quo warranto, the right to assert which,
as a rule, belongs to the State "upon complaint or otherwise" and cannot be
attacked collaterally
ETCI's Stock Transactions
ETCI admits that in 1964, the Albertos, as original owners of more than 40%
of the outstanding capital stock sold their holdings to the Orbes. In 1968, the
Albertos re-acquired the shares they had sold to the Orbes. In 1987, the
Albertos sold more than 40% of their shares to Horacio Yalung. Thereafter,
the present stockholders acquired their ETCI shares. Moreover, in 1964, ETCI
had increased its capital stock from P40,000.00 to P360,000.00; and in 1987,
from P360,000.00 to P40M.
PLDT contends that the transfers in 1987 of the shares of stock to the new
stockholders amount to a transfer of ETCI's franchise, which needs
Congressional approval pursuant to Rep. Act No. 2090, and since such
approval had not been obtained, ETCI's franchise had been invalidated.
It should be noted, however, that the foregoing provision is, directed to the
"grantee" of the franchise, which is the corporation itself and refers to a sale,
lease, or assignment of that franchise. It does not include the transfer or sale
of shares of stock of a corporation by the latter's stockholders.
The sale of shares of stock of a public utility is governed by another law, i.e.,
Section 20(h) of the Public Service Act (Commonwealth Act No. 146).
Pursuant thereto, the Public Service Commission (now the NTC) is the
government agency vested with the authority to approve the transfer of
more than 40% of the subscribed capital stock of a telecommunications
company to a single transferee, thus: 
SEC. 20. Acts requiring the approval of the Commission. Subject to
established stations and exceptions and saving provisions to the
contrary, it shall be unlawful for any public service or for the owner,
 lessee or operator thereof, without the approval and authorization of
the Commission previously had  acquiring the ETCI franchise, considering that, as heretofore stated, a series of
xxx xxx xxx
(h) To sell or register in its books the transfer or sale of shares of its
capital stock, if the result of that sale in itself or in connection with
another previous sale, shall be to vest in the transferee more than forty
per centum of the subscribed capital of said public service. Any transfer
made in violation of this provision shall be void and of no effect and
shall not be registered in the books of the public service corporation.
Nothing herein contained shall be construed to prevent the holding of
shares lawfully acquired. (As amended by Com. Act No. 454).
In other words, transfers of shares of a public utility corporation need only
NTC approval, not Congressional authorization. What transpired in ETCI were
a series of transfers of shares starting in 1964 until 1987. The approval of the
NTC may be deemed to have been met when it authorized the issuance of
the provisional authority to ETCI. There was full disclosure before the NTC of
the transfers. In fact, the NTC Order of 12 November 1987 required ETCI to
submit its "present capital and ownership structure." Further, ETCI even filed a
Motion before the NTC, dated 8 December 1987, or more than a year prior to
the grant of provisional authority, seeking approval of the increase in its
capital stock from P360,000.00 to P40M, and the stock transfers made by its
stockholders.
A distinction should be made between shares of stock, which are owned by
stockholders, the sale of which requires only NTC approval, and the franchise
itself which is owned by the corporation as the grantee thereof, the sale or
transfer of which requires Congressional sanction. Since stockholders own the
shares of stock, they may dispose of the same as they see fit. They may not,
however, transfer or assign the property of a corporation, like its franchise. In
other words, even if the original stockholders had transferred their shares to
another group of shareholders, the franchise granted to the corporation
subsists as long as the corporation, as an entity, continues to exist The
franchise is not thereby invalidated by the transfer of the shares. A
corporation has a personality separate and distinct from that of each
stockholder. It has the right of continuity or perpetual succession
(Corporation Code, Sec. 2).
To all appearances, the stock transfers were not just for the purpose of
transfers was involved from 1964 to 1987. And, contrary to PLDT's assertion,
the franchise was not the only property of ETCI of meaningful value. The
"zero" book value of ETCI assets, as reflected in its balance sheet, was
plausibly explained as due to the accumulated depreciation over the years
entered for accounting purposes and was not reflective of the actual value
that those assets would command in the market.
But again, whether ETCI has offended against a provision of its franchise, or
has subjected it to misuse or abuse, may more properly be inquired into
in quo warranto  proceedings instituted by the State. It is the condition of
every franchise that it is subject to amendment, alteration, or repeal when the
common good so requires (1987 Constitution, Article XII, Section 11).
Ultimate Considerations 
The decisive consideration are public need, public interest, and the common
good. Those were the overriding factors which motivated NTC in granting
provisional authority to ETCI. Article II, Section 24 of the 1987 Constitution,
recognizes the vital role of communication and information in nation
building. It is likewise a State policy to provide the environment for the
emergence of communications structures suitable to the balanced flow of
information into, out of, and across the country (Article XVI, Section 10, Ibid.).
A modern and dependable communications network rendering efficient and
reasonably priced services is also indispensable for accelerated economic
recovery and development. To these public and national interests, public
utility companies must bow and yield. 
Despite the fact that there is a virtual monopoly of the telephone system in
the country at present. service is sadly inadequate. Customer demands are
hardly met, whether fixed or mobile. There is a unanimous cry to hasten the
development of a modern, efficient, satisfactory and continuous
telecommunications service not only in Metro Manila but throughout the
archipelago. The need therefor was dramatically emphasized by the
destructive earthquake of 16 July 1990. It may be that users of the cellular
mobile telephone would initially be limited to a few and to highly
commercialized areas. However, it is a step in the right direction towards the
enhancement of the telecommunications infrastructure, the expansion of
telecommunications services in, hopefully, all areas of the country, with
chances of complete disruption of communications minimized. It will thus
impact on, the total development of the country's telecommunications
systems and redound to the benefit of even those who may not be able to
subscribe to ETCI.  are canvassed once again below.
Free competition in the industry may also provide the answer to a much-
desired improvement in the quality and delivery of this type of public utility,
to improved technology, fast and handy mobile service, and reduced user
dissatisfaction. After all, neither PLDT nor any other public utility has a
constitutional right to a monopoly position in view of the Constitutional
proscription that no franchise certificate or authorization shall be exclusive in
character or shall last longer than fifty (50) years (ibid., Section 11; Article XIV
Section 5, 1973 Constitution; Article XIV, Section 8, 1935 Constitution).
Additionally, the State is empowered to decide whether public interest
demands that monopolies be regulated or prohibited (1987 Constitution.
Article XII, Section 19).
Disposition
WHEREFORE, finding no grave abuse of discretion, tantamount to lack
of or excess of jurisdiction, on the part of the National
Telecommunications Commission in issuing its challenged Orders of 12
December 1988 and 8 May 1989 in NTC Case No. 87-39, this Petition is
DISMISSED for lack of merit. The Temporary Restraining Order
heretofore issued is LIFTED. The bond issued as a condition for the
issuance of said restraining Order is declared forfeited in favor of private
respondent Express Telecommunications Co., Inc. Costs against
petitioner.  We turn first to the scope of the franchise authority of Eastern. The
SO ORDERED.
FELICIANO, J.:
To make crystal clear what the Court is now holding in granting the Motions
for Reconsideration, for the guidance of our courts, administrative agencies
and the general public, and in the hope that the basic issues with which the
Court has grappled in the present case may finally be laid at rest, those issues
Private respondent Eastern, filed, on 16 July 1987, with the NTC an
application for a CPCN, to construct, maintain and operate an IGF, which
is estimated to cost US$5 Million. Eastern is a 60% Filipino owned
corporation 2 organized under Philippine law and holder of a legislative
franchise under R.A. No. 808, as amended by R.A. No. 5002, in relation to
P.D. No. 489 granting it the right and privilege to:
. . . land, construct, maintain and
operate telecommunication  systems by cable  or any other
means now known to science  or which in the future may be
developed  for the reception and transmission of
messages between any point in the Philippines to points
exterior thereto, including airplanes, airships or vessels even
though such airplanes, airships or vessels may be located
within territorial limits of the Philippines. (Emphasis supplied)
Eastern is successor to Eastern Extension Australasia and China
Telegraph Company, a British company which had been in the
Philippines since the Spanish colonial period. Together with other
companies, Eastern invested in the Philippines US$25 Million in submarine
cable and related facilities, and installed, owns, maintains and operates
submarine cables between the Philippines and Hongkong-Japan, the
Philippines and Taiwan, and the Philippines and Singapore.
contention of PLDT is that an IGF is inherently part of "a telephone
system" since it is "useful only for a telephone system." Thus, PLDT
contends that in effect Eastern is asking for a CPCN to establish
a telephone system. But Eastern has no franchise to establish a
telephone system. Hence, PLDT continues, Eastern cannot be granted the
CPCN it seeks.
The IGF facility which NTC authorized Eastern to install and operate is
described in the following technical terms, in the NTC decision of 14
November 1989:
A. System Components
The international gateway shall consist of the international switching
maintenance center (ISMC), internationaltransmission center (ITMC),
international network maintenance management center (INMC), and
traffic operations center (TOC). The ISMC shall provide the switching
operations including the maintenance thereof. The ITMC shall provide for the
international links and the maintenance of the international circuits. The
INMC shall see to it that traffic [is] routed via the best route-possible. The
management of the entire network is undertaken by the INMC. The traffic
operations center shall be where the positions are situated. The TOC shall
among others provide for operator-assisted international calls.
B. System Capability
1. The proposed ITMC shall be equipped to accommodate terminating
circuits as well as transit facilities. It shall have the capability to interface with
domestic broadband transmission and switching networks operated by other
carriers either the analog or digital levels. It will also provide cost effective
manner of terminating/processing and cross connecting digital capacities. It
is designed to support transmission standards for ISDN channels.
2. The proposed ISMC shall be fully ISDN compatible switching system that
will carry both broadband and voice band message, data and information
switching. It will support various international telephone signaling
eguipments, i.e. C5, C6, C7 as well as transparent circuit switching and
data/records signalling protocols. It can also provide manual switching
capability both for voice and non-voice services. It will also be equipped to
act as a tandem switch providing the international switching interface to
domestic service carriers.
3. The INMC shall be equipped with the latest in network management
technology that can perform automatic rerouting of circuits and quick
mapping of capacities while ensuring a minimum degree of interruption.
4. The proposed gateway shall initially be capable of switching
international telephone traffic to countries where applicant has
international correspondents.3
In its original decision, the Court, adopting PLDT's theory, said that "the
gateway facility is part of a telephone  system and that Eastern wants to
engage in combined international and substantially extensive domestic
telephone system  without any legislative authority."4 We reject PLDT's
theory and now reconsider the Court's original holding upon the
grounds set out below.
What is clear from the foregoing technical description by the NTC is that an
IGF comprises equipment which makes possible the interfacing or
interconnection between (1) a domestic telecommunication system, like
that of PLDT, and (2) the cables or other equipment for transmitting
electronically messages from points within the Philippines to points
outside the Philippines, as well as messages originating from points
outside to points inside the Philippines. The IGF constitutes a
telecommunications exchange that in effect connects PLDT's subscribers or
users with the subscribers and users of tele-communications systems located
in different parts of the outside world. The IGF is not in itself a telephone
or telecommunication system  but it is not, in any case necessary to try
to determine what constitutes a telephone system.
In the first place, the existing legislative franchise of Eastern authorizes it
to land, construct, maintain and operate "telecommunications systems"
for the purpose of effecting "the reception and transmission of
messages between any point in the Philippines to points exterior [to the
Philippines]." "Telecommunication" is, in itself, a comprehensive term.
Etymologically (tele  [from the Greek] + communication), 5 it means
simply communication over distance, making no  limiting reference to the
means or mode of such communication. In the second place, the legislative
franchise of Eastern itself expressly elaborates that the
"telecommunication  systems" which Eastern may install, maintain and
operate may be "by cable  or any other means now known to science  or
which in the future may be developed." It is very difficult to craft language
more comprehensive in scope than the foregoing phrase.
Clearly, the species of method or the particular modality
of reception  and transmission  of messages across the territorial
boundaries of the Philippines, was of secondary importance to the
legislative authority which granted the franchise.
In the third place, there is no basis at all in Eastern's legislative
franchise  for a supposed distinction (which PLDT tries very hard to
suggest) between voice and non-voice transmissions or messages and
for a supposed limitation upon Eastern to transmit and receive only
non-voice messages. The statute simply does not  distinguish between voice
or oral and data or non-voice messages or transmissions: the statutory text
speaks simply of "messages." There is a basic and well-known scientific reason
why the statute makes no such distinction. Voice messages do not travel via
wires (cables whether submarine or underground or aerial) or any other
media qua voice (i.e., as sound waves); voice transmissions, exactly like data
(or non-voice) messages, travel in the form of electronic impulses through
cables (or any other media) and are simply converted at the point of
reception or destination into other forms visually or audibly perceptible by
human beings."6
Fourthly, PLDT's own legislative franchise provides no support for the
selective reading that PLDT would have the Court place upon the word
"telephone  system."7 The portion of PLDT's legislative franchise defining the
scope of PLDT's franchise authority does not  even use the word "telephone"
except in referring to PLDT by name) nor the phrase
"telephone  system;" instead the oft-repeated and operative term
is  "telecommunications." It is not by accident that PLDT advertises itself
in the broadcast media as a telecommunications company  rather than as
a telephone company.8 Even the original 1928 legislative franchise of
PLDT did no limit a  "telephone company"  to the transmission and
reception of voice or oral messages.9
Fifthly, and perhaps most importantly, Eastern in its application
was not  asking for authority to install and operate a domestic  telephone
or other telecommunications system, understood as a system for
carrying messages from one point in the Philippines to another point
also in the Philippines. Eastern was merely asking for authority to install
and operate an international  gateway facility, which would mediate
between the domestic telephone system of PLDT and the transmitting
and carrying facilities of Eastern. The gateway facility will permit
messages originating from a person using PLDT's domestic telephone
system to enter the transmitting and carrying facilities of Eastern, and as
well allow messages incoming from abroad through Eastern's carrying
facilities to enter PLDT's domestic system.
We believe and so hold that there is ample legal authority on the part of
Eastern to install, maintain and operate the IGF that it seeks.
From another point of view, it is important to note the conclusion reached in
the 15-page decision of the NTC:
After careful consideration of all the evidence submitted in this case, pro and
con, the Commission is convinced that applicant is legally,
technically  and  financially capable  to install operate and maintain
an international digital gateway facilities incorporating transmission,
switching and traffic operations facilities. The Commission is also
convinced that while there may be complexities involved in interconnection
and in having three (3) operators of an international digital gateway, it finds
out that another system is technically and economically feasible. The
Commission is fully convinced that the advantages of installing,
operating and maintaining another gateway by another
carrier outweighs the disadvantages  and that ultimately, public interest
will be served and the growth, development and expansion of
telecommunications services in the country will be accelerated. For lack
of merit, the opposition of PLDT is hereby OVERRULED. 10 (Emphasis
supplied)
Thus, the NTC did not only address the legal capability  of, or franchise
authority vested in Eastern;11 it also explicitly considered the technical
requirements of the IGF and acknowledged the technical  and  financial
ability  of Eastern to install, maintain and operate the facility. 12
In attacking the NTC decision, what PLDT was apparently really trying to
say was that the NTC had failed to indicate the necessity or desirability
of another international digital gateway facility, considering that PLDT
itself already owns and operates three (3) IGFs. Implicitly, PLDT's
contention appears to be that to grant Eastern's application for another
facility would be to approve an unnecessary duplication of facilities. The NTC
addressed this broad contention in the following manner:
As testified to by the applicant, the establishment by it of a new international
digital gateway will complement existing as well as planned switching and
transmission  to provide continuity and security  of international service in the
event of major facility failure. It will use the latest digital technology  and
incorporate the  most modern very large scale integrated  (VLSI) circuit
technology  which will result in a significant reduction in per termination
installed capital costs. This will result in more efficient and less
expensive  switching, operational and maintenance costs thru benefiting both
national carriers and telephone subscribers  in the Philippines.
xxx xxx xxx
Applicant strongly advances that the Philippines will be the direct and
principal beneficiary of [Eastern's] proposed gateway since the existing
facilities will be enhanced  and the role of the Philippines as a major
telecommunications center for international traffic  will be maintained. Since
applicant is technically and financially capable of constructing, maintaining
and operating an international gateway; that its proposed gateway facility is
technically and operationally feasible, and that PLDT by its acts and conduct
appears to have [the] intention to take over the business of [Eastern],  it
is imperative  to the stability and survival of [Eastern] as an international
telecommunications carrier; that it be able to establish and operate its own
international gateway. 13 (Emphasis supplied)
Moreover, in its 16 July 1990 Order, the NTC said:
As to the allegation that the decision did not consider PLDT's evidence, the
same is inaccurate. The brief prepared by the Technical and Financial Staff of
this Commission and the discussions held by the staff with the then
Commissioner which were the basis of the conclusion/decision took into
consideration the volumes of evidence presented by all parties. It also took
into consideration the fact that with PLDT's cut-over of its Makati gateway
facility it will have a total of 4575 international switch termination.  The
combined capacity of the new international gateway operators, namely
Philcom and ETPI will only be amount to 33% of PLDT's  capacity. It is the
Commission's position that in the event,  therefore, that any of PLDT's
gateway facilities become inoperative, relief can be provided by the gateway
facilities of Philcom and the applicant. The possibility that any two of the
gateway operator's facilities would fail at the same time is very
remote. 14 (Emphasis supplied)
The above quoted NTC order makes clear that, while PLDT complains
strenuously about having to compete with Eastern and Philippine Global
Communications (the other two international gateway operators granted
authority by the NTC at the time this case began), in fact NTC is very
protective of PLDT. For the approved combined capacity of the gateway
facilities of Philcom and Eastern will amount to only one-third (1/3) of PLDT's
existing gateway capacity. PLDT was obviously not satisfied with two-thirds
(2/3) of the international end of telecommunications business.
The record shows that additional compelling considerations support the
Decision and Order of the NTC which would make possible the establishment
of alternative international gateway facilities — that is, non-PLDT-owned
facilities. During the hearings before the NTC, it was brought out that PLDT
had in the past suffered a major facility breakdown, resulting in the
disruption of long distance telephone service between the Philippines and
the outside world. On 9 November 1987, for instance, such a breakdown
occurred with the result that 85% of the country's telecommunications to and
from the outside world were out of commission for about 17 to 18 hours.
Again, on 21 December 1987, a nationwide strike paralyzed PLDT operations,
threatening the security and reliability of international communications
between the Philippines and the rest of the world. 15 Undeniably, the
availability of alternative gateway facilities when interconnected with existing
local telephone networks (including but not limited to PLDT's own network
and gateway), will substantially increase the reliability and continuity of
international telecommunications service in the Philippines.
Still another consideration fully reflected in the record of this case supports
the decision reached by the NTC. PLDT, in the words of the Solicitor General,
"appear[ed] to have abused its monopoly over the country's only gateway
facility to the detriment of public service." 16 In 1988, PLDT unilaterally
stopped collect-call service from the Philippines to Hongkong in an attempt
to pressure Cable Wireless Hongkong (the telephone administration in
Hongkong) to appoint PLDT as its Philippine correspondent to the prejudice,
in particular, of families and friends of Philippine overseas workers in
Hongkong who rely substantially on such service. The NTC had to order PLDT
to restore the collect-call service through a Memorandum dated 13 April
1988.17 This utilization of its monopoly position was delicately described as
"business leverage" by PLDT First Vice President Ramon Santiago in his
testimony during the hearings. 18
The record also shows that PLDT exercised its power or "leverage" based on
its gateway monopoly position to compel Eastern's
telephone correspondents in Singapore and Taiwan to accede to dual
correspondentships.  and conditions as the Commission may deem proper and reasonable in
It is important to recall that NTC, as the governmental agency charged
with passing upon applications for Certificates of Public Convenience
and Necessity (CPCNs) in the field of telecommunications, is authorized
to determine what the specific operating and technical requirements of
"public convenience and necessity" are in the field of
telecommunications, subject of course to relevant limitations
established by legislative enactments, if any. The NTC is also authorized
to examine and assess the legal, technical and financial qualifications of
an applicant for a CPCN and in doing so exercises the special capabilities
and skills and institutional experience it has accumulated. Courts should
not intervene in that administrative process, save upon a very clear showing
of serious violation of law or of fraud, personal malice or wanton oppression.
Courts have none of the technical and economic or financial competence
which specialized administrative agencies have at their disposal, and in
particular must be wary of intervening in matters which are at their core
technical and economic in nature but disguised, more or less artfully, in the
habiliments of a "question of legal interpretation."
We turn to the issue of interconnection between PLDT's domestic
telephone system or network and Eastern's IGF. PLDT strenuously
contends that interconnection is proper only  between two (2)
discrete telephone  systems; this argument now makes clear why PLDT
contended so arduously that Eastern was not a telephone  system and
therefore not entitled to apply for interconnection with PLDT's system
and that NTC was not authorized to require such interconnection
between PLDT and Eastern. PLDT went on to contend that
interconnection with Eastern "was not directed to meet or satisfy a
public need for it but rather, and exclusively, to allow [Eastern] to
exploit PLDT's present telephone subscribers." 20
In the first place, PLDT's contention collides frontally with Section 13 of PLDT's
own legislative franchise. Section 13 of R.A. No. 7082 reads:
Sec. 13. The National Telecommunications Commission is hereby
authorized, after due notice and hearing, to order the grantee PLDT to
allow interconnection of its facilities, for both local and international,
with other duly authorized telecommunications
operators and conversely of the former with the latter under such terms
the interest of public good.  (Emphasis supplied)
Eastern is, as we have already concluded, a "duly authorized
telecommunications operator," considering the comprehensive scope of the
authority granted to it by its legislative franchise.
In the second place, there is no physical or technical economic basis for
restricting the notion of interconnection to the linking up of two (2)
separate telephone systems. Section 13 of PLDT's own franchise makes clear
that interconnection may; and in fact does, relate to connecting or linking up
a telephone  or other telecommunications system  and a telecommunications
facility  for transmitting messages from the Philippines to points outside the
Philippines and vice-versa. The NTC found as a fact  that interconnection can
be physically and technically effected between a gateway facility operated by
an international carrier and a telephone or other telecommunications system
operated by another, local, carrier. 21 Eastern pointed out that its IGF can be
and is in fact required to be interconnected not only with the PLDT domestic
telephone system but also with other domestic telecommunications systems.
In the third place, PLDT, exhibiting extraordinary proprietary feelings in
respect of people using its telephone system, managed to ignore that
international calls from the outside world will be transmitted into the
Philippines through Eastern's cable system and IGF and fed into PLDT's and
other national domestic telephone systems. The number or frequency of calls
originating from outside the Philippines as compared with the frequency of
calls originating within the Philippines, does not appear in the record.
Considering, however, among other things, the number of Filipinos living or
working overseas in different continents, and the growing business and
financial relations between Philippine enterprises and international
companies, international calls from the outside world may well be at least as
heavy in volume as, and might in fact be or become heavier than, those
originating from the Philippines. In other words, there may be expected
reciprocal flows in a higher aggregate volume of international traffic and
more efficient service, at more moderate cost, should come about with the
interconnection required by the NTC.
In Philippine Long Distance Telephone Company v.  National
22
Telecommunications Company, et al.,  PLDT made comparable argument in
resisting an NTC interconnection order. In over ruling these objections, the
majority of the Court, speaking through Melencio-Herrera, J., said:
. . . Such regulation of the use and ownership of
telecommunications systems is in the exercise of the plenary
police power of the State for the promotion of the general
welfare. The 1987 Constitution recognizes the existence of
that power when it provides:
Sec. 6. The use of property bears a social
function, and all economic agents shall
contribute to the common
good. Individuals and private groups
including corporations, cooperatives, and
similar collective organizations, shall have
the right to own, establish, and operate
economic enterprises, subject to the duty of
the State to promote distributive justice and
to intervene when the common good so
demands (Article XII).
The interconnection  which has been required of PLDT is a
form of  "intervention"  with property rights dictated by  "the
objective of government to promote the rapid expansion of
telecommunications services  in all areas of the
Philippines, . . . to maximize the use of telecommunications
facilities available, . . . in recognition of the vital role of
communications in nation building . . . and to ensure that all
users of the public telecommunications service have access to
all other users of the service wherever they may be within the
Philippines at an acceptable standard of service and at
reasonable cost." (DOTC Circular No. 90-248). Undoubtedly,
the encompassing objective is the common good. The NTC,
as the regulatory agency of the State, merely exercised its
delegated authority to regulate the use of telecommunications
networks when it decreed interconnection.
xxx xxx xxx
Department of Transportation and Communication (DOTC)
Circular No. 87-188, issued in 1987, also decrees:
12. All public communications carriers shall interconnect their
facilities pursuant to comparatively efficient interconnection
(CEI) as defined by the NTC in the interest of economic
efficiency. 23 (Emphasis supplied)
We here reaffirm and underscore the continuing validity and vitality of
the doctrine above set out: the requirement of interconnection between
telecommunications carriers found in both legislation and
administrative regulations constitutes a legitimate exercise of the
plenary police power of the State for the securing of the general
welfare.
It is important to note that Eastern, contrary to PLDT's egregious
pleading does not seek, nor has it been allowed by NTC, a "free ride" on
PLDT'S (domestic) telephone network. The IGF will be paid for by
Eastern itself. Revenues derived from international calls originating from or
destined to a subscriber in PLDT's telephone network are required to
be shared by Eastern with PLDT  in proportions to be negotiated and agreed
upon between PLDT and Eastern with the approval of NTC. There is, in
particular, no "appropriation" of property of the PLDT without payment of
just or reasonable compensation.
It is also appropriate to note that at least one other non-PLDT IGF which has
been approved by the NTC, the Philippine Global Communications Company,
Inc. ("Philglobcom") gateway facility, has in fact been installed,
interconnected with PLDT's domestic telephone network and is presently in
operation. We must assume, therefore, that not only was interconnection
found physically and technically feasible, but also that an economically
acceptable sharing of revenues between PLDT on one hand and Philglobcom
on the other, was in fact reached and is being implemented. There is no
relevant distinction between the Philglobcom franchise authority and that of
Eastern. 24
Through the interpretation it urges, PLDT in effect seeks to monopolize the
external transmission and reception of telecommunications
messages, i.e., the sending and receiving of such messages across the
boundaries of the Philippines. The argument made by PLDT will result in local
users of PLDT telephones having no choice but to go to PLDT even for the
external portion of international  telecommunications. Presumably, PLDT
cannot object if its subscribers were to walk to offices or branches of Eastern
and there make direct telephone calls to countries outside the Philippines.
Yet PLDT, would prevent its own subscribers from using any IGF and facilities
for transmission and reception of international messages, except those owned
by PLDT. PLDT's view, in refusing interconnection; would logically compel a
telecommunication company, wishing to install an international gateway
facility (IGF) to duplicate (however wastefully) the already existing domestic
telecommunications lines of PLDT, and to restrict an IGF operator to
transmitting messages originating in land or domestic lines established by
that operator itself. While protective of the monopolistic position and
profitability of PLDT, such a narrow and restrictive view completely disregards
the broader interests of the general public consisting of the users of
telecommunications services. Such view must accordingly, and once again, be
rejected and the inherent authority of the State to secure the interests of the
general public in the conserving and efficient utilization of finite or scarce
resources, sustained.
PLDT has no right to treat its subscribers as its proprietary assets to be
"exploited" 25 by PLDT alone, rather than as customers to be served in the
manner that a public utility is supposed to serve the public. Both local
subscribers of PLDT or any other domestic telephone system, as well as
callers from across the oceans, should be accorded a choice. The
fundamental point is that customers' choice and free competition among
carriers are essential if reasonable prices and efficient and satisfactory service
are to be achieved and maintained and the public's rapidly growing needs
adequately served, in the area of telecommunications, an area so vital to
national social and economic development.
WHEREFORE, for all the foregoing, the Motions for Reconsideration of public
and private respondents are hereby GRANTED and the Petition
for Certiorari  DISMISSED for failure to show any grave abuse of discretion or
any act without or in excess of jurisdiction on the part of public respondent
NTC. The decision of the NTC dated 14 November 1989 and its order dated
16 July 1990 are hereby declared VALID and EFFECTIVE. No pronouncement
as to costs.
Padilla, Romero, Bellosillo, Quiason, Puno, Vitug, Kapunan, and Mendoza, JJ.,
concur.
Narvasa, Bidin, Regalado, Davide, Jr., and Melo, JJ., dissent.
Francisco, J., took no part.
Lucena Grand Central v Jac Liner
Recit-ready summary
JAC Liner, Inc.,a common carrier operating buses which ply various routes to
and from Lucena City, assailed City Ordinance Nos. 1631 and 1778 as
unconstitutional on the ground that the same constituted an invalid exercise
of police power, an undue taking of private property, and a violation of the
constitutional prohibition against monopolies.
These ordinances, by granting an exclusive franchise for 25 years,
renewable for another 25 years, to one entity [Lucena Grand Central] for
the construction and operation of one common bus and jeepney
terminal facility in Lucena City, to be located outside the city proper,
were professedly aimed towards alleviating the traffic congestion
alleged to have been caused by the existence of various bus and jeepney
terminals within the city. Passenger buses, mini-buses, and jeepney type
mini-buses coming from other municipalities and/or local government units
shall utilize the facilities of the Lucena Grand Central Terminal and no other
terminals shall be situated inside or within the City of Lucena
Whether the City of Lucena properly exercised its police power when it enacted
the subject ordinances. NO.
The proper exercise of police power involves the concurrence of 2 elements
(a) lawful subject and (b) lawful method.
Lawful subject: The questioned ordinances having been enacted with the
objective of relieving traffic congestion in the City of Lucena, they involve
public interest warranting the interference of the State.
Not a lawful method: the ordinances assailed herein are characterized by
overbreadth. They go beyond what is reasonably necessary to solve the traffic
problem. What should have been done was to determine exactly where
the problem lies and then to stop it right there. Bus terminals per se do
not, however, impede or help impede the flow of traffic. How the outright
proscription against the existence of all terminals, apart from that franchised
to petitioner, can be considered as reasonably necessary to solve the traffic
problem, this Court has not been enlightened. If terminals lack adequate
space such that bus drivers are compelled to load and unload passengers on
the streets instead of inside the terminals, then reasonable specifications for
the size of terminals could be instituted, with permits to operate the same
denied those which are unable to meet the specifications.
Absent any showing, nay allegation, that the terminals are encroaching upon
public roads, they are not obstacles. The buses which indiscriminately load
and unload passengers on the city streets are. The power then of the
Sangguniang Panlungsod to prohibit encroachments and obstacles does not
extend to terminals.
Not public nuisance per se: For their operation is a legitimate business which,
by itself, cannot be said to be injurious to the rights of property, health, or
comfort of the community. But even assuming that terminals are nuisances
due to their alleged indirect effects upon the flow of traffic, at most they are
nuisance per accidens, not per se. Unless a thing is nuisance per se, however,
it may not be abated via an ordinance, without judicial proceedings.
Facts of the case
JAC Liner, Inc., a common carrier operating buses which ply various routes to
and from Lucena City, assailed, via a petition for prohibition and injunction
against the City of Lucena, its Mayor, and the Sangguniang Panlungsod of
Lucena before the Regional Trial Court, City Ordinance Nos. 1631 and 1778 as
unconstitutional on the ground that, inter alia, the same constituted an
invalid exercise of police power, an undue taking of private property, and a
violation of the constitutional prohibition against monopolies.
These ordinances, by granting an exclusive franchise for 25 years, renewable
for another 25 years, to one entity for the construction and operation of one
common bus and jeepney terminal facility in Lucena City, to be located
outside the city proper, were professedly aimed towards alleviating the traffic
congestion alleged to have been caused by the existence of various bus and
jeepney terminals within the city
Respondent, who had maintained a terminal within the city, was one of those
affected by the ordinances.
RTC rendered judgment declaring City Ordinance No. 1631 as valid insofar as
the grant of franchise to the Lucena Grand Central Terminal, Inc., to construct,
finance, establish, operate and maintain common bus-jeepney terminal
facility in the City of Lucena;
But however, declaring the provision of Sec. 4(c) of Ordinance No. 1631
to the effect that the City Government shall not grant any third party
any privilege and/or concession to operate a bus, mini-bus and/or
jeepney terminal, as illegal and ultra vires.
Declaring City Ordinance No. 1778 as null and void, the same being also an
ultra vires act of the City Government of Lucena cease and desist from
implementing Ordinance No. 1778 insofar as said ordinance prohibits or
curtails petitioner from maintaining and operating its own bus terminal
insofar as said ordinance directs and compels the petitioner to use the
Lucena Grand Central Terminal Inc., and furthermore, insofar as it declares
that no other terminals shall be situated, constructed, maintained or
established inside or within the City of Lucena.
Issue/s
Whether the City of Lucena properly exercised its police power when it
enacted the subject ordinances. NO.
Ratio/Legal Basis
As with the State, the local government may be considered as having
properly exercised its police power only if the following requisites are met:
Lawful subject: the interests of the public generally, as distinguished from
those of a particular class, require the interference of the State, and Lawful
method: the means employed are reasonably necessary for the attainment of
the object sought to be accomplished and not unduly oppressive upon
individuals.
Lawful subject
That traffic congestion is a public, not merely a private, concern, cannot be
gainsaid. In enacting said law, therefore, the National Assembly was
prompted by considerations of public convenience and welfare. It was
inspired by a desire to relieve congestion of traffic, which is, to say the least, a
menace to public safety. Calalang v Williams
he questioned ordinances having been enacted with the objective of relieving
traffic congestion in the City of Lucena, they involve public interest
warranting the interference of the State. The first requisite for the proper
exercise of police power is thus present.
Respondent's suggestion to have this Court look behind the explicit objective
of the ordinances which, to it, was actually to benefit the private interest of
petitioner by coercing all bus operators to patronize its terminal does not lie.
Lim v. Pacquing instructs: The examination of legislative motivation is
generally prohibited.
Not lawful method
As in De la Cruz and Lupangco, the ordinances assailed herein are
characterized by overbreadth. They go beyond what is reasonably
necessary to solve the traffic problem. Additionally, since the compulsory use
of the terminal operated by petitioner would subject the users thereof to
fees, rentals and charges, such measure is unduly oppressive, as correctly
found by the appellate court. What should have been done was to determine
exactly where the problem lies and then to stop it right there.
A due deference to the rights of the individual thus requires a more careful
formulation of solutions to societal problems.
From the memorandum filed before this Court by petitioner, it is gathered
that the Sangguniang Panlungsod had identified the cause of traffic
congestion to be the indiscriminate loading and unloading of passengers by
buses on the streets of the city proper, hence, the conclusion that the
terminals contributed to the proliferation of buses obstructing traffic on the
city streets.
Bus terminals per se do not, however, impede or help impede the flow of
traffic. How the outright proscription against the existence of all terminals,
apart from that franchised to petitioner, can be considered as reasonably
necessary to solve the traffic problem, this Court has not been enlightened. If
terminals lack adequate space such that bus drivers are compelled to load
and unload passengers on the streets instead of inside the terminals, then
reasonable specifications for the size of terminals could be instituted, with
permits to operate the same denied those which are unable to meet the
specifications.
Petitioner’s contention: other solutions for the traffic problem have
already been tried but proven ineffective.
SC: But the grant of an exclusive franchise to petitioner has not been
shown to be the only solution to the problem. The Sangguniang
Panlungsod was not without remedy. It could have defined, among
other considerations, in a more precise manner, the area of relocation to
avoid such consequences.
Petitioner’s contention: the challenged ordinances were enacted pursuant to
the power of the Sangguniang Panlungsod to "[r]egulate traffic on all
streets and bridges; prohibit encroachments or obstacles thereon and,
when necessary in the interest of public welfare, authorize the removal
of encroachments and illegal constructions in public places"
SC: Absent any showing, nay allegation, that the terminals are encroaching
upon public roads, they are not obstacles. The buses which indiscriminately
load and unload passengers on the city streets are. The power then of the
Sangguniang Panlungsod to prohibit encroachments and obstacles does not
extend to terminals.
Petitioner’s contention: terminals are public nuisances
SC: For their operation is a legitimate business which, by itself, cannot be said
to be injurious to the rights of property, health, or comfort of the community.
But even assuming that terminals are nuisances due to their alleged indirect
effects upon the flow of traffic, at most they are nuisance per accidens, not
per se. Unless a thing is nuisance per se, however, it may not be abated via an
ordinance, without judicial proceedings
Petitioner’s contention: the challenged ordinances have actually been proven
effective in easing traffic congestion:
SC: Whether an ordinance is effective is an issue different from whether
it is reasonably necessary. It is its reasonableness, not its effectiveness,
which bears upon its constitutionality. If the constitutionality of a law were
measured by its effectiveness, then even tyrannical laws may be justified
whenever they happen to be effective.
Disposition
WHEREFORE, the petition is hereby DENIED.
Republic v Meralco While the power to fix rates is a legislative function, a determination of
whether the rates so fixed are reasonable and just is a purely judicial question
and is subject to the review of the courts.
Recit-ready summary
In the fixing of rates, the only standard which the legislature is required to
prescribe for the guidance of the ad-of an express requirement as to
MERALCO filed with petitioner ERB an application for the revision of its rate
reasonableness, this standard may be implied. What is a just and
schedules to reflect an average increase of 0.21 per kilowatt hour in its
reasonable rate is a question of fact calling for the exercise of discretion,
distribution charge. ERB granted a provisional increase subject to the
good sense, and a fair, enlightened and independent judgment. The
condition that after hearing and should the COA thru its audit report
requirement of reasonableness comprehends such rates which must not be
find MERALCO is entitled to a lesser increase, all excess amounts
so low as to be confiscatory, or too high as to be oppressive. In determining
collected from the latter’s customers shall either be refunded to them or
whether a rate is confiscatory, it is essential also to consider the given
correspondingly credited in their favor. The COA report found that
situation, requirements and opportunities of the utility.
MERALCO is entitled to a lesser increase, thus ERB ordered the refund or
In the cases at bar, findings and conclusions of the ERB on the rate that
crediting of the excess amounts.
can be charged by MERALCO to the public should be respected. The
On appeal, the CA set aside the ERB decision. MRs were denied.
function of the court, in exercising its power of judicial review, is to determine
whether under the facts and circumstances, the final order entered by the
Whether or not the regulation of ERB as to the adjustment of rates of
administrative agency is unlawful or unreasonable. Thus, to the extent that
MERALCO is valid. YES
the administrative agency has not been arbitrary or capricious in the exercise
of its power, the time-honored principle is that courts should not interfere.
The regulation of rates to be charged by public utilities is founded upon
The principle of separation of powers dictates that courts should hesitate to
the police powers of the State and statutes prescribing rules for the
review the acts of administrative officers except in clear cases of grave abuse
control and regulation of public utilities are a valid exercise thereof.
of discretion.
When private property is used for a public purpose and is affected with
In determining the just and reasonable rates to be charged by a public
public interest, it ceases to be juris privati only and becomes subject to
utility, three major factors are considered by the regulating agency: a)
regulation. The regulation is to promote the common good. Submission
rate of return; b) rate base; and c) the return itself or the computed
to regulation may be withdrawn by the owner by discontinuing use; but
revenue to be earned by the public utility based on the rate of return
as long as use of the property is continued, the same is subject to public
and rate base. The ERB correctly ruled that income tax should not be
regulation.
included in the computation of operating expenses of a public utility .
In regulating rates charged by public utilities, the State protects the
Income tax paid by a public utility is inconsistent with the nature of operating
public against arbitrary and excessive rates while maintaining the
expenses. Income tax, it should be stressed, is imposed on an individual
efficiency and quality of services rendered. However, the power to regulate
or entity as a form of excise tax or a tax on the privilege of earning
rates does not give the State the right to prescribe rates which are so
income. In exchange for the protection extended by the State to the
low as to deprive the public utility of a reasonable return on investment .
taxpayer, the government collects taxes as a source of revenue to finance its
Thus, the rates prescribed by the State must be one that yields a fair
activities. Clearly, by its nature, income tax payments of a public utility are not
return on the public utility upon the value of the property performing the
expenses which contribute to or are incurred in connection with the
service and one that is reasonable to the public for the services rendered.
production of profit of a public utility.
The fixing of just and reasonable rates involves a balancing of the
I. Facts of the case
investor and the consumer interests.

1. MERALCO Cled with the ERB an application for the revision of its rate
schedules. The application projected an average increase of 21
centavos per kilowatt hour (kwh) in its distribution charge. The
application also included a prayer for provisional approval of the
increase pursuant to Section 16(c) of the Public Service Act and
Section 8 of Executive Order No. 172.
2. ERB granted this provisional increase. Subject to a condition: “after
hearing and submission by the Commission on Audit of an audit
report on the books and records of the applicant that the latter is
entitled to a lesser increase in rates, all excess amounts collected
from the applicant's customers as a result of this Order shall either be
refunded to them or correspondingly credited in their favor for
application to electric bills covering future consumptions”
3. in rates, all excess amounts collected by MERALCO shall be refunded
to its customers or credited in their favor. The Commission on Audit
(COA) conducted an examination of the books of accounts and
records of MERALCO and thereafter recommended, among others,
that: (1) income taxes paid by MERALCO should not be included as
part of MERALCO's operating expenses and (2) the "net average
investment method" or the "number of months use method" should
be applied in determining the proportionate value of the properties
used by MERALCO during the test year.
4. COA authorized Meralco to adopt a rate adjustment of 0.017 per kwh
for its 1994 billing cycles
5. ERB further ordered that he provisional relief in the amount of P0.184
per kilowatthour granted under the Board's Order dated January 28,
1994 is hereby superseded and modified and the excess average
amount of P0.167 per kilowatthour starting with [MERALCO's] billing
cycles beginning February 1994 until its billing cycles beginning
February 1998, be refunded to [MERALCO's] customers or
correspondingly credited in their favor for future consumption
6. The ERB held that income tax should not be treated as operating
expense as this should be "borne by the stockholders who are
recipients of the income or profits realized from the operation of
their business" hence, should not be passed on to the consumers
7. CA SET ASIDE THE ERB DECISION insofar that it directed Meralco to
reduce their rates of 0.167 per kwh and the refund of such amount to
Meralco customers beginning feb 1994 until feb 1998
Respondent’s Contention:
In its Motion for Reconsideration, respondent MERALCO contends that:
(1) the deduction of income tax from revenues allowed for rate determination
of public utilities is part of its constitutional right to property;
(2) it correctly used the "average investment method" or the "simple average"
in computing the value of its properties entitled to a return instead of the
"net average investment method" or the "number of months use method";
and
(3) the decision of the ERB ordering the refund of P0.167 per kwh to its
customers should not be given retroactive effect
Petitioners’ Contention:
ERC: the ERC proffered a divergent view from the Office of the Solicitor
General. The ERC submits that income taxes are not operating expenses but
are reasonable costs that may be recoverable from the consuming public.
While the ERC admits that "there is still no categorical determination on
whether income tax should indeed be deducted from revenues of a public
utility," it agrees with MERALCO that to disallow public utilities from
recovering its income tax payments will effectively lower the return on rate
base enjoyed by a public utility to 8%. The ERC, however, agrees with this
Court's ruling that the use of the "net average investment method" or the
"number of months use method" is not unreasonable
Issue/s
WON the finding of the ERB on the rate that can be charged by
MERALCO to its consumers is proper. YES
Ratio/Legal Basis
. YES. The regulation of rates to be charged by public utilities is
founded upon the police powers of the State and statutes prescribing
rules for the control and regulation of public utilities are a valid exercise
thereof. When private property is used for a public purpose and is
affected with public interest, it ceases to be juris privati only and
becomes subject to regulation. The regulation is to promote the
common good.
Submission to regulation may be withdrawn by the owner by
discontinuing use; but as long as use of the property is continued, the same
is subject to public regulation.
In regulating rates charged by public utilities, the State protects the
public against arbitrary and excessive rates while maintaining the efficiency
and quality of services rendered. However, the power to regulate rates does
not give the State the right to prescribe rates which are so low as to deprive
the public utility of a reasonable return on investment. Thus, the rates
prescribed by the State must be one that yields a fair return on the public
utility upon the value of the property performing the service and one that is
reasonable to the public for the services rendered. The fixing of just and
reasonable rates involves a balancing of the investor and the consumer
interests.
While the power to fix rates is a legislative function, whether
exercised by the legislature itself or delegated through an administrative
agency, a determination of whether the rates so fixed are reasonable and just
is a purely judicial question and is subject to the review of the courts.
In the fixing of rates, the only standard which the legislature is required to
prescribe for the guidance of the ad-of an express requirement as to
reasonableness, this standard may be implied. What is a just and reasonable
rate is a question of fact calling for the exercise of discretion, good sense,
and a fair, enlightened and independent judgment. The requirement of
reasonableness comprehends such rates which must not be so low as to be
confiscatory, or too high as to be oppressive. In determining whether a rate is
confiscatory, it is essential also to consider the given situation, requirements
and opportunities of the utility.
Settled jurisprudence holds that factual findings of administrative
bodies on technical matters within their area of expertise should be accorded
not only respect but even finality if they are supported by substantial
evidence even if not overwhelming or preponderant. In one case, we
cautioned that courts should “refrain from substituting their discretion on the
weight of the evidence for the discretion of the Public Service Commission on
questions of fact and will only reverse or modify such orders of the Public
Service Commission when it really appears that the evidence is insufficient to
support their conclusions.”
In the cases at bar, findings and conclusions of the ERB on the
rate that can be charged by MERALCO to the public should be respected.
The function of the court, in exercising its power of judicial review, is to
determine whether under the facts and circumstances, the final order
entered by the administrative agency is unlawful or unreasonable. Thus,
to the extent that the administrative agency has not been arbitrary or
capricious in the exercise of its power, the time-honored principle is that
courts should not interfere. The principle of separation of powers dictates
that courts should hesitate to review the acts of administrative officers except
in clear cases of grave abuse of discretion.
In determining the just and reasonable rates to be charged by a public utility,
three major factors are considered by the regulating agency: a) rate of return;
b) rate base; and c) the return itself or the computed revenue to be earned by
the public utility based on the rate of return and rate base. The rate of return
is a judgment percentage which, if multiplied with the rate base, provides a
fair return on the public utility for the use of its property for service to the
public. The rate of return of a public utility is not prescribed by statute but by
administrative and judicial pronouncements. This Court has consistently
adopted a 12% rate of return for public utilities.
The ERB correctly ruled that income tax should not be included in the
computation of operating expenses of a public utility. Income tax paid by a
public utility is inconsistent with the nature of operating expenses. In general,
operating expenses are those which are reasonably incurred in connection
with business operations to yield revenue or income. They are items of
expenses which contribute or are attributable to the production of income or
revenue. As correctly put by the ERB, operating expenses “should be a
requisite of or necessary in the operation of a utility, recurring, and that it
redounds to the service or benefit of customers.”
Income tax, it should be stressed, is imposed on an individual or entity as a
form of excise tax or a tax on the privilege of earning income. In exchange for
the protection extended by the State to the taxpayer, the government
collects taxes as a source of revenue to finance its activities. Clearly, by its
nature, income tax payments of a public utility are not expenses which
contribute to or are incurred in connection with the production of profit of a
public utility. Income tax should be borne by the taxpayer alone as they are
payments made in exchange for benefits received by the taxpayer from the
State.
ERB’s se of "Net Average Investment Method" is Not Unreasonable
In the determination of the rate base, property used in the operation of the
public utility must be subject to appraisal and evaluation to determine the
fair value thereof entitled to a fair return. With respect to those properties
which have not been used by the public utility for the entire duration of the
test year, i.e., the year subject to audit examination for rate-making purposes,
a valuation method must be adopted to determine the proportionate value
of the property. Petitioners maintain that the net average investment method
(also known as "actual number of months use method") recommended by
COA and adopted by the ERB should be used, while MERALCO argues that
the average investment method (also known as the "trending method") to
determine the proportionate value of properties should be applied.
Under the "net average investment method," properties and equipment used
in the operation of a public utility are entitled to a return only on the actual
number of months they are in service during the period. In contrast, the
"average investment method" computes the proportionate value of the
property by adding the value of the property at the beginning and at the end
of the test year with the resulting sum divided by two.
The ERB did not abuse its discretion when it applied the net average
investment method. The reasonableness of net average investment method is
borne by the records of the case. In its report, the COA explained that the
computation of the proportionate value of the property and equipment in
accordance with the actual number of months such property or equipment is
in service for purposes of determining the rate base is favored, as against the
trending method employed by MERALCO, "to reflect the real status of the
property." By using the net average investment method, the ERB and the
COA considered for determination of the rate base the value of properties
and equipment used by MERALCO in proportion to the period that the same
were actually used during the period in question. This treatment is consistent
with the settled rule in rate regulation that the determination of the rate base
of a public utility entitled to a return must be based on properties and
equipment actually being used or are useful to the operations of the public
utility.
WHEREFORE, in view of the foregoing, the petitioner's Motion for
Reconsideration is DENIED WITH FINALITY.
Philcomsat v Alcuaz
I. Summary
PHILCOMSAT was granted a franchise by the law to establish and
operate in the Philippines, stations and facilities for international
satellite communications. Previously, PHILCOMSAT was exempt from the
jurisdiction of the NTC. However, pursuant to EO 196, NTC now covers
PHILCOMSAT, and required the latter to apply for a certificate of public
convenience and necessity as well as the corresponding authority to
charge. PHILCOMSAT filed an application, and pending such application,
applied for a provisional authority to continue its operation, which was
granted for a period of 6 months, and was renewed for another 6
months. Thereafter, the NTC issued an order, which is being assailed in this
case, allowing PHILCOMSAT to continue operations for another 6
months, but reduced the rate that may be charged by 15%. Hence, this
petition.
Whether or not NTC has been delegated the power to fix rates? Yes
Whether or not NTC could fix rates without any hearing? NO
Whether or not NTC exercised its power in a confiscatory manner? Yes
The SC held that as to the 1st issue, there was actually a reasonable standard
set for the guidance of the NTC in the exercise of its rate-fixing power –
public safety, public interest, reasonable feasibility and reasonable rates,
which conjointly more than satisfy the requirements of a valid
delegation of legislative power. As to the 2nd issue, although the NTC
indeed has the power to exercise quasi-legislative measures, it may not
do so without following the constitutionally granted right of notice and
hearing. In this case, the NTC did not even substantiate the reasonableness
of the reduction of the 15% charge of rate by PHILCOMSAT, nor did it even
provide notice and hearing.
As to the 3rd issue, a commission has no power to fix rates which are
unreasonable or to regulate them arbitrarily. In determining whether a
rate is confiscatory, it is essential also to consider the given situation,
requirements and opportunities of the utility. A method often employed
in determining reasonableness is the fair return upon the value of the
property to the public utility. Competition is also a very important factor in
determining the reasonableness of rates since a carrier is allowed to make
such rates as are necessary to meet competition. In this case, no
rationalization was offered, which prompted respondents to impose as
much as a 15% rate reduction. The power to regulate is not the power to
destroy.
II. Facts of the case
This case is posed as one of first impression in the sense that it involves the
public utility services of the petitioner Philippine Communications Satellite
Corporation (PHILCOMSAT, for short) which is the only one rendering such
services in the Philippines.
By virtue of Republic Act No. 5514, PHILCOMSAT was granted "a franchise to
establish, construct, maintain and operate in the Philippines, at such places as
the grantee may select, station or stations and associated equipment and
facilities for international satellite communications." Under this franchise, it
was likewise granted the authority to "construct and operate such ground
facilities as needed to deliver telecommunications services from the
communications satellite system and ground terminal or terminals."
The satellite services thus provided by petitioner enable said international
carriers to serve the public with indispensable communication services, such
as overseas telephone, telex, facsimile, telegrams, high speed data, live
television in full color, and television standard conversion from European to
American or vice versa.
Under Section 5 of Republic Act No. 5514, petitioner was exempt from the
jurisdiction of the then Public Service Commission, now respondent NTC.
However, pursuant to Executive Order No. 196 issued on June 17, 1987,
petitioner was placed under the jurisdiction, control and regulation of
respondent NTC, including all its facilities and services and the fixing of rates.
Implementing said Executive Order No. 196, respondents required petitioner
to apply for the requisite certificate of public convenience and necessity
covering its facilities and the services it renders, as well as the corresponding
authority to charge rates therefor.
Consequently, petitioner filed with respondent NTC an application for
authority to continue operating and maintaining the same facilities it has
been continuously operating and maintaining since 1967 and to charge the
current rates applied for in rendering such services. Petitioner was granted a
provisional authority to continue operating its existing facilities, to render the
services it was then offering, and to charge the rates it was then charging,
which was granted for a period of 6 months, and was renewed for another 6
months. The NTC order now in controversy had further extended the
provisional authority of the petitioner for another 6 months but it directed
the petitioner to charge modified reduced rates through a reduction of 15%
on the present authorized rates.
The petition before us seeks to annul and set aside such Order  issued by
respondent Commissioner Alcuaz of the NTC for being violative of the
constitutional prohibition against undue delegation of legislative power and
a denial of procedural, as well as substantive, due process of law.
PHILCOMSAT contends that (1) the NTC order is violative because it is an
undue delegation of power granted to the NTC, particularly quasi-legislative
powers; (2) violation of due process because the order was issued motu
proprio, without notice and hearing; and (3) the reduced rate is confiscatory,
because it in effect results to the cessation of operations by PHILCOMSAT.
III. Issue/s
Whether or not NTC has been delegated the power to fix rates? Yes
Whether or not NTC could fix rates without any hearing? NO
Whether or not NTC exercised its power in a confiscatory manner? Yes
IV. Held
1. There was a reasonable standard set for the guidance of the NTC in the
exercise of its rate-fixing power – public safety, public interest, reasonable
feasibility and reasonable rates, which conjointly more than satisfy the
requirements of a valid delegation of legislative power. When the
administrative agency concerned, respondent NTC in this case, establishes a
rate, its act must both be non- confiscatory and must have been established
in the manner prescribed by the legislature; otherwise, in the absence of a
fixed standard, the delegation of power becomes unconstitutional.
Pursuant to Executive Orders Nos. 546 and 196, respondent NTC is
empowered, to determine and prescribe rates pertinent to the operation of
public service communications which necessarily include the power to
promulgate rules and regulations in connection therewith. And, under
Section 15(g) of Executive Order No. 546, respondent NTC should be guided
by the requirements of public safety, public interest and reasonable feasibility
of maintaining effective competition of private entities in communications
and broadcasting facilities. Likewise, in Section 6(d) thereof, which provides
for the creation of the Ministry of Transportation and Communications with
control and supervision over respondent NTC, it is specifically provided that
the national economic viability of the entire network or components of the
communications systems contemplated therein should be maintained at
reasonable rates.
2. The order in question which was issued by respondent Alcuaz no doubt
contains all the attributes of a quasi-judicial adjudication. Foremost is the fact
that said order pertains exclusively to petitioner and to no other. Further, it is
premised on a finding of fact, although patently superficial, that there is merit
in a reduction of some of the rates charged- based on an initial evaluation of
petitioner's financial statements-without affording petitioner the benefit of
an explanation as to what particular aspect or aspects of the financial
statements warranted a corresponding rate reduction. No rationalization was
offered nor were the attending contingencies, if any, discussed, which
prompted respondents to impose as much as a 15% rate reduction. It is not
far-fetched to assume that petitioner could be in a better position to
rationalize its rates vis-a-vis the viability of its business requirements. The
rates it charges result from an exhaustive and detailed study it conducts of
the multi-faceted intricacies attendant to a public service undertaking of such
nature and magnitude. We are, therefore, inclined to lend greater credence
to petitioner's ratiocination that an immediate reduction in its rates would
adversely affect its operations and the quality of its service to the public
considering the maintenance requirements, the projects it still has to
undertake and the financial outlay involved. Notably, petitioner was not even
afforded the opportunity to cross-examine the inspector who issued the
report on which respondent NTC based its questioned order.
While respondents may fix a temporary rate pending final determination of
the application of petitioner, such rate-fixing order, temporary though it may
be, is not exempt from the statutory procedural requirements of notice and
hearing, as well as the requirement of reasonableness. Assuming that such
power is vested in NTC, it may not exercise the same in an arbitrary and
confiscatory manner.
3. There is no question that petitioner is a mere grantee of a legislative
franchise which is subject to amendment, alteration, or repeal by Congress
when the common good so requires. Such grant cannot be unilaterally
revoked absent a showing that the termination of the operation of said utility
is required by the common good. The rule is that the power of the State to
regulate the conduct and business of public utilities is limited by the
consideration that it is not the owner of the property of the utility. The power
to regulate is not the power to destroy useful and harmless enterprises, but is
the power to protect, foster, promote, preserve, and control with due regard
for the interest, first and foremost, of the public, then of the utility and of its
patrons. Any regulation, therefore, which operates as an effective confiscation
of private property or constitutes an arbitrary or unreasonable infringement
of property rights is void, because it is repugnant to the constitutional
guaranties of due process and equal protection of the laws.
A commission has no power to fix rates which are unreasonable or to
regulate them arbitrarily. This basic requirement of reasonableness
comprehends such rates which must not be so low as to be confiscatory, or
too high as to be oppressive. What is a just and reasonable rate is not a
question of formula but of sound business judgment based upon the
evidence it is a question of fact calling for the exercise of discretion, good
sense, and a fair, enlightened and independent judgment. In determining
whether a rate is confiscatory, it is essential also to consider the given
situation, requirements and opportunities of the utility. A method often
employed in determining reasonableness is the fair return upon the value of
the property to the public utility. Competition is also a very important factor
in determining the reasonableness of rates since a carrier is allowed to make
such rates as are necessary to meet competition.
A cursory perusal of the assailed order reveals that the rate reduction is solely
and primarily based on the initial evaluation made on the financial
statements of petitioner, contrary to respondent NTC's allegation that it has
several other sources of information without, however, divulging such
sources. Furthermore, it did not as much as make an attempt to elaborate on
how it arrived at the prescribed rates. It just perfunctorily declared that based
on the financial statements, there is merit for a rate reduction without any
elucidation on what implications and conclusions were necessarily inferred by
it from said statements. Nor did it deign to explain how the data reflected in
the financial statements influenced its decision to impose a rate reduction.
V. Dispositive Portion
WHEREFORE, the writ prayed for is GRANTED and the order of respondents,
dated September 2, 1988, in NTC Case No. 87-94 is hereby SET ASIDE. The
temporary restraining order issued under our resolution of September 13,
1988, as specifically directed against the aforesaid order of respondents on
the matter of existing rates on petitioner's present authorized services, is
hereby made permanent.
Meralco v Lualhati
Recit-ready summary
MERALCO filed before the former Energy Regulatory Board (ERB), now the
ERC, an "Application for Approval of Revision of Rate Schedules and
Appraisal of Properties with Prayer for Provisional Authority" which
would result in an increase in its basic charge by about thirty centavos per
kilowatt hour (Php 0.30/kwh).
After conducting several public hearings with the oppositors having been
given opportunity to participate therein, ERC rendered its consolidated
Decision which approved the applications for rate increase and rate
unbundling of MERALCO.
Respondents filed a petition for review before the Court of Appeals. The
Court of Appeals annulled the decision and order of the ERC mainly on the
ground that COA should first conduct an audit of the books, records and
accounts of MERALCO before ERC can fix rates.
W/N COA Audit is required before ERC can approve of MERALCO’s
application? NO
In the case of Municipality of Daet, the SC held that the GAO (now COA)
audit was not a prerequisite in the fixing of rates. There is nothing in the
cited provision of the Administrative Code which indicates that it bars
the regulatory body from approving rates without prior COA audit,
neither does it give a hint that it effectively repeals the pertinent
provision of Commonwealth Act No. 325.
The established rule in this jurisdiction is that findings of administrative or
regulatory agencies on matters within their technical area of expertise are
generally accorded not only respect but finality if such findings are
supported by substantial evidence. Rate-fixing calls for a technical
examination and a specialized review of specific details which the courts
are ill-equipped to enter; hence, such matters are primarily entrusted to
the administrative or regulating authority. Thus, this Court finds no
reversible error on the part of ERC in rendering its assailed decision and
order.
HOWEVER: The SC is mindful that this has far-reaching effects and is of
utmost significance to the public, especially to the poor. The concern for the
poor is recognized as a public duty, and the protection of the rights of those
marginalized members of society have always dutifully been pursued by the
Court as a sacred mission. Consistent with this duty and mission, the
Court deems it proper to approve the rate increases applied for by
MERALCO provisionally, i.e., MERALCO to impose provisional rate
increases while directing the ERC, at the same time, to seek the
assistance of COA in conducting a complete audit on the books, records
and accounts of MERALCO to see to it that the rate increases that
MERALCO has asked for are reasonable and justified. Stated otherwise,
the provisional rate increases will continue to be subject to its being
reasonable and just until after the ERC has taken the appropriate action
on the COA Report.
The Energy Regulatory Commission is, thus, directed to request the COA to
undertake a complete audit on the books, records and accounts of MERALCO
relative to its provisionally-approved rate increases and unbundled rates.
II. Facts of the case
MERALCO filed before the former Energy Regulatory Board (ERB), now the
ERC, an "Application for Approval of Revision of Rate Schedules and Appraisal
of Properties with Prayer for Provisional Authority" which would result in an
increase in its basic charge by about thirty centavos per kilowatt hour (Php
0.30/kwh).
While the aforesaid application was still pending, Republic Act No. 9136,
otherwise known as the "Electric Power Industry Reform Act of 2001 (EPIRA),"
took effect on 26 June 2001. It abolished the ERB and created ERC to succeed
the former. Section 36 of EPIRA required all electric distribution utilities
to file their application for the unbundling of their rates for the
approval of the ERC.
On 30 October 2001, pursuant to Section 36 of EPIRA, the ERC issued an
order requiring all electric distribution utilities to file their application for
unbundled rates. In compliance thereof, MERALCO filed its application with
the ERC for the approval of its unbundled rates and appraisal of its
properties. This application also proposed an increase of P1.1228/kwh in
MERALCO's electricity rates.
Several oppositors objected to the said application, including Mr. Genaro
Lualhati, Bagong Alyansang Makabayan (BAYAN), Kilusang Mayo Uno (KMU),
Gabriela, Kalipunan ng Damayang Mahihirap (KADAMAY), and BAYAN
MUNA.
After conducting several public hearings with the oppositors having been
given opportunity to participate therein, ERC rendered its consolidated
Decision which approved the applications for rate increase and rate
unbundling of MERALCO.
Respondents filed a petition for review before the Court of Appeals. The
Court of Appeals annulled the decision and order of the ERC mainly on the
ground that COA should first conduct an audit of the books, records and
accounts of MERALCO before ERC can fix rates.
Court of Appeals ruled that the Section 22, Chapter 4, Subtitle B, Title I, Book
V of the Administrative Code of 1987 specifically provides that COA has a
mandatory duty to "audit financial operations of public utilities and
franchise grantee for rate determination and franchise tax purposes". It
likewise held that the case of Municipality of Daet is not controlling since
it was decided prior to the promulgation of the Administrative Code of 1987.
III. Issue/s
W/N COA Audit is required before ERC can approve of MERALCO’s
application? NO
IV. Ratio/Legal Basis
The Court of Appeals is wrong.
In the case of Municipality of Daet, the then Board of Power and Waterworks
rendered a decision approving the rate increase application of Hidalgo
Enterprises, Inc., which is an electric utility. Even as the Board requested the
Government Auditing Office (GAO), now the COA, to cause the audit of the
books and records of the utility, and submit a report thereon, said Board
nonetheless decided on Hidalgo's application without waiting for the GAO
report. Believing that a GAO audit is a condition sine qua non before the
Board can act on the application of Hidalgo, petitioner therein sought the
nullification of the decision of the Board and cited Section 2 of
Commonwealth Act No. 325. The Court was not convinced. It ruled that
the GAO audit was not a prerequisite in the fixing of rates. The Court
emphasized:
Without discounting the fact that public interest may be better
served with a GAO audit of the applicant's valuation of its properties
and equipment, we nevertheless find nothing in the phraseology of
the above-quoted provision that makes such audit mandatory or
obligatory. A GAO valuation is merely advisory. It is neither final nor
binding, as illustrated in MERALCO v. Public Service Commission,
where this Court upheld the decision of the Public Service
Commission to fix rates on the basis of Meralco's own valuation of its
properties, rather than on the assessment made by the GAO. Upon
this premise, the appraisal made by respondent Hidalgo, which the
respondent Board found to be fair and reasonable, can serve as
proper basis for fixing the allowable rate of return and the
corresponding increase in its charges.
The Court of Appeals ruled that the Municipality of Daet case was
inapplicable to the case under consideration as it was rendered before the
promulgation of the Administrative Code of 1987. The Court of Appeals,
however, did not bother to explain how Section 22, Chapter 4, Subtitle B,
Book V of the Administrative Code could have repealed Section 2 of
Commonwealth Act No. 325. There is nothing in the cited provision of the
Administrative Code which indicates that it bars the regulatory body
from approving rates without prior COA audit, neither does it give a hint
that it effectively repeals the pertinent provision of Commonwealth Act
No. 325.
Going to the merits of the instant controversy, the Court of Appeals merely
echoed the position of respondents alleging that MERALCO's data in support
of both applications for rate increase and rate unbundling, particularly its rate
base, was unsubstantiated and misrepresented. Among the items in
MERALCO's rate base which are contested include: Leased Property on
Customer Premises; Construction Work in Progress; Plants for Future Use;
Utility Plant Appraisal and Two-month Cash Working Capital. Taking into
consideration the data presented by MERALCO on the questioned items in
the rate base, as well as the objections to said data.
However, contrary to the Court of Appeals' insinuation that the ERC did not
perform its legal mandate to protect the public, the disquisitions of the ERC
speak otherwise. MERALCO's proposed revenue requirement and rate base
for purposes of fixing its rates were, after having been assumed to be
carefully considered, adjusted downwards. MERALCO did not get what it
prayed for, which was a rate higher than that approved by the ERC.
The established rule in this jurisdiction is that findings of administrative or
regulatory agencies on matters within their technical area of expertise are
generally accorded not only respect but finality if such findings are supported
by substantial evidence. Rate-fixing calls for a technical examination and a
specialized review of specific details which the courts are ill-equipped to
enter; hence, such matters are primarily entrusted to the administrative or
regulating authority. Thus, this Court finds no reversible error on the part of
ERC in rendering its assailed decision and order.
However, while ruling in said manner, this Court is cognizant that such ruling
has far-reaching effects and is of utmost significance to the public, especially
to the poor, who face the threat of deeper wallowing in the quagmire of
financial distress once the burden of electricity rate increases is passed on to
them. Better judgment, therefore, calls for this Court to temper the rigidity of
its decision.
Although affirming the decision and the order of the ERC approving the rate
increases for electricity, this Court is not closing its eyes to the fundamental
principle of social justice so emphatically expressed by the late President
Magsaysay in his statement: "He who has less in life should have more in
law."
The concern for the poor is recognized as a public duty, and the protection of
the rights of those marginalized members of society have always dutifully
been pursued by the Court as a sacred mission. Consistent with this duty
and mission, the Court deems it proper to approve the rate increases
applied for by MERALCO provisionally, i.e., MERALCO to impose
provisional rate increases while directing the ERC, at the same time, to
seek the assistance of COA in conducting a complete audit on the books,
records and accounts of MERALCO to see to it that the rate increases
that MERALCO has asked for are reasonable and justified. Stated
otherwise, the provisional rate increases will continue to be subject to its
being reasonable and just until after the ERC has taken the appropriate
action on the COA Report.
The Energy Regulatory Commission is, thus, directed to request the COA to
undertake a complete audit on the books, records and accounts of MERALCO
relative to its provisionally-approved rate increases and unbundled rates.
V. Disposition
GRANTED.
Batangas CATV v CA
I. Recit-ready summary
The Sanggunian Panglungsod of Batangas enacted a resolution granting
Batangas (Community Antenna Television) CATV a permit to operate a CATV
system in Batangas City. Section 8 of the resolution provides that Batangas
CATV should seek the approval of the Sangguniang Panglungsod if it
wants to increase its rates.
Eventually, Batangas CATV increased its rates from P88 per month to P180
per month. As a result, the Mayor wrote Batangas CATV a letter
threatening to cancel its permit unless it secures the required
Sanggunian Resolution. This prompted Batangas CATV to file a petition for
injunction, arguing that the Sanggunian has no authority to regulate the
subscriber rates of Batangas CATV because under EO 205, it is the
National Telecommunications Commission (NTC) has the sole authority
to regulate CATV operation in the Philippines. So Batangas CATV filed a
petition for injunction arguing that the Sanggunian has no authority to
regulate subscriber rates as it is the NTC that has authority.
W/N an LGU may regulate the subscriber rates charged by CATV
operators. NO
From President Marcos, President Cory Aquino, to President Fidel Ramos,
they all upheld the authority of NTC to have the sole authority to regulate
CATV operations in the Philippines. It must be emphasized that when E.O. No.
436 decrees that the "regulatory power" shall be vested "solely" in the
NTC, it pertains to the "regulatory power" over those matters which are
peculiarly within the NTC's competence, such as, the: (1) determination
of rates, (2) issuance of "certificates of authority, (3) establishment of
areas of operation, (4) examination and assessment of the legal,
technical and financial qualifications of applicant operators, (5) granting
of permits for the use of frequencies, (6) regulation of ownership and
operation, (7) adjudication of issues arising from its functions, and (8)
other similar matters. Within these areas, the NTC reigns supreme as it
possesses the exclusive power to regulate - - a power comprising varied
acts, such as "to fix, establish, or control; to adjust by rule, method or
established mode; to direct by rule or restriction; or to subject to governing
principles or laws.
II. Facts of the case
John Walson, an appliance dealer in Pennsylvania, suffered from a decline in
the sale of TV sets because of poor signal in his community. Troubled, he
built an antenna on top of a nearby mountain. Using coaxial cable lines, he
distributed the tv signals from the antenna to the homes of his customers.
Walson's innovative idea improved his sales and at the same time gave birth
to a new telecommunication system - - the Community Antenna Television
(CATV) or Cable Television. CATV reached the Philippines and was
eventually caught up in legal controversy, in this case specifically the
question is May an LGU regulate the subscriber rates charged by CATV
operators?
On July 1986, the Sangguniang Panglungsod (Sanggunian) enacted a
Resolution granting Batangas CATV a permit to construct, install, and operate
a CATV system in Batangas City. Section 8 of the Resolution provides that
petitioner is authorized to charge its subscribers the maximum rates
specified therein, "provided, however, that any increase of rates shall be
subject to the approval of the Sangguniang Panlungsod.
Sometime in November 1993, Batangas CATV increased its subscriber rates
from P88 to P180 per month. As a result, the Mayor wrote Batangas CATV a
letter threatening to cancel its permit unless it secures the required
Sanggunian Resolution. This prompted Batangas CATV to file a petition for
injunction, arguing that the Sanggunian has no authority to regulate the
subscriber rates of Batangas CATV because under EO 205, it is the National
Telecommunications Commission (NTC) has the sole authority to regulate
CATV operation in the Philippines.
RTC: Ruled in favor of Batangas CATV, enjoining the Sanggunian from
cancelling Batangas CATV’s permit to operate a CATV system in Batangas
City, also ruling that the Sanggunian is interfering with the NTC’s sole
authority and power to regulate CATV operations.
CA: Reversed RTC ruling. The CA stated that although NTC does have the
authority to regulate CATV operators, this does not preclude the Sanggunian
from regulating the operation of CATVs in their localities, under the powers
vested to it by the Local Government Code (LGC) specifically Section 177 of
the LGC (see NOTES). Furthermore, Under cover of the General Welfare
Clause in the LGC, the LGUs can perform just about any power that will
benefit their constituencies. Thus, local government units can exercise powers
that are: (1) expressly granted; (2) necessarily implied from the power that is
expressly granted; (3) necessary, appropriate or incidental for its efficient and
effective governance; and (4) essential to the promotion of the general
welfare of their inhabitants. Thus the increasing of subscriber rates by
Batangas CATV was without approval and gives the Mayor the right to
withdraw the permit.
Issue
W/N an LGU may regulate the subscriber rates charged by CATV
operators. NO
Point of Contentions
Batangas CATV: Only the NTC has authority to regulate CATV operations
Batangas City LGU (Sanggunian and Mayor): LGC gives them the authority
to regulate CATV operations. Furthermore, the Resolution was in the nature
of a contract between Batangas LGU and Batangas CATV and to hold that EO
205 (NTC authority) amended the resolution would result to impairment of
contract which is prohibited.
Ratio/ Legal Basis
Petition is meritorious.
Longass discussion on the History of CATV regulation vis a vis the
Government (THE IMPORTANT ONE I THINK)
President Ferdinand E. Marcos was the first one to place the CATV industry
under the regulatory power of the national government by issuing PD 1512
which granted Sining Makulay an exclusive franchise to operate CATV
systems in the Philippines and also prescribed the subscriber rates charged.
As a consequence, all other CATV operators with permits granted by LGUs
and other Government instrumentalities had their permits cancelled. Marcos
then issued an LOI which vested on the Chairman of the Board of
Communications the direct supervision of Sining Makulay. He then issued EO
546 which fused the Board of Communications with the Telecoms Control
Bureau to form the National Telecommunications Commission.
When Cory Aquino took over, she issued EO 205 opening the CATV industry
to all citizens in the Philippines and also mandated the NTC to grant
certificates of authority to CATV operators and to issue the necessary IRR.
On September 1997, Fidel Ramos issued EO 436 which restated the NTC’s
SOLE regulatory powers over CATV operators.
[IMPORTANT] Clearly, it has been more than two decades now since our
national government, through the NTC, assumed regulatory power over the
CATV industry. Changes in the political arena did not alter the trend. Instead,
subsequent presidential issuances further reinforced the NTC's power. The
logical conclusion, therefore, is that in light of the above laws and E.O.
No. 436, the NTC exercises regulatory power over CATV operators to the
exclusion of other bodies. It must be emphasized that when E.O. No. 436
decrees that the "regulatory power" shall be vested "solely" in the NTC, it
pertains to the "regulatory power" over those matters which are peculiarly
within the NTC's competence, such as, the: (1) determination of rates, (2)
issuance of "certificates of authority, (3) establishment of areas of operation,
(4) examination and assessment of the legal, technical and financial
qualifications of applicant operators, (5) granting of permits for the use of
frequencies, (6) regulation of ownership and operation, (7) adjudication of
issues arising from its functions, and (8) other similar matters. Within these
areas, the NTC reigns supreme as it possesses the exclusive power to
regulate - - a power comprising varied acts, such as "to fix, establish, or
control; to adjust by rule, method or established mode; to direct by rule
or restriction; or to subject to governing principles or laws.
[IMPORTANT] What can an LGU do? Like any other enterprise, CATV
operation maybe regulated by LGUs under the general welfare clause. This is
primarily because the CATV system commits the indiscretion of crossing
public properties. (It uses public properties in order to reach subscribers.)
The physical realities of constructing CATV system - the use of public
streets, rights of ways, the founding of structures, and the parceling of
large regions - allow an LGU a certain degree of regulation over CATV
operators. This is the same regulation that it exercises over all private
enterprises within its territory.
But, while we recognize the LGUs' power under the general welfare clause, we
cannot sustain Resolution No. 210. We are convinced that respondents
strayed from the well recognized limits of its power. The flaws in Resolution
No. 210 are: (1) it violates the mandate of existing laws and (2) it violates the
State's deregulation policy over the CATV industry.
National Law/Statute > Ordinance
The apparent defect in Resolution No. 210 is that it contravenes E.O. No.
205 and E.O. No. 436 insofar as it permits respondent Sangguniang
Panlungsod to usurp a power exclusively vested in the NTC, i.e., the
power to fix the subscriber rates charged by CATV operators. As earlier
discussed, the fixing of subscriber rates is definitely one of the matters within
the NTC's exclusive domain. Since E.O. No. 205, a general law, mandates that
the regulation of CATV operations shall be exercised by the NTC, an LGU
cannot enact an ordinance or approve a resolution in violation of the said
law.It is a fundamental principle that municipal ordinances are inferior in
status and subordinate to the laws of the state. An ordinance in conflict with
a state law of general character and statewide application is universally held
to be invalid. The principle is frequently expressed in the declaration that
municipal authorities, under a general grant of power, cannot adopt
ordinances which infringe the spirit of a state law or repugnant to the general
policy of the state.
Respondent LGU argues that RA 7160 (LGC) repealed EO 205 but looking at
the repealing clause of RA 7160, EO 205 is not among those mentioned as
repealed by RA 7160. Neither is there an indication that E.O. No. 205 was
impliedly repealed by R.A. No. 7160. It is a settled rule that implied repeals
are not lightly presumed in the absence of a clear and unmistakable showing
of such intentions. It is a canon of legal hermeneutics that instead of
pitting one statute against another in an inevitably destructive
confrontation, courts must exert every effort to reconcile them,
remembering that both laws deserve a becoming respect as the
handiwork of coordinate branches of the government. On the assumption
of a conflict between E.O. No. 205 and R.A. No. 7160, the proper action is not
to uphold one and annul the other but to give effect to both by harmonizing
them if possible.
The grant of regulatory power to the NTC is easily understandable. CATV
system is not a mere local concern. The complexities that characterize this
new technology demand that it be regulated by a specialized agency.
This is particularly true in the area of rate-fixing. Rate fixing involves a
series of technical operations.
Impairment of Contract?
There is no law specifically authorizing the LGUs to grant franchises to
operate CATV system. Whatever authority the LGUs had before, the same had
been withdrawn when President Marcos issued P.D. No. 1512 "terminating all
franchises, permits or certificates for the operation of CATV system previously
granted by local governments." Today, pursuant to Section 3 of E.O. No. 436,
"only persons, associations, partnerships, corporations or cooperatives
granted a Provisional Authority or Certificate of Authority by the NTC may
install, operate and maintain a cable television system or render cable
television service within a service area." It is clear that in the absence of
constitutional or legislative authorization, municipalities have no power to
grant franchises. Consequently, the protection of the constitutional provision
as to impairment of the obligation of a contract does not extend to
privileges, franchises and grants given by a municipality in excess of its
powers, or ultra vires.
One last word. The devolution of powers to the LGUs, pursuant to the
Constitutional mandate of ensuring their autonomy, has bred jurisdictional
tension between said LGUs and the State. LGUs must be reminded that they
merely form part of the whole. Thus, when the Drafters of the 1987
Constitution enunciated the policy of ensuring the autonomy of local
governments,55 it was never their intention to create an imperium in imperio
and install an intra-sovereign political subdivision independent of a single
sovereign state.
III. Disposition
WHEREFORE, the petition is GRANTED. The assailed Decision of the
Court of Appeals dated February 12, 1999 as well as its Resolution dated
May 26, 1999 in CA-G.R. CV No. 52461, are hereby REVERSED. The RTC
Decision in Civil Case No. 4254 is AFFIRMED.
Energy Regulatory Board v CA
I. Recit-ready summary
Shell filed an application for authority to relocate its Shell Service Station at
Tambo, Paranaque to Imelda Marcos Ave. of the Same municipality. This was
initially rejected by the BEU but was subsequently given due course.
Petroleum Distributors & Service Corp [PSDC] opposed on these grounds:
1. there are adequate service stations in the trading area covered by the
application
2. ruinous competition will result from the establishment of the new station
3. there is a decline not an increase in the volume of sales in the area
BEU dismissed the application on jurisdictional grounds. Later, the
Energy Regulatory Board (ERB) was created and the regulatory and
adjudicatory functions of the BEU were transferred to the ERB. ERB
granted the application. CA reversed.
During the pendency of the proceedings, Caltex filed a similar application for
the construction of a service station in the same area with ERB. ERB approved
the Caltex application. PDSC likewise opposed the application.
Would the proposed service station cause ruinous competition to PDSC’s
outlet? (NO)
Rule V Section 1 of the Rules and Regulations Governing the Establishment,
Construction, Operation, Remodeling, and/or Refurbishing of Petroleum
Products Retail Outlets enumerates the following factors determining the
allowance or disallowance of an application for outlet construction:
1. Operation of the proposed petroleum products retail outlet will
promote public interest in a proper and suitable manner
considering the need and convenience of the end-users
2. Reasonable expectation of a commercially viable operation
3. The establishment and operation thereof will not result in a
monopoly combination in restraint of trade and ruinous competition
4. The requirements of public safety and sanitation are properly
observed
5. Generally, the establishment and operation thereof will help promote
and achieve the purposes of RA 6173 [Oil Industry Commission Act]
Ruinous competition. The mere possibility of reduction in the earnings
of a business is not sufficient to prove ruinous competition. It must be
shown that the business would not have sufficient gains to pay a fair
rate of interest on its capital investment.
● PDSC failed to show that its business would not have sufficient
profit to have a fair return of its investment.
Caltex, PDSC’s principal, never filed any opposition to Shell’s application. A
climate of fear and pessimism generated by unsubstantiated claims of
ruinous competition should not be made to retard free competition.
II. Facts of the case

Shell: engaged in the business of importing crude oil, refining crude oil, and
selling petroleum products through a network of service stations throughout
the country
Petroleum Distributors and Service Corp. (PSDC): owns and operates a Caltex
Service station at the corner of MIA and Domestic Roads in Pasay City
Shell filed with the Bureau of Energy Utilization an application for authority to
relocate its Tambo service station to Imelda Marcos Avenue. The application
was initially rejected by the BEU because the old site had been closed for five
years and the relocation would amount to a new construction of a gasoline
outlet, which construction was then subject of a moratorium. Subsequently,
BEU relaxed its position and gave due course to the application.
PSDC opposed the application on these grounds:
1. there are adequate service stations in the trading area covered by the
application
2. ruinous competition will result from the establishment of the new station
3. there is a decline not an increase in the volume of sales in the area
Petrophil and Caltex opposed on the ground that Shell failed to comply with
jurisdictional requirements.
BEU dismissed the application on jurisdictional grounds and for lack of full
title of the lessor over the proposed site.
BEU reinstated the same application.
BEU denied Shell’s application finding that there is no necessity for another
outlet in Imelda Marcos Avenue. Shell appealed to the Office of Energy
Affairs.
The Energy Regulatory Board (ERB) was created and the regulatory and
adjudicatory functions of the BEU were transferred to the ERB.
OEA denied Shell’s appeal. Shell moved for reconsideration and submitted a
new feasibility study to justify its application.
OEA remanded the case to ERB. Imelda Marcos Ave. is renamed to Benigno
Aquino Avenue.
ERB allowed Shell to establish the service station in Benigno Aquino avenue.
PDSC moved for reconsideration but was denied.
The Court of Appeals reversed ERB’s judgment.
A motion for reconsideration was denied by the CA.
During the pendency of the proceedings, Caltex filed a similar application for
the construction a service station in the same area with ERB. PDSC opposed
the application.
ERB approved the Caltex application. The ERB was challenged by PDSC in the
CA but CA dismissed PDSC’s petition.
III. Issue/s
1. Is there substantial evidence to support ERB’s finding of public necessity to
warrant approval of Shell’s application? (Yes)
2. Is the feasibility study submitted by Shell stale for it was submitted two
years after it was prepared in 1988? (No)
3. Would the proposed service station cause ruinous competition to PDSC’s
outlet? (No)
IV. Ratio/Legal Basis
The interpretation of an administrative government agency like the ERB,
which is tasked to implement a statute, is accorded great respect and
ordinarily controls the construction of the courts. 8 A long line of cases
establish the basic rule that the courts will not interfere in matters which are
addressed to the sound discretion of government agencies entrusted with
the regulation of activities coming under the special technical knowledge and
training of such agencies
Issue 1: There is substantial evidence to support ERB’s findings.
ERB Decision approving Shell's application was based on hard economic
data on developmental projects, residential subdivision listings,
population count, public conveyances, commercial establishments,
traffic count, fuel demand, growth of private cars, public utility vehicles
and commercial vehicles, etc., rather than empirical evidence to support
its conclusions.
The record shows that the feasibility study 31 is accompanied by the
following data, namely: 1.] Annual Projection of Estimated Fuel Demand, Base
Area; 2.] Projected Volume of the Proposed Shell Station; 3.] Projected Fuel
Volume Derived From Base Area; 4.] Estimated Fuel Demand Base Projection
— 1993; 5.] Estimated Fuel Demand Base Projection — 1994; 6.] Annual
Projection of Population; 7.] Annual Projection Growth of Private Cars in the
Area; 8.] Annual Projection Growth of Public Utilities in the Area; and 9]
Annual Projected Growth of Commercial Vehicles in the Area32 — projects a
market scenario from 1989 to 1994.
ERB’s findings:
● Shell’s feasibility study projects a scenario of growth well up to 1994.
● Shell is servicing 35 commercial establishments; PDSC is servicing 65
● Development of subdivisions provides for a buffer of market
potential that could readily be tapped by the applicant service.
● Proposed Shell station expects to target a total volume of 460,151
liters per month with a projected increase of 2.6% per annum; PDSC
expects to suffer income loss even with a projected volume of
600,000 – 800,000 liters per month
● Board believes that the construction and operation of the Shell
station will not lead to ruinous competition
In reviewing admin decisions, the findings of fact made therein must be
respected as long as they are supported by substantial evidence, even if
not overwhelming or preponderant. A litany of cases has consistently held
that substantial evidence is all that is needed to support an admin finding of
fact.
Therefore, it is proven that there is necessity to build such a gasoline retail
outlet in the vicinity subject of the application.
Issue 2
The court cited the CA Caltex decision. Unless the petitioner is able to prove
by competent evidence that significant changes have occurred sufficient to
invalidate the afore-stated study, the presumption is that the study remains
valid, as found by the ERB decision. Base and self-serving manifestations
cannot be accepted as proof.
Issue 3
Rule V Section 1 of the Rules and Regulations Governing the Establishment,
Construction, Operation, Remodeling, and/or Refurbishing of Petroleum
Products Retail Outlets enumerates the following factors determining the
allowance or disallowance of an application for outlet construction:
1. Operation of the proposed petroleum products retail outlet will
promote public interest in a proper and suitable manner
considering the need and convenience of the end-users
2. Reasonable expectation of a commercially viable operation
3. The establishment and operation thereof will not result in a
monopoly combination in restraint of trade and ruinous
competition
4. The requirements of public safety and sanitation are properly
observed
5. Generally, the establishment and operation thereof will help
promote and achieve the purposes of RA 6173 [Oil Industry
Commission Act]
The mere possibility of reduction in the earnings of a business is not
sufficient to prove ruinous competition. It must be shown that the business
would not have sufficient gains to pay a fair rate of interest on its capital
investment.
PDSC failed to show that its business would not have sufficient profit to have
a fair return of its investment.
It would not be remiss to point out that Caltex, PDSC's principal, whose
products are being retailed by private respondent in the service outlet it
operates along the MIA/Domestic Road in Pasay City, never 􏰂led any
opposition to Shell's application. All told, a climate of fear and pessimism
generated by unsubstantiated claims of ruinous competition already rejected
in the past should not be made to retard free competition, consistently with
legislative policy of deregulating and liberalizing the oil industry to ensure a
truly competitive market under a regime of fair prices, adequate and
continuous supply, environmentally clean and high-quality petroleum
products.
V. Disposition
WHEREFORE, in view of all the foregoing, the challenged Decision of the
Court of Appeals dated November 8, 1993, as well as the subsequent
Resolution dated April 6, 1994, in CA-G.R. SP No. 27661, is REVERSED and SET
ASIDE, and another one rendered REINSTATING the Order dated September
17, 1991 of the Energy Regulatory Board in ERB Case No. 89-57, granting the
amended application of Pilipinas Shell Petroleum Corporation to relocate its
service station to Benigno Aquino Jr., Avenue, Paranaque, Metro Manila.
Padua v Ranada
I. Recit-ready summary
The Citra Metro Manila Tollways Corporation (CITRA) filed with the Toll
Regulatory Board (TRB) an application for an interim adjustment of the toll
rates at the Metro Manila Skyway Project – Stage 1. Claiming that the peso
exchange rate to a U.S. dollar had devaluated, CITRA alleged that there was a
compelling need for the increase of the toll rates to meet the loan
obligations of the Project and the substantial increase in debt-service burden.
Toll Regulatory Board (TRB) then issued Resolution No. 2001-89 authorizing
provisional toll rate adjustments at the Metro Manila Skyway. Petitioners
[toll payers] assail that said resolution is invalid for suffering from several
procedural and substantive infirmities, one of which is that it was issued
without a hearing.
IWON Resolution No. 2001-89 issued by the Toll Regulatory Board is valid –
YES
The provisional toll rate adjustments were properly published prior to
its implementation. Records show that they were published in three
newspapers of general circulation. For another, it is not true that it was TRB
Executive Director Dumlao, Jr. alone who issued Resolution No. 2001-89. The
Resolution itself contains the signature of the four TRB Directors. Further,
TRB's authority to grant provisional toll rate adjustments does not require the
conduct of a hearing. P.D. No. 1112 created the TRB which was tasked to
supervise the collection of toll fees and the operation of toll facilities. To
clarify the intent of P.D. No. 1112 as to the extent of the TRB's power, LOI No.
1334-A was issued which expressly allows the TRB to grant ex-parte
provisional or temporary increase in toll rates. A hearing is not necessary
for the grant of provisional toll rate adjustment. All that is necessary is
that it be issued upon
1. a finding that the main petition is sufficient in form and
substance;
2. the submission of an affidavit showing that the increase in rates
substantially conforms to the formula, if any is stipulated in the
franchise or toll operation agreement, and that failure to immediately
impose and collect the increase in rates would result in great
irreparable injury to the petitioner; and
3. the submission of a bond.
Again, whether or not CITRA complied with these requirements is an issue
that must be addressed to the TRB. The practice is not something peculiar.
We have ruled in a number of cases that an administrative agency may be
empowered to approve provisionally, when demanded by urgent public
need, rates of public utilities without a hearing. The reason is easily discerned
from the fact that provisional rates are by their nature temporary and subject
to adjustment in conformity with the definitive rates approved after final
hearing.
CITRA's right stems from the STOA which was entered into by no less than
the Republic of the Philippines and by the PNCC. Section 7.04 of the STOA
provides that the Investor, CITRA,and/or the Operator, PNCC, shall be entitled
to apply for and if warranted, to be granted an interim adjustment of toll
rates in case of force majeure and a significant currency valuation. Now,
unless set aside through proper action, the STOA has the force and effect of
law between the contracting parties, and is entitled to recognition by this
Court.
II. Facts of the case
The Citra Metro Manila Tollways Corporation (CITRA) filed with the Toll
Regulatory Board (TRB) an application for an interim adjustment of the toll
rates at the Metro Manila Skyway Project – Stage 1. CITRA moored its
petition on the provisions of the "Supplemental Toll Operation
Agreement" (STOA), authorizing it, as the investor, to apply for and if
warranted, to be granted an interim adjustment of toll rates in the event of a
"significant currency devaluation."
Claiming that the peso exchange rate to a U.S. dollar had devaluated
from P26.1671 in 1995 to P48.00 in 2000, CITRA alleged that there was a
compelling need for the increase of the toll rates to meet the loan
obligations of the Project and the substantial increase in debt-service burden.
Due to heavy opposition, CITRA's petition remained unresolved. This
prompted CITRA to file an "Urgent Motion for Provisional Approval," this
time, invoking Section 3, Rule 10 of the "Rules of Practice and Procedure
Governing Hearing Before the Toll Regulatory Board" (TRB Rules of
Procedure). However, it later on moved moved to withdraw it.
CITRA subsequently wrote a letter to TRB expressing its concern over the
undue delay in the proceeding, stressing that any further setback would bring
the Project's financial condition, as well as the Philippine banking system, to a
total collapse. CITRA recounted that out of the US$354 million funding from
creditors, two-thirds (2/3) thereof came from the Philippine banks and
financial institutions, such as the Landbank of the Philippines and the
Government Service Insurance Services. Thus, CITRA requested TRB to find a
timely solution to its predicament.
TRB granted CITRA's motion to withdraw the Urgent Motion for
Provisional Approval and, at the same time, issued Resolution No. 2001-89.
Hence, petitioners Ceferino Padua and Eduardo Zialcita assail before this
Court the validity and legality of TRB Resolution No. 2001-89 authorizing
provisional toll rate adjustments at the Metro Manila Skyway.
Petitioner Ceferino Padua, as a toll payer, seeks the issuance of a writ of
execution for the enforcement of the Court of Appeals' Decision ordering the
exclusion of certain portions of the expressways (from Villamor Air Base to
Alabang in the South, and from Balintawak to Tabang in the North) from the
franchise of the PNCC.
In his urgent motion, petitioner Padua claims that: (1) Resolution No.
2001-89 was issued without the required publication and in violation of due
process; (2) alone, TRB Executive Director Jaime S. Dumlao, Jr.,could not
authorize the provisional toll rate adjustments because the TRB is a collegial
body; and (3) CITRA has no standing to apply for a toll fee increase since it is
an "investor" and not a "franchisee-operator."
Petitioner Padua filed a "Supplemental Urgent Motion for a TRO against
Toll Fee Increases," 13 arguing further that: (1) Resolution 2001-89 refers
exclusively to the Metro Manila Skyway Project, hence, there is no legal basis
for the imposition of the increased rate at the at-grade portions; (2)
Resolution No. 2001-89 was issued without basis considering that while it
was signed by three (3) of the five members of the TRB, none of them
actually attended the hearing; and 3) the computation of the rate adjustment
under the STOA is inconsistent with the rate adjustment formula under
Presidential Decree No. 1894.
The Office of the Solicitor General (OSG) filed, in behalf of public
respondent TRB, Philippine National Construction Corporation (PNCC),
Department of Public Works and Highways (DPWH) and Judge Ranada of the
RTC, a "Consolidated Comment" contending that: (1) the TRB has the
exclusive jurisdiction over all matters relating to toll rates; (2) Resolution No.
2001-89 covers both the Skyway and the at-grade level of the South Luzon
Expressway as provided under the STOA; (3) that while Resolution No. 2001-
89 does not mention any factual basis to justify its issuance, however, it does
not mean that TRB's finding of facts is not supported by evidence; and (4)
petitioner Padua cannot assail the validity of the STOA because he is not a
party thereto.
Upon the other hand, petitioner Eduardo Zialcita, as a taxpayer and as
Congressman of Parañaque City, filed the present petition for prohibition
with prayer for a temporary restraining order and/or writ of preliminary
injunction against TRB and CITRA, impugning the same Resolution No. 2001-
89.
Petitioner Zialcita asserts that the provisional toll rate adjustments are
exorbitant and that the TRB violated its own Charter, Presidential Decree No.
1112, when it promulgated Resolution No. 2001-89 without the benefit of
any public hearing. He also maintains that the TRB violated the Constitution
when it did not express clearly and distinctly the facts and the law on which
Resolution No. 2001-89 was based. And lastly, he claims that Section 3, Rule
10 of the TRB Rules of Procedure is not sanctioned by P.D. No. 1112.
Private respondent CITRA, in its comment on Congressman Zialcita's
petition, counters that: (1) the TRB has primary administrative jurisdiction
over all matters relating to toll rates; (2) prohibition is an inappropriate
remedy because its function is to restrain acts about to be done and not acts
already accomplished; (3) Resolution No. 2001-89 was issued in accordance
with law; (4) Section 3, Rule 10 of the TRB Rules is constitutional; and (5)
private respondent and the Republic of the Philippines would suffer more
irreparable damages than petitioner.
III. Issue/s
1. WON Resolution No. 2001-89 issued by the Toll Regulatory Board is
valid? -- YES
IV. Ratio/Legal Basis
Procedural Infirmities
Petitioner Padua's motion is a leap to a legal contest of different
dimension. He initiated a petition for mandamus seeking the issuance of a
writ of execution for the enforcement of the Court of Appeal's Decision. The
issue therein is whether the application for a writ of execution should be by a
mere motion or by an action for revival of judgment. Thus, for petitioner
Padua to suddenly interject in the same petition the issue of whether
Resolution No. 2001-89 is valid is to drag this Court to his web of legal
convolution. Courts cannot, as a case progresses, resolve the intrinsic merit of
every issue that comes along its way, particularly those which bear no
relevance to the resolution of the case.
The remedy of prohibition initiated by petitioner Zialcita also suffers
several infirmities. Initially, it violates the twin doctrine of primary
administrative jurisdiction and non-exhaustion of administrative remedies.
P.D. No. 1112 explicitly provides that "the decisions of the TRB on
petitions for the increase of toll rate shall be appealable to the Office of the
President within ten (10) days from the promulgation thereof." These same
provisions are incorporated in the TRB Rules of Procedure, particularly in
Section 6, Rule 5 and Section 1, Rule 12 thereof.
Obviously, the laws and the TRB Rules of Procedure have provided the
remedies of an interested Expressways user. The initial proper recourse is
to file a petition for review of the adjusted toll rates with the TRB. The
need for a prior resort to this body is with reason. The TRB, as the agency
assigned to supervise the collection of toll fees and the operation of toll
facilities, has the necessary expertise, training and skills to judiciously decide
matters of this kind. As may be gleaned from the petition, the main thrust of
petitioner Zialcita's argument is that the provisional toll rate adjustments are
exorbitant, oppressive, onerous and unconscionable. This is obviously a
question of fact requiring knowledge of the formula used and the factors
considered in determining the assailed rates. Definitely, this task is within the
province of the TRB.
Moreover, petitioner Zialcita's resort to prohibition is intrinsically
inappropriate. It bears stressing that the office of this remedy is not to correct
errors of judgment but to prevent or restrain usurpation of jurisdiction or
authority by inferior tribunals and to compel them to observe the limitation
of their jurisdictions.
Resolution No. 2001-89 is VALID
Even granting that petitioners' recourse to the instant remedies is in
order, still, we cannot rule in their favor.
For one, it is not true that the provisional toll rate adjustments were
not published prior to its implementation. Records show that they were
published in three newspapers of general circulation, particularly the
Philippine Star, Philippine Daily Inquirer and The Manila Bulletin. Surely, such
publications sufficiently complied with Section 5 of P.D. No. 1112 which
mandates that "no new rates shall be collected unless published in a
newspaper of general publication at least once a week for three consecutive
weeks." At any rate, it must be pointed out that under Letter of Instruction
No. 1334-A, 28 the TRB may grant and issue ex parte to any petitioner,
without need of notice, publication or hearing, provisional authority to
collect, pending hearing and decision on the merits of the petition, the
increase in rates prayed for or such lesser amount as the TRB may in its
discretion provisionally grant.
For another, it is not true that it was TRB Executive Director Dumlao, Jr.
alone who issued Resolution No. 2001-89. The Resolution itself contains the
signature of the four TRB Directors. Petitioner Padua would argue that while
these Directors signed the Resolution, none of them personally attended the
hearing. This argument is misplaced. Under our jurisprudence, an
administrative agency may employ other persons, such as a hearing officer,
examiner or investigator, to receive evidence, conduct hearing and make
reports, on the basis of which the agency shall render its decision. Such a
procedure is practical necessity.
Be that as it may, we must stress that the TRB's authority to grant
provisional toll rate adjustments does not require the conduct of a
hearing. Pertinent laws and jurisprudence support this conclusion.
It may be recalled that Former President Ferdinand E. Marcos promulgated
P.D. No. 1112 creating the TRB on March 31, 1977. The end in view was to
authorize the collection of toll fees for the use of certain public
improvements in order to attract private sector investment in the
government infrastructure projects. The TRB was tasked to supervise the
collection of toll fees and the operation of toll facilities. One of its powers is
to "issue, modify and promulgate from time to time the rates of toll that will
be charged the direct users of toll facilities and upon notice and hearing, to
approve or disapprove petitions for the increase thereof."
To clarify the intent of P.D. No. 1112 as to the extent of the TRB's power,
Former President Marcos further issued LOI No. 1334-A expressly allowing
the TRB to grant ex-parte provisional or temporary increase in toll rates.
A hearing is not necessary for the grant of provisional toll rate
adjustment. The language of LOI No. 1334-A is not susceptible of
equivocation. It "directs, orders and instructs" the TRB to issue
provisional toll rates adjustment ex-parte without the need of notice,
hearing and publication.
All that is necessary is that it be issued upon (1) a finding that the main
petition is sufficient in form and substance; (2) the submission of an affidavit
showing that the increase in rates substantially conforms to the formula, if
any is stipulated in the franchise or toll operation agreement, and that failure
to immediately impose and collect the increase in rates would result in great
irreparable injury to the petitioner; and (3) the submission of a bond. Again,
whether or not CITRA complied with these requirements is an issue that must
be addressed to the TRB.
The practice is not something peculiar. We have ruled in a number of
cases that an administrative agency may be empowered to approve
provisionally, when demanded by urgent public need, rates of public
utilities without a hearing. The reason is easily discerned from the fact that
provisional rates are by their nature temporary and subject to adjustment in
conformity with the definitive rates approved after final hearing.
Anent petitioner Padua's contention that CITRA has no standing to apply for
a toll fee increase, suffice it to say that CITRA's right stems from the STOA
which was entered into by no less than the Republic of the Philippines and by
the PNCC. Section 7.04 of the STOA provides that the Investor, CITRA,and/or
the Operator, PNCC, shall be entitled to apply for and if warranted, to be
granted an interim adjustment of toll rates in case of force majeure and a
significant currency valuation. Now, unless set aside through proper action,
the STOA has the force and effect of law between the contracting parties, and
is entitled to recognition by this Court. On the same breath, we cannot
sustain Padua's contention that the term "Metro Manila Skyway" Project
excludes the at-grade portions of the South Luzon Expressway considering
that under the same STOA the "Metro Manila Skyway" includes: "(a) the
South Metro Manila Skyway, coupled with the rehabilitated at grade portion
of the South Luzon Expressway,from Alabang to Quirino Avenue; (b) the
Central Metro Manila Skyway, from Quirino Avenue to A. Bonifacio
Avenue; ...."
Petitioner Zialcita faults the TRB for not stating the facts and the law on
which Resolution No. 2001-89 is based. Petitioner is wrong. Suffice it to state
that while Section 14, Article VIII of the 1987 Constitution provides that "no
decision shall be rendered by any court without expressing therein clearly
and distinctly the facts and the law on which it is based," this rule applies only
to a decision of a court of justice, not TRB.
At this point, let it be stressed that we are not passing upon the
reasonableness of the provisional toll rate adjustments. As we have earlier
mentioned, this matter is best addressed to the TRB.
WHEREFORE, petitioner Padua's "Urgent Motion for Temporary
Restraining Order to Stop Arbitrary Toll Fee Increases" is DENIED and
petitioner Zialcita's "Petition for Prohibition" is DISMISSED.
MIAA v Airspan Corporation
Recit-ready summary
MIAA, a GOCC that owns, operates, and manages NAIA, issued several
resolutions increasing the following:
1. rentals of terminal buildings, VIP lounge, other airport buildings and
land, as well as check-in and concessions counters.
2. Business concessions, particularly concessionaire privilege
3. Airport fees and charges
Respondents (lessees, users, and occupants of MIAA’s properties, facilities
and services) requested that the implementation of the new fees, charges,
and rates be deferred due to lack of prior notice and hearing.
The RTC nullified the subject resolutions.
Can petitioner MIAA validly raise — without prior notice and public
hearing — the fees, charges, and rates subject of its Resolutions Nos. 98-
30 and 99-11? – No.
The resolutions are not valid for 2 reasons:
1. MIAA is not the agency authorized to issue the assailed
resolution (should be DOTC)
2. It violates the Administrative Code, which requires notice and
hearing in fixing of rates.
Under the original Charter of the MIAA, petitioner was given blanket
authority to adjust its fees, charges, and rates. However, E.O. No. 903
limited such authority to a mere recommendatory power. Hence,
petitioner's Charter itself, as amended, directly vests the power to determine
revision of fees, charges, and rates in the "ministry head" [now DOTC
Seretary] and even requires approval of the Cabinet. It follows that the
rate increases imposed by petitioner are invalid for lack of the required prior
notice and public hearing. They are also ultra vires because, to begin with,
petitioner is not the official authorized to increase the subject fees, charges,
or rates, but rather the DOTC Secretary.
MIAA is also an attached agency of the DOTC. As an attached agency of
the DOTC, the MIAA is governed by the Administrative Code of 1987.
The Administrative Code specifically requires notice and public hearing
in the fixing of rates.
I. Facts of the case
Petitioner Manila International Airport Authority (MIAA) is a
government-owned and controlled corporation that owns, operates, and
manages the Ninoy Aquino International Airport (NAIA). Petitioner's
properties, facilities, and services are available for public use subject to such
fees, charges, and rates as may be fixed in accordance with law. Herein
respondents are the users, lessees and occupants of petitioner's properties,
facilities, and services (i.e. Airspan Corporation, Lbc Express Inc., A. Soriano
Aviation, Inc., Flying Medical Samaritans, Inc., Aboitiz Air Transport Corp., Asia
Aircraft Overseas Phils., Inc., Asian Aerospace Corp., Pacific Jet Maintenance
Services, Inc., General Aviation Supplies Trading, Inc., Airworks Aviation Corp.,
Federation Of Aviation Organizations Of The Phils., Inc., Subic International
Air Charter, Inc., Normal Holdings And Development Corporation And
Columbian Motor Sales Corporation).
The schedule of aggregate dues collectible for the use of petitioner's
properties, facilities, and services are divided into: (1) aeronautical fees; (2)
rentals; (3) business concessions; (4) other airport fees and charges; and (5)
utilities.
On May 19, 1997, MIAA issued Resolution No. 97-51 announcing an
increase in the rentals of its terminal buildings, VIP lounge, other airport
buildings and land, as well as check-in and concessions counters. Business
concessions, particularly concessionaire privilege fees, were also increased.
Resolutions No. 98-30, which is a 20% rental increase, and 99-11, increasing
airport fees and charges, were also issued.
Respondents requested that the implementation of the new fees,
charges, and rates be deferred due to lack of prior notice and hearing. The
request was denied. MIAA likewise refused to renew the identification cards
of respondents' personnel, and vehicle stickers to prevent entry to the
premises.
II. Issue/s
Can petitioner MIAA validly raise — without prior notice and public hearing
— the fees, charges, and rates subject of its Resolutions Nos. 98-30 and 99-
11? – No
III. Ratio/Legal Basis
Thus, under the original Charter of the MIAA, petitioner was given
blanket authority to adjust its fees, charges, and rates. However, E.O. No. 903
limited such authority to a mere recommendatory power. Hence, petitioner's
Charter itself, as amended, directly vests the power to determine revision of
fees, charges, and rates in the "ministry head" and even requires approval of
the Cabinet.
Worth noting, its Charter established MIAA as an attached agency of the
Ministry of Transportation and Communications (now Department of
Transportation and Communications). Hence, the "ministry head" who has
the power to determine the revision of fees, charges, and rates of the MIAA is
now the DOTC Secretary. Clearly, petitioner has no authority to increase its
fees, charges, or rates as the power to do so is vested solely in the DOTC
Secretary, although petitioner's prerogative to recommend possible
increases thereon is of course recognized.
As an attached agency of the DOTC, the MIAA is governed by the
Administrative Code of 1987. The Administrative Code specifically requires
notice and public hearing in the fixing of rates.
It follows that the rate increases imposed by petitioner are invalid
for lack of the required prior notice and public hearing. They are also
ultra vires because, to begin with, petitioner is not the official
authorized to increase the subject fees, charges, or rates, but rather the
DOTC Secretary.
To conclude, petitioner's Resolutions Nos. 98-30 and 99-11 and the
corresponding administrative orders, which increased the fees, charges, and
rates specified therein, without the required prior notice and hearing as well
as approval of the DOTC Secretary, are null and void. The RTC Decision, which
permanently enjoined petitioner from collecting said increases and ordered
refund to respondents of the amounts paid pursuant to the said Resolutions,
must be upheld. However, any refund should cover only the differential
brought about by the unauthorized increases contained in said Resolutions.In
our view, considering the clear mandate of the applicable provisions of law,
petitioner's theory that its fees, charges, and rates are contractual in nature
and thus, respondents are free to terminate the lease contracts should they
be unable to pay the increased dues is unacceptable. As the country's
principal airport for both international and domestic air transport, petitioner's
properties, facilities, and services are imbued with paramount public and
even national interest. Petitioner is not at liberty to increase fees, charges, or
rates at will, without due regard to parameters set by laws and regulations.
Among the considerations mentioned in E.O. No. 903 are that fees and
charges should reflect adequately the costs and increases in price levels and
the volume of traffic. For any change in its fees, charges, or rates without due
regard to valid limitations can create a profound impact on the country's
economy in general and air transport in particular.
IV. Disposition
WHEREFORE, the petition is DENIED for lack of merit. The Decision,
dated February 17, 2003, of the Regional Trial Court of Makati City, Branch
58, in Civil Case No. 99-1293, is AFFIRMED. No pronouncement as to costs.
Vlasons Shippinng v CA
I. Recit-ready summary
This is a consolidation of two separate petitions for review filed by
National Steel Corporation (NSC) and Vlasons Shipping Inc. (VSI), both
assailing the decision of the CA.
The records of the case reveal that NSC hired MV Vlasons I, a private
vessel owned by VSI. They entered into a contract of affreightment
or contract of voyage charter hire wherein the contract states that
NSC hired VSI's vessel to make one voyage to load steel products at
Iligan City and discharge them at North Harbor, Manila. Under the
Contract of Voyage Charter Hire, VSI shall not be responsible for
losses/damages except on proven willful negligence of the officers
of the vessel,
Thereafter, in accordance with the voyage charter hire, NSC's shipment
of 1,677 skids of tin plates and 92 packages of hot rolled sheets were
loaded to MV Vlasons I for carriage to Manila. The vessel arrived safely
at North Harbor, Manila but upon opening the three hatches containing
the shipment, nearly all the skids of tin plates and hot rolled sheets
were allegedly found to be wet and rusty. Inspection revealed that
the wetting and rusting were caused by contact with sea water.
NSC sought to collect from VSI but VSI refused to pay. On the basis of this
incident, NSC filed a complaint against VSI for damages due to the
downgrading of the damaged tin plates in the amount of P941,145.18.
CFI. After trial on the merits, the court a quo rendered judgment
dismissing the complaint and ordering NSC to pay VSI on the
counterclaim prayed for by the latter. NSC seasonably filed an appeal
to the CA, but the said court just modified the appealed decision by
reducing the award of demurrage and deleting the award of attorney's
fees and expenses of litigation. Both parties led their separate motions
for reconsideration, but the appellate court denied both motions. Hence,
this petition.
The SC affirms the assailed decision of the CA, except in respect with
the demurrage.
It is undisputed that VSI did not offer its services to the general
public. As correctly concluded by the CA, MV Vlasons I was not a
common but a private carrier. Verily, the extent of VSI's
responsibility and liability over NSC's cargo are determined
primarily by the stipulations in the contract of carriage or charter
party and the Code of Commerce. In the instant case, the burden of
proof lies on the part of NSC and not the VSI. Additionally, the Court
ruled that since the problems raised by NSC were all factual issues
already threshed out and decided by the trial court and subsequently
armed by the CA, the factual findings of both courts are binding on
this Court. However, the Court disagrees with the findings of both
courts to have found and armed respectively that NSC incurred eleven
days of delay in unloading the cargo. In this case, the contract of
voyage charter hire provided four-day laytime; it also qualified
laytime as WWDSHINC or weather working days Sundays and
holidays included. Consequently, NSC cannot be held liable for
demurrage as the four-day laytime allowed it did not lapse, having
been tolled by unfavorable weather condition in view of
WWDSHINC qualification agreed upon by the parties. In view
thereof, the consolidated petitions are denied and the questioned
decision is affirmed with modification that the award of demurrage
awarded to VSI is deleted.
II. Facts of the case
National Steel Corporation (NSC) and Vlasons Shipping Inc. (VSI), in separate
petitions for review assails the Aug 12, 1993 CA decision which modified the
RTC decision by reducing the demurrage award and deleted attorney’s fees
and litigation expenses.
MV Vlasons I is a vessel which renders tramping service and, as such,
does not transport cargo or shipment for the general public.
- Its services are available only to specific persons who enter into
a special contract of charter party with its owner.
- It is undisputed that the ship is a private carrier.
- It is in this capacity that its owner, Vlasons Shipping, Inc.,
entered into a contract of affreightment or contract of voyage
charter hire with National Steel Corporation
[July 17, 1974] NSC as Charterer and VSI as owner entered into a contract of
voyage charter hire whereby NSC hired VSI's vessel, the MV 'VLASONS
I' to make one (1) voyage to load steel products at Iligan City and
discharge them at North Harbor, Manila under conditions [1]
- FOIST- Freight In and Out including Stevedoring and Trading
- means that the handling, loading and unloading of the cargoes
are the responsibility of the Charterer
- The NANYOZAI Charter Party is incorporated in their contract. Under
Paragraph 5 of the NANYOZAI Charter Party, it states,
'Charterers to load, stow and discharge the cargo free of
risk and expenses to owners
The MV 'VLASONS I' loaded at NSC’s pier at Iligan City, the NSC's
shipment of 1,677 skids of tin plates and 92 packages of hot rolled
sheets or a total of 1,769 packages with a total weight of about
2,481.19 metric tons for carriage to Manila. The shipment was placed in
the 3 hatches of the ship.
- The vessel arrived with the cargo at Pier 12, North Harbor,
Manila. The following day, when the vessel's 3 hatches
containing the shipment were opened by NSC’s agents, nearly
all the skids of tin plates and hot rolled sheets were
allegedly found to be wet and rusty. The cargo was
discharged and unloaded by stevedores hired by the Charterer.
Unloading was completed, incurring a delay of eleven (11)
days due to the heavy rain which interrupted the unloading
operations.
● MASCO (surveyor) found wetting and rusting of the packages of
hot rolled sheets and metal covers of the tin plates; that
tarpaulin hatch covers were noted torn at various extents; that
container/metal casings of the skids were rusting all over.
MASCO opined that 'rusting of the tinplates was caused by
contact with SEA WATER sustained while still on board the
vessel as a consequence of the heavy weather and rough seas
encountered while en route to destination. Further, based on
the testing of samples, “The analysis of bad order samples
of packing materials ... shows that wetting was caused by
contact with SEA WATER'.
NSC filed with the VSI its claim for damages. NSC formally
demanded payment but VSI refused. NSC filed its complaint. NSC
claimed that it sustained losses in the amount of P941,145.18 as a
result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence of VSI
to make the vessel seaworthy and to make the holds and all other
parts of the vessel in which the cargo was carried, fit and safe for its
reception, carriage and preservation — all in violation of VSI’s
undertaking under their Contract of Voyage Charter Hire.
VSI denied liability claiming that the MV 'VLASONS I' was seaworthy;
that said vessel was not a 'common carrier' inasmuch as she was
under voyage charter contract with the plaintiff as charterer under the
charter party; that in the course of the voyage from Iligan City to
Manila, the MV 'VLASONS I' encountered very rough seas, strong winds
and adverse weather condition, causing strong winds and big waves to
continuously pound against the vessel and seawater to overflow on its
deck and hatch covers; that under the Contract of Voyage Charter Hire,
VSI shall not be responsible for losses/damages except on proven
willful negligence of the officers of the vessel, that the officers of
said MV 'VLASONS I' exercised due diligence and proper seamanship
and were not willfully negligent; that furthermore the Voyage Charter
Party provides that loading and discharging of the cargo was on FIOST
terms which means that the vessel was free of risk and expense in
connection with the loading and discharging of the cargo; that the
damage, if any, was due to the inherent defect, quality or vice of the
cargo or to the insufficient packing thereof or to latent defect of the
cargo not discoverable by due diligence; that the stevedores of plaintiff
who discharged the cargo in Manila were negligent and did not
exercise due care in the discharge of the cargo; and that the cargo
was exposed to rain and seawater spray while on the pier or in transit
from the pier to NSC’s warehouse after discharge from the vessel.
The trial court ruled in favor of VSI and dismissed the complaint
and awarded demurrage to VSI. RTC made the following findings:
a. The MV 'VLASONS I' is a vessel of Philippine registry engaged
in the tramping service and is available for hire only under
special contracts of charter party as in this particular case.
b. For purposes of the voyage covered by the Contract of Voyage
Charter Hire, the MV 'VLASONS I' was covered by the required
seaworthiness certificates. Being a vessel engaged in both
overseas and coastwise trade, the MV 'VLASONS I' has a higher
degree of seaworthiness and safety.
c. Before it proceeded to Iligan City to perform the voyage called
for by the Contract of Voyage Charter Hire, the MV 'VLASONS
I' underwent drydocking in Cebu and was thoroughly inspected
by the Philippine Coast Guard. In fact, the subject voyage was
the vessel's first voyage after the drydocking. The MV 'VLASONS
I' was seaworthy and properly manned, equipped and supplied
when it undertook the voyage.
d. The cargo/shipment was securely stowed in 3 hatches of the
ship. The hatch openings were covered by hatch boards which
were in turn covered by two or double tarpaulins. The hatch
covers were water tight. Furthermore, under the hatch boards
were steel beams to give support.
e. The provisions of the Civil Code on common carriers are not
applicable. As to the damage to the tin plates which was
allegedly due to the wetting and rusting thereof, there is
unrebutted testimony of witness Angliongto that tin plates
'sweat' by themselves when packed even without being in
contract (sic) with water from outside especially when the
weather is bad or raining. The rust caused by sweat or moisture
on the tin plates may be considered as a loss or damage but
then, VSI cannot be held liable for it pursuant to Article 1734
of the Civil Case which exempts the carrier from responsibility
for loss or damage arising from the 'character of the goods...'
All the 1,769 skids of the tin plates could not have been
damaged by water. The tin plates themselves were wrapped in
kraft paper lining and corrugated cardboards could not be
affected by water from outside.
f. The stevedores hired by NSC to discharge the cargo of tin
plates were negligent in not closing the hatch openings of the
MV 'VLASONS I' when rains occurred during the discharging of
the cargo thus allowing rainwater to enter the hatches. The
stevedores merely set up temporary tents to cover the hatch
openings in case of rain so that it would be easy for them to
resume work when the rains stopped by just removing the tent
or canvas. Because of this improper covering of the hatches by
the stevedores during the discharging and unloading operations
which were interrupted by rains, rainwater drifted into the cargo
through the hatch openings. Pursuant to paragraph 5 of the
NANYOSAI [sic] Charter Party which was expressly made part of
the Contract of Voyage Charter Hire, the loading, stowing and
discharging of the cargo is the sole responsibility of the plaintiff
charterer and defendant carrier has no liability for whatever
damage may occur or maybe [sic] caused to the cargo in the
process.
g. The vessel encountered rough seas and bad weather while en
route from Iligan City to Manila causing sea water to splash on
 the ship's deck on account of which the master filed a 'Marine
Protest' which can be invoked as a force majeure.
h. NSC did not comply with the requirement in paragraph 9 of
the Voyage Charter Hire contract that it was to insure the
cargo. NSC also violated the charter party contract when it
loaded not only 'steel products', i.e. steel bars, angular bars and
the like but also tin plates and hot rolled sheets which are high
grade cargo commanding a higher freight. Thus NSC was able
to ship high grade cargo at a lower freight rate.
i. As regards VSI’s counterclaim, the contract of voyage charter
hire under paragraph 4 thereof, fixed the freight at P30.00 per
metric ton payable to defendant carrier upon presentation of
the bill of lading within fifteen (15) days. NSC has not paid the
total freight due of P75,000.00 despite demands. NSC was
required and bound under paragraph 7 of the same Voyage
Charter Hire contract to pay demurrage of P8,000.00 per day of
delay in the unloading of the cargoes. The delay amounted to
eleven (11) days thereby making NSC liable to pay the defendant
for demurrage in the amount of P88,000.00.
CA modified the RTC decision by reducing the demurrage from
P88,000.00 to P44,000.00 and deleting the award of attorney's fees and
expenses of litigation
III. Issue/s
W/N VSI is a common carrier or private carrier? –
Private carrier. VSI did not offer its services to the general public.
It carried passengers or goods only for those it chose under a
"special contract of charter party.
W/N MV Vlasons I is seaworthy? –
YES. It was drydocked and harbored by the Philippine Coast Guard
before it proceeded to Iligan City for its voyage to Manila under
the contract of voyage charter hire.
Who were negligent, the seamen or the stevedores? –
Stevedores. Such negligence is evident in the stevedores hired by
NSC, not closing the hatch of MV 'VLASONS I' when rains occurred
during the discharging of the cargo thus allowing rainwater and
seawater spray to enter the hatches and to drift to and fall on the
cargo.
W/N the failure to insure the cargo will affect NSC’s right to file an
action? –
NO. This obligation is separate from the contractual responsibility
that may be incurred by VSI for damages.
W/N NSC is liable for demurrage? –
NO. The four-day laytime allowed it did not lapse, having been tolled by
unfavorable weather conditions in view of the WWDSHINC qualification
agreed upon by the parties.
IV. Ratio/Legal Basis
Common Carrier or Private Carrier?
Article 1732 of the Civil Code defines a common carrier as "persons,
corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public." The true test of a
common carrier is the carriage of passengers or goods, provided it
has space, for all who opt to avail themselves of its transportation
service for a fee.
Generally, private carriage is undertaken by special agreement and
the carrier does not hold himself out to carry goods for the
general public. The most typical, although not the only form of private
carriage, is the charter party, a maritime contract by which the
charterer, a party other than the shipowner, obtains the use and service
of all or some part of a ship for a period of time or a voyage or
voyages.
VSI did not offer its services to the general public. It carried
passengers or goods only for those it chose under a "special contract
of charter party." The MV Vlasons I "was not a common but a private
carrier." Consequently, the rights and obligations of VSI and NSC,
including their respective liability for damage to the cargo, are
determined primarily by stipulations in their contract of private
carriage or charter party.
Extent of VSI's Responsibility and Liability Over NSC's Cargo. It is
clear from the parties' Contract of Voyage Charter Hire that VSI "shall
not be responsible for losses except on proven willful negligence
of the officers of the vessel." The NANYOZAI Charter Party, which
was incorporated in the parties' contract of transportation further
provided that the shipowner shall not be liable for loss of or
damage to the cargo arising or resulting from unseaworthiness,
unless the same was caused by its lack of due diligence to make
the vessel seaworthy or to ensure that the same was "properly
manned, equipped and supplied," and to "make the holds and all
other parts of the vessel in which cargo [was] carried, fit and safe
for its reception, carriage and preservation." The NANYOZAI Charter
Party also provided that owners shall not be responsible for split,
chafing and/or any damage unless caused by the negligence or default
of the master or crew.
Burden of Proof. In view of the contractual stipulations, NSC must
prove that the damage to its shipment was caused by VSI's willful
negligence or failure to exercise due diligence in making MV Vlasons I
seaworthy and fit for holding, carrying and safekeeping the cargo.
Ineluctably, the burden of proof was placed on NSC by the parties'
agreement.
- Art. 361 of the Code of Commerce.
- Merchandise shall be transported at the risk and venture
of the shipper, if the contrary has not been expressly
stipulated.
- Therefore, the damage and impairment suffered by the
goods during the transportation, due to fortuitous event,
force majeure, or the nature and inherent defect of the
things, shall be for the account and risk of the shipper.
- The burden of proof of these accidents is on the
carrier.
- "Art. 362. The carrier, however, shall be liable for damages
arising from the cause mentioned in the preceding article if
proofs against him show that they occurred on account of his
negligence or his omission to take the precautions usually
adopted by careful persons, unless the shipper committed fraud
in the bill of lading, making him to believe that the goods
were of a class or quality different from what they really were."
Because the MV Vlasons I was a private carrier, the shipowner's
obligations are governed by the Code of Commerce and not by
the Civil Code. It is a hornbook doctrine that: "In an action against a
private carrier for loss of, or injury to, cargo, the burden is on the
plaintiff to prove that the carrier was negligent or unseaworthy,
and the fact that the goods were lost or damaged while in the
carrier's custody does not put the burden of proof on the carrier .
- Where the action is based on the shipowner's warranty of
seaworthiness, the burden of proving a breach thereof and that
such breach was the proximate cause of the damage rests on
plaintiff, and proof that the goods were lost or damaged while
in the carrier's possession does not cast on it the burden of
proving seaworthiness... Where the contract of carriage exempts
the carrier from liability for unseaworthiness not discoverable by
due diligence, the carrier has the preliminary burden of proving
the exercise of due diligence to make the vessel seaworthy.
Was MV Vlasons I seaworthy?
VSI exercised due diligence to make the ship seaworthy and fit for
the carriage of NSC's cargo of steel and tin plates. This is shown by
the fact that it was drydocked and harbored by the Philippine Coast
Guard before it proceeded to Iligan City for its voyage to Manila under
the contract of voyage charter hire. The vessel's voyage from Iligan to
Manila was the vessel's first voyage after drydocking. The Philippine
Coast Guard Station in Cebu cleared it as seaworthy, fitted and
equipped; it met all requirements for trading as cargo vessel.
Who was Negligent: Seamen or Stevedores?
NSC had the burden of proving that the damage to the cargo was
caused by the negligence of the officers and the crew of MV Vlasons I
in making their vessel seaworthy and fit for the carriage of tinplates.
NSC failed to discharge this burden. NSC argues that MV Vlasons I had
used an old and torn tarpaulin or canvas to cover the hatches through
which the cargo was loaded into the cargo hold of the ship. It faults
the Court of Appeals for failing to consider such claim as an
"uncontroverted fact and denies that MV Vlasons I "was equipped with
new canvas covers in tandem with the old ones as indicated in the
Marine Protest..." SC DISAGREED
The records sufficiently support VSI's contention that the ship used
the old tarpaulin, only in addition to the new one used primarily
to make the ship's hatches watertight. The foregoing are clear from
the marine protest of the master of the MV Vlasons I, Antonio C.
Dumlao, and the deposition of the ship's boatswain, Jose Pascua. That
due diligence was exercised by the officers and the crew of the MV
Vlasons I was further demonstrated by the fact that, despite
encountering rough weather twice, the new tarpaulin did not give way
and the ship's hatches and cargo holds remained waterproof. It was
the stevedores of NSC who were negligent in unloading the cargo
from the ship. The stevedores employed only the tent-like material
to cover the hatches when strong rains occasioned by a passing
typhoon disrupted the loading of the cargo. This tent-like covering,
however, was clearly inadequate for keeping rain and seawater
away from the hatches of the ship. Vicente Angliongto, an officer
of VSI, testified.
NSC attempts to discredit the testimony of Angliongto by questioning
his failure to complain immediately about the stevedores' negligence
on the first day of unloading, pointing out that he wrote his letter to
petitioner only seven days later. The Court is not persuaded.
- Angliongto's candid answer in his testimony satisfactorily
explained the delay. Seven days lapsed because he first called
the attention of the stevedores, then the NSC's representative,
about the negligent and defective procedure adopted in
unloading the cargo. This series of actions constitutes a
reasonable response in accord with common sense and ordinary
human experience. Angliongto could not be blamed for calling
the stevedores' attention first and then the NSC's representative
on location before formally informing NSC of the negligence he
had observed, because he was not responsible for the
stevedores or the unloading operations. In fact, he was merely
expressing concern for NSC which was ultimately responsible for
the stevedores it had hired and the performance of their task
to unload the cargo.
- Such negligence is evident in the stevedores hired by NSC, not
closing the hatch of MV 'VLASONS I' when rains occurred
during the discharging of the cargo thus allowing rainwater and
seawater spray to enter the hatches and to drift to and fall on
the cargo. The stevedores merely set up temporary tents or
canvas to cover the hatch openings when it rained during the
unloading operations so that it would be easier for them to
resume work after the rains stopped by just removing said tents
or canvass. It has also been shown that VSI President Vicente
Angliongto wrote NSC calling attention to the manner the
stevedores hired by NSC were discharging the cargo on rainy
days and the improper closing of the hatches which allowed
continuous heavy rain water to leak through and drip to the tin
plates' covers and Angliongto also suggesting that due to 4
days continuous rains with strong winds that the hatches be
totally closed down and covered with canvas and the hatch
tents lowered. This letter was received by NSC while discharging
operations were still going on.
The fact that NSC actually accepted and proceeded to remove the
cargo from the ship during unfavorable weather will not make VSI
liable for any damage caused thereby. The NSC may seek
indemnification from the stevedoring company at fault in the
discharge operations. "A. stevedore company engaged in discharging
cargo... has the duty to load the cargo ... in a prudent manner, and it
is liable for injury to, or loss of, cargo caused by its negligence ... and
where the officers and members and crew of the vessel do nothing
and have no responsibility in the discharge of cargo by stevedores ...
the vessel is not liable for loss of, or damage to, the cargo caused by
the negligence of the stevedores..."
Do Tin Plates sweat? A discussion of this issue appears inconsequential
and unnecessary. The damage to the tin plates was occasioned not
by airborne moisture but by contact with rain and seawater which the
stevedores negligently allowed to seep in during the unloading.
Effect of NSC's Failure to Insure the Cargo. The obligation of NSC
to insure the cargo stipulated in the Contract of Voyage Charter Hire is
totally separate and distinct from the contractual or statutory
responsibility that may be incurred by VSI for damage to the cargo
caused by the willful negligence of the officers and the crew of
MV Vlasons I. NSC's failure to insure the cargo will not affect its
right, as owner and real party in interest, to file an action against
VSI for damages caused by the latter's willful negligence.
- We do not find anything in the charter party that would make
the liability of VSI for damage to the cargo contingent on or
affected in any manner by NSC's obtaining an insurance over
the cargo.
Admissibility of Certificates Proving Seaworthiness
- NSC argues that the certificates are hearsay for not having been
presented in accordance with the Rules of Court. It points out
that Exhibits 3, 4 and 11 allegedly are "not written records or
acts of public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12
are not "evidenced by official publications or certified true
copies" as required by Sections 25 and 26, Rule 132, of the
Rules of Court.
- Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they
have not been properly offered as evidence. Exhibits 3 and 4
are certificates issued by private parties, but they have not been
proven by one who saw the writing executed, or by evidence of
the genuineness of the handwriting of the maker, or by a
subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best evidence rule
have not been demonstrated.
- We find, however, that Exhibit 11 is admissible under a well-
settled exception to the hearsay rule per Section 44 of Rule
130 of the Rules of Court, which provides that "(e)ntries in
official records made in the performance of a duty by a
public officer of the Philippines, or by a person in the
performance of a duty specially enjoined by law, are prima
facie evidence of the facts therein stated." Exhibit 11 is an
original certificate of the Philippine Coast Guard in Cebu issued
by Lieutenant Junior Grade Noli C. Flores to the effect that "the
vessel 'VLASONS I', was drydocked... and PCG Inspectors were
sent on board for inspection... After completion of drydocking
and duly inspected by PCG Inspectors, the vessel 'VLASONS I', a
cargo vessel, is in seaworthy condition, meets all requirements,
fitted and equipped for trading as a cargo vessel was cleared
by the Philippine Coast Guard and sailed for Cebu Port on July
10, 1974." 4. At any rate, it should be stressed that NSC has
the burden of proving that MV Vlasons I was not seaworthy.
Demurrage
The contract of voyage charter hire provides inter alia:
2. Cargo : Full cargo of steel products of not less than 2,500 MT, 10%
more or less at Master's option.
6. Loading/Discharging Rate : 750 tons per WWDSHINC.
7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day."
The Court defined demurrage in its strict sense as the compensation
provided for in the contract of affreightment for the detention of
the vessel beyond the laytime or that period of time agreed on for
loading and unloading of cargo. It is given to compensate the
shipowner for the nonuse of the vessel.
On the other hand, the following is well-settled: "Laytime runs
according to the particular clause of the charter party... If laytime is
expressed in 'running days,' this means days when the ship would be
run continuously, and holidays are not excepted. A qualification of
'weather permitting' excepts only those days when bad weather
reasonably prevents the work contemplated."
The contract of voyage charter hire provided for a four-day laytime; it
also qualified laytime as WWDSHINC or weather working days Sundays
and holidays included. The running of laytime was thus made subject
to the weather, and would cease to run in the event unfavorable
weather interfered with the unloading of cargo. NSC may not be
held liable for demurrage as the four-day laytime allowed it did
not lapse, having been tolled by unfavorable weather condition in
view of the WWDSHINC qualification agreed upon by the parties.
It was an error for the trial court and the CA to have found and
affirmed respectively that NSC incurred eleven days of delay in
unloading the cargo. The trial court arrived at this erroneous finding
by subtracting from the twelve days, specifically August 13, 1974 to
August 24, 1974, the only day of unloading unhampered by unfavorable
weather or rain which was August 22, 1974.
Attorney’s Fees. While VSI was compelled to litigate to protect its
rights, such fact by itself will not justify an award of attorney's fees
under Article 2208 of the Civil Code when "... no sufficient showing of
bad faith would be reflected in a party's persistence in a case other than
an erroneous conviction of the righteousness of his cause..." Moreover,
attorney's fees may not be awarded to a party for the reason alone
that the judgment rendered was favorable to the latter, as this is
tantamount to imposing a premium on one's right to litigate or seek
judicial redress of legitimate grievances.
V. Disposition
● CA decision AFFIRMED
● MODIFICATION: demurrage awarded to VSA deleted
VI. Notes
1. 1.. .
2. Cargo: Full cargo of steel products of not less than 2,500
MT, 10% more or less at Master's option.
3. . .
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment
upon presentation of Bill of Lading within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
(Weather Working Day of 24 consecutive hours, Sundays and Holidays
Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must insure
the cargoes. Shipowners not responsible for losses/damages except on
proven willful negligence of the officers of the vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI C/P
[sic] or other internationally recognized Charter Party Agreement shall
form part of this Contract.
Valenzuela Hardwood v CA
Recit-ready summary
Valenzuela Hardwood and Industrial Supply, Inc. (VHIS) entered into an
agreement with the Seven Brothers whereby the latter undertook to load on
board its vessel M/V Seven Ambassador the former’s lauan round logs
numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
VHIS insured the logs against loss and/or damage with South Sea Surety
and Insurance Co. The contract between the parties had a stipulation which
says “owners (ship owner) shall not be responsible for loss, split, short-
landing, breakages and any kind of damages to the cargo.”
VHIS demanded payment from the insurer and the ship owner. The said
vessel sank resulting in the loss of VHIS’ insured logs. VHIS demanded
from South Sea Surety the payment of the proceeds of the policy but the
latter denied liability under the policy for non-payment of premium. VHIS
likewise filed a formal claim with Seven Brothers for the value of the lost logs
but the latter denied the claim.
The parties agree that the proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the "snapping of the
iron chains and the subsequent rolling of the logs to the portside due to
the negligence of the captain in stowing and securing the logs on board the
vessel and not due to fortuitous event."
VHIS alleges that it can still recover damages from respondent because
the stipulation in the contract is void for being contrary to Article 586
and 587 of the Code of Commerce and Articles 1170 and 1173 of the
Civil Code. Citing Article 1306 and paragraph 1, Article 1409 of the Civil
Code, petitioner is saying that the stipulation "gives no duty or obligation
to the private respondent to observe the diligence of a good father of a
family in the custody and transportation of the cargo."
Whether the the stipulation valid?
Yes because it’s a contract of private carriage.
In a contract of private carriage, the parties may validly stipulate that
responsibility for the cargo rests solely on the charterer, exempting the
shipowner from liability for loss of or damage to the cargo caused even by
the negligence of the ship captain. Pursuant to Article 1306 of the Civil
Code, such stipulation is valid because it is freely entered into by the parties
and the same is not contrary to law, morals, good customs, public order, or
public policy. Indeed, their contract of private carriage is not even a
contract of adhesion. We stress that in a contract of private carriage, the
parties may freely stipulate their duties and obligations which perforce
would be binding on them.
Whether there was a valid waiver.
YES
VHIS is alleging that the charter party stipulation is contrary to Articles 586
and 587 of the Code of Commerce which confer on petitioner the right to
recover damages from the shipowner and ship agent for the acts or conduct
of the captain.
According to the SC, the rights petitioner may have under such statutory
provisions were waived when it entered into the charter party. Under Article 6
of the Civil Code provides that "rights may be waived, unless the waiver is
contrary to law, public order, public policy, morals, or good customs, or
prejudicial to a person with a right recognized by law."
General rule: patrimonial rights may be waived as opposed to rights to
personality and family rights which may not be made the subject of
waiver. Being patently and undoubtedly patrimonial, petitioner's right
conferred under said articles may be waived. This, the petitioner did by
acceding to the contractual stipulation that it is solely responsible for
any damage to the cargo, thereby exempting the private carrier from
any responsibility for loss or damage thereto.
I. Facts of the case
Valenzuela Hardwood entered into a contract with the Seven Brothers
whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the former’s lauan round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage
with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00
and the latter issued its Marine Cargo Insurance Policy. The check for the
premium payment was subsequently given to by the petitioner Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January
1984 resulting in the loss of the petitioner’s insured logs. 5 days after the
sinking of the ship, a check for P5,625.00 to cover payment of the premium
and documentary stamps due on the policy was tendered due to the insurer
but was not accepted. South Sea Surety and Insurance Co., Inc. cancelled the
insurance policy it issued as of the date of the inception for non-payment of
the premium due in accordance with Section 77 of the Insurance Code.
RTC found that the insurance company was liable as well as Seven Brothers.
This reached the Court of Appeals which then affirmed the RTC judgment by
sustaining the liability of South Sea Surety and Insurance Company ("South
Sea"), but modified it by holding that Seven Brothers Shipping Corporation
("Seven Brothers") was not liable for the lost cargo. The CA stated that “It
appears that there is a stipulation in the charter party that the ship owner
would be exempted from liability in case of loss. The trial court erred in
applying the provisions of the Civil Code on common carriers to establish the
liability of the shipping corporation. The provisions on common carriers
should not be applied where the carrier is not acting as such but as a private
carrier.”
The parties agree that the proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the "snapping of the iron
chains and the subsequent rolling of the logs to the portside due to the
negligence of the captain in stowing and securing the logs on board the
vessel and not due to fortuitous event."
The provision in the charter party is “owners shall not be responsible for loss,
split, short-landing, breakages and any kind of damages to the cargo.” VHIS
alleges that it can still recover damages from respondent because the
stipulation in the contract is void for being contrary to Article 586 and 587 of
the Code of Commerce and Articles 1170 and 1173 of the Civil Code. Citing
Article 1306 and paragraph 1, Article 1409 of the Civil Code, petitioner is
saying that the stipulation "gives no duty or obligation to the private
respondent to observe the diligence of a good father of a family in the
custody and transportation of the cargo."
II. Issue
1. Whether the the stipulation valid?Yes because it’s a contract of private
carriage
2. Whether there was a valid waiver? Yes there was a valid waiver.
IV. Ratio
1. Yes the stipulation is valid in a contract of private carriage. The parties
agree that the proximate cause of the sinking of M/V Seven Ambassadors
resulting in the loss of its cargo was the "snapping of the iron chains and the
subsequent rolling of the logs to the portside due to the negligence of the
captain in stowing and securing the logs on board the vessel and not due to
fortuitous event." It was also undisputed that Seven Brothers was a private
carrier when it was hired to transport the cargo of Petitioner Valenzuela.
In a contract of private carriage, the parties may validly stipulate that
responsibility for the cargo rests solely on the charterer, exempting the
shipowner from liability for loss of or damage to the cargo caused even by
the negligence of the ship captain. Pursuant to Article 1306 of the Civil Code,
such stipulation is valid because it is freely entered into by the parties and the
same is not contrary to law, morals, good customs, public order, or public
policy. In a contract of private carriage, the parties may freely stipulate their
duties and obligations which perforce would be binding on them.
Unlike in a contract involving a common carrier, private carriage does not
involve the general public. Hence, the stringent provisions of the Civil Code
on common carriers protecting the general public cannot justifiably be
applied to a ship transporting commercial goods as a private carrier.
Consequently, the public policy embodied therein is not contravened by
stipulations in a charter party that lessen or remove the protection given by
law in contracts involving common carriers.
As held in a similar case of Home Insurance v. American Steamhsip, “x x x As a
private carrier, a stipulation exempting the owner from liability for the
negligence of its agent is not against public policy, and is deemed valid. x x x
The Civil Code provisions on common carriers should not be applied where
the carrier is not acting as such but as a private carrier. x x x Such policy has
no force where the public at large is not involved, as in this case of a ship
totally chartered for the use of a single party.”
VHSI contends that the rule in Home Insurance is not applicable to the
present case because it "covers only a stipulation exempting a private carrier
from liability for the negligence of his agent, but it does not apply to a
stipulation exempting a private carrier like private respondent from the
negligence of his employee or servant which is the situation in this case." This
contention of petitioner is bereft of merit. The case of Home Insurance
specifically dealt with "the liability of the shipowner for acts or negligence of
its captain and crew" and a charter party stipulation which "exempts the
owner of the vessel from any loss or damage or delay arising from any other
source, even from the neglect or fault of the captain or crew or some other
person employed by the owner on board, for whose acts the owner would
ordinarily be liable except for said paragraph."
Compared to a common carrier offering its services to the general public, a
charterer in a contract of private carriage is not similarly situated. In practice,
the parties in a contract of private carriage can stipulate the carrier's
obligations and liabilities over the shipment which, in turn, determine the
price or consideration of the charter. Thus, a charterer, in exchange for
convenience and economy, may opt to set aside the protection of the law on
common carriers. When the charterer decides to exercise this option, he takes
a normal business risk. WHEREFORE, premises considered, the petition is hereby DENIED for its utter
failure to show any reversible error on the part of Respondent Court. The
Petitioner Valenzuela insists that the charter party stipulation is contrary to assailed Decision is AFFIRMED.
Articles 586 and 587 of the Code of Commerce which confer on petitioner SO ORDERED.
the right to recover damages from the shipowner and ship agent for the acts Narvasa, C  .J  .,  Davide,  Jr.,  Melo and Francisco, JJ  ., concur.
or conduct of the captain. |||  (Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals, G.R.
No. 102316, [June 30, 1997], 340 PHIL 745-765)
Petitioner argues that the stipulation is void for being contrary to Articles
1170 and 1173 of the Civil Code. The Court notes that the foregoing articles Torres-Madrid v FEB-Mitsui
are applicable only to the obligor or the one with an obligation to perform. In
the instant case, Private Respondent Seven Brothers is not an obligor in
I. Recit-ready Summary
respect of the cargo, for this obligation to bear the loss was shifted to
Sony contracted with TMBI to facilitate, process, withdraw and deliver the
petitioner by virtue of the charter party. This shifting of responsibility, as
shipment of electronic goods from the port of Manila to its warehouse. TMBI,
earlier observed, is not void. The provisions cited by petitioner are, therefore,
not owning any delivery truck, subcontracted BMT for the usage of trucks in
inapplicable to the present case.
order to transport the shipment to the warehouse. 4 BMT trucks picked the
shipment but only 3 trucks arrived at the warehouse. The other truck
Moreover, the factual milieu of this case does not justify the application of
was found to be abandoned with the driver and goods missing.
the second paragraph of Article 1173 of the Civil Code which prescribes the
standard of diligence to be observed in the event the law or the contract is
TMBI notified Sony of the loss through a letter. It also sent BMT a letter
silent. In the instant case, Article 362 of the Code of Commerce provides the
demanding payment for the lost shipment. BMT refused to pay, insisting
standard of ordinary diligence for the carriage of goods by a carrier. The
that the goods were "hijacked."
standard of diligence under this statutory provision may, however, be
modified in a contract or private carriage as the petitioner and private
In the meantime, Sony filed an insurance claim with the Mitsui, the
respondent had done in their charter party.
insurer of the goods. After being subrogated to Sony's rights, Mitsui
sent TMBI a demand letter for payment of the lost goods. TMBI refused
2. Yes the waiver was valid. Whatever rights petitioner may have under such
to pay Mitsui's claim. As a result, Mitsui filed a complaint against TMBI.
statutory provisions were waived when it entered into the charter party.
The RTC held that TMBI was a common carrier and had acted
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the
negligently.
waiver is contrary to law, public order, public policy, morals, or good customs,
or prejudicial to a person with a right recognized by law." As a general rule,
TMBI raised the defense that the hijacking was a fortuitous event. TMBI
patrimonial rights may be waived as opposed to rights to personality and
denies being a common carrier because it does not own a single truck to
family rights which may not be made the subject of waiver. Being patently
transport its shipment and it does not offer transport services to the
and undoubtedly patrimonial, petitioner's right conferred under said articles
public for compensation.
may be waived.

Whether or not a brokerage may be considered a common carrier if it

V. Disposition
also undertakes to deliver the goods for its customers--YES

In A.F. Sanchez Brokerage Inc. v. Court of Appeals, the Court held that a
customs broker - whose principal business is the preparation of the
correct customs declaration and the proper shipping documents - is still
considered a common carrier if it also undertakes to deliver the goods
for its customers. The law does not distinguish between one whose principal
business activity is the carrying of goods and one who undertakes this task
only as an ancillary activity.
Despite TMBI's present denials, the Court find that the delivery of the
goods is an integral, albeit ancillary, part of its brokerage services. TMBI
admitted that it was contracted to facilitate, process, and clear the shipments
from the customs authorities, withdraw them from the pier, then transport
and deliver them to Sony's warehouse in Laguna.
That TMBI does not own trucks and has to subcontract the delivery of its
clients' goods, is immaterial. As long as an entity holds itself to the public for
the transport of goods as a business, it is considered a common carrier
regardless of whether it owns the vehicle used or has to actually hire one.
Lastly, TMBI's customs brokerage services - including the
transport/delivery of the cargo - are available to anyone willing to pay
its fees. Given these circumstances, we find it undeniable that TMBI is a
common carrier.
Whether or not hijacking is a fortuitous event--NO.
Consequently, Whether or not TMBI is liable-- YES.
The theft or the robbery of the goods is not considered a fortuitous event or
a force majeure. Nevertheless, a common carrier may absolve itself of
liability for a resulting loss: (1) if it proves that it exercised extraordinary
diligence in transporting and safekeeping the goods; or (2) if it
stipulated with the shipper/owner of the goods to limit its liability for
the loss, destruction, or deterioration of the goods to a degree less than
extraordinary diligence.
Instead of showing that it had acted with extraordinary diligence, TMBI
simply argued that it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish this premise
carries with it the presumption of fault or negligence, thus rendering it liable
to Sony/Mitsui for breach of contract.
Result. Only TMBI is liable to Mitsui for breach of contract of carriage with
Sony. BMT cannot be held liable because the cause of action that Sony can
possible have against it quasi-delict, but BMT’s negligence was not proved. It
came into the picture when TMBI sued it as a party-defendant.
TMBI’s remedy. The remedy of TMBI is to demand payment from BMT for
breach of contract. By subcontracting the cargo delivery to BMT, TMBI
entered into its own contract of carriage with a fellow common carrier
II. Facts of the case
A shipment of various electronic goods from Thailand and Malaysia arrived at
the Port of Manila for Sony Philippines, Inc. (Sony). Previous to the arrival,
Sony had engaged the services of TMBI to facilitate, process, withdraw, and
deliver the shipment from the port to its warehouse in Binan, Laguna
TMBI - who did not own any delivery trucks - subcontracted the services of
Benjamin Manalastas' company, BMT Trucking Services (BMT), to transport
the shipment from the port to the Binan warehouse. Incidentally, TMBI
notified Sony who had no objections to the arrangement.
Four BMT trucks picked up the shipment from the port at about 11:00 a.m. of
October 7, 2000. However, BMT could not immediately undertake the delivery
because of the truck ban and because the following day was a Sunday. Thus,
BMT scheduled the delivery on October 9, 2000.
In the early morning of October 9, 2000, the four trucks left BMT's garage for
Laguna. However, only three trucks arrived at Sony's Binan warehouse.
At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura was found
abandoned along the Diversion Road in Filinvest, Alabang, Muntinlupa City.
Both the driver and the shipment were missing.
Later that evening, BMT's Operations Manager Melchor Manalastas informed
Victor Torres, TMBI's General Manager, of the development.
Victor Torres also filed a complaint with the National Bureau of Investigation
(NBI) against Lapesura for "hijacking." The complaint resulted in a
recommendation by the NBI to the Manila City Prosecutor's Office to
prosecute Lapesura for qualified theft.
TMBI notified Sony of the loss through a letter. It also sent BMT a letter
demanding payment for the lost shipment. BMT refused to pay, insisting that
the goods were "hijacked."
In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of
the goods. After evaluating the merits of the claim, Mitsui paid Sony
PHP7,293,386.23 corresponding to the value of the lost goods.
After being subrogated to Sony's rights, Mitsui sent TMBI a demand letter for
payment of the lost goods. TMBI refused to pay Mitsui's claim. As a result,
Mitsui filed a complaint against TMBI.
At the trial, it was revealed that BMT and TMBI have been doing business with
each other since the early 80's. It also came out that there had been a
previous hijacking incident involving Sony's cargo in 1997, but neither Sony
nor its insurer filed a complaint against BMT or TMBI.
TMBI Argument
TMBI insists that the hijacking of the truck was a fortuitous event. It contests
the CA's finding that neither force nor intimidation was used in the taking of
the cargo. Considering Lapesura was never found, the Court should not
discount the possibility that he was a victim rather than a perpetrator.
TMBI denies being a common carrier because it does not own a single truck
to transport its shipment and it does not offer transport services to the public
for compensation. It emphasizes that Sony knew TMBI did not have its own
vehicles and would subcontract the delivery to a third-party.
TMBI solely blames BMT as it had full control and custody of the cargo when
it was lost. BMT, as a common carrier, is presumed negligent and should be
responsible for the loss.
BMT Argument
BMT insists that it observed the required standard of care. Like the petitioner,
BMT maintains that the hijacking was a fortuitous event - a force majeure -
that exonerates it from liability. It points out that Lapesura has never been
seen again and his fate remains a mystery. BMT likewise argues that the loss
of the cargo necessarily showed that the taking was with the use of force or
intimidation. If there was any attendant negligence, BMT points the finger on
TMBI who failed to send a representative to accompany the shipment.
Mitsui Argument
Mitsui counters that neither TMBI nor BMT alleged or proved during the trial
that the taking of the cargo was accompanied with grave or irresistible threat,
violence, or force. Hence, the incident cannot be considered "force majeure"
and TMBI remains liable for breach of contract.
Mitsui emphasizes that TMBI's theory - that force or intimidation must have
been used because Lapesura was never found - was only raised for the first
time before this Court. It also discredits the theory as a mere conjecture for
lack of supporting evidence.
III. Issue/s
Whether or not a brokerage may be considered a common carrier if it also
undertakes to deliver the goods for its customers? YES.
Whether or not hijacking is a fortuitous event? NO.
 Consequently, Whether or not TMBI is liable? YES.
Whether or not TMBI and BMT are solidary liable to Mitsui? NO.
Whether or not a 3rd party may recover from a common carrier for QD? YES.
IV. Ratio/Legal Basis
Brokerage is a Common Carrier
In A.F. Sanchez Brokerage Inc. v. Court of Appeals, the Court held that a
customs broker - whose principal business is the preparation of the correct
customs declaration and the proper shipping documents - is still considered
a common carrier if it also undertakes to deliver the goods for its customers.
The law does not distinguish between one whose principal business activity is
the carrying of goods and one who undertakes this task only as an ancillary
activity.
Despite TMBI's present denials, the Court find that the delivery of the goods
is an integral, albeit ancillary, part of its brokerage services. TMBI admitted
that it was contracted to facilitate, process, and clear the shipments from the
customs authorities, withdraw them from the pier, then transport and deliver
them to Sony's warehouse in Laguna.
That TMBI does not own trucks and has to subcontract the delivery of its
clients' goods, is immaterial. As long as an entity holds itself to the public for
the transport of goods as a business, it is considered a common carrier
regardless of whether it owns the vehicle used or has to actually hire one.
Lastly, TMBI's customs brokerage services - including the transport/delivery
of the cargo - are available to anyone willing to pay its fees. Given these
circumstances, we find it undeniable that TMBI is a common carrier.
Hijacking not a Fortuitous Event
The theft or the robbery of the goods is not considered a fortuitous event or
a force majeure. Nevertheless, a common carrier may absolve itself of liability
for a resulting loss: (1) if it proves that it exercised extraordinary diligence in
transporting and safekeeping the goods; or (2) if it stipulated with the
shipper/owner of the goods to limit its liability for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence.
However, a stipulation diminishing or dispensing with the common carrier's
liability for acts committed by thieves or robbers who do not act with grave
or irresistible threat, violence, or force is void under Article 1745 of the Civil
Code for being contrary to public policy. Jurisprudence, too, has expanded
Article 1734's five exemptions. De Guzman v. Court of Appeals interpreted
Article 1745 to mean that a robbery attended by "grave or irresistible threat,
violence or force" is a fortuitous event that absolves the common carrier from
liability.
In the present case, the shipper, Sony, engaged the services of TMBI, a
common carrier, to facilitate the release of its shipment and deliver the goods
to its warehouse. In turn, TMBI subcontracted a portion of its obligation - the
delivery of the cargo - to another common carrier, BMT.
Despite the subcontract, TMBI remained responsible for the cargo. Under
Article 1736, a common carrier's extraordinary responsibility over the
shipper's goods lasts from the time these goods are unconditionally placed in
the possession of, and received by, the carrier for transportation, until they
are delivered, actually or constructively, by the carrier to the consignee.
That the cargo disappeared during transit while under the custody of BMT -
TMBI's subcontractor - did not diminish nor terminate TMBFs responsibility
over the cargo. Article 1735 of the Civil Code presumes that it was at fault.
Instead of showing that it had acted with extraordinary diligence, TMBI
simply argued that it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish this premise carries
with it the presumption of fault or negligence, thus rendering it liable to
Sony/Mitsui for breach of contract.
TMBI's current theory - that the hijacking was attended by force or
intimidation - is untenable.

First, TMBI alleged in its Third Party Complaint against BMT that Lapesura was
responsible for hijacking the shipment. Further, Victor Torres filed a criminal
complaint against Lapesura with the NBI. These actions constitute direct and
binding admissions that Lapesura stole the cargo. Justice and fair play dictate
that TMBI should not be allowed to change its legal theory on appeal.
Second, neither TMBI nor BMT succeeded in substantiating this theory
through evidence. Thus, the theory remained an unsupported allegation no
better than speculations and conjectures. The CA therefore correctly
disregarded the defense of force majeure.
TMBI and BMT not Solidarily Liable
TMBI's liability to Mitsui does not stem from a quasi-delict (culpa aquiliana)
but from its breach of contract (culpa contractual). The tie that binds TMBI
with Mitsui is contractual, albeit one that passed on to Mitsui as a result of
TMBI's contract of carriage with Sony to which Mitsui had been subrogated
as an insurer who had paid Sony's insurance claim. The legal reality that
results from this contractual tie precludes the application of quasi-delict
based Article 2194.
3rd Party may recover from Common Carrier for Quasi-Delict
While it is undisputed that the cargo was lost under the actual custody of
BMT (whose employee is the primary suspect in the hijacking or robbery of
the shipment), no direct contractual relationship existed between Sony/Mitsui
and BMT. If at all, Sony/Mitsui's cause of action against BMT could only arise
from quasi-delict, as a third party suffering damage from the action of
another due to the latter's fault or negligence, pursuant to Article 2176 of the
Civil Code.
In the present case, Mitsui's action is solely premised on TMBl's breach of
contract. Mitsui did not even sue BMT, much less prove any negligence on its
part. If BMT has entered the picture at all, it 'is because TMBI sued it for
reimbursement for the liability that TMBI might incur from its contract of
carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold BMT
liable to Mitsui for quasi-delict.
BMT liable to TMBI for Breach of Contract
By subcontracting the cargo delivery to BMT, TMBI entered into its own
contract of carriage with a fellow common carrier.
The cargo was lost after its transfer to BMT's custody based on its contract of
carriage with TMBI. Following Article 1735, BMT is presumed to be at fault.
Since BMT failed to prove that it observed extraordinary diligence in the
performance of its obligation to TMBI, it is liable to TMBI for breach of their
contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching
the contract of carriage. In turn, TMBI is entitled to reimbursement from BMT
due to the latter's own breach of its contract of carriage with TMBI. The
proverbial buck stops with BMT who may either: (a) absorb the loss, or (b)
proceed after its missing driver, the suspected culprit, pursuant to Article
2181
V. Disposition
WHEREFORE, the Court hereby ORDERS petitioner Torres- Madrid Brokerage,
Inc. to pay the respondent FEB Mitsui Marine Insurance Co., Inc. the
following:
a. Actual damages in the amount of PHP 7,293,386.23 plus legal
interest from the time the complaint was filed until it is fully paid;
b. Attorney's fees in the amount of PHP 200,000.00; and
c. Costs of suit.
Respondent Benjamin P. Manalastas is in turn ORDERED to REIMBURSE
Torres-Madrid Brokerage, Inc. of the above-mentioned amounts.
Cokaliong Shipping v UCPB
I. Recit-ready summary
Cargoes [Christmas decor and plastic toys] were delivered to Cokaliong
for shipment from Cebu to Surigao Del Sur. The 2 cargoes were covered
by bills of lading 58 and 59. On bill of lading 58, the value of the goods as
stated on its face was P6,500. On bill of lading 59, the value of the goods as
stated on its face was P14,000. Bills of Lading covering the lost goods
contain the stipulation that in case of claim for loss or for damage to the
shipped merchandise or property, "[t]he liability of the common carrier .
. . shall not exceed the value of the goods as appearing in the bill of
lading."
Feliciano Legaspi insured the cargo for the amount of P50,000 for the goods
covered under bill of lading 58 and P100,000 for the goods covered under
bill of lading 59.
The vessel, while on its voyage, burned down despite earnest efforts of
the officers and crew of the vessel. The cargo was also destroyed along
with the vessel.
Feliciana Legaspi then filed a claim with respondent UCPB and the latter
issued checks for the insurance policy proceeds. Feliciana Legaspi in return,
also executed subrogation receipts/deeds for the amount received.
Now, respondents as subrogee of Feliciana Legaspi filed a complaint
anchored on torts against petitioner for the collection of the total
principal amount of P148,500 which it paid to Feliciana Legaspi for the
loss of the cargo.
If petitioner would be held liable, respondent contends that petitioner's
liability should be based on the actual insured value of the goods,
subject of this case. On the other hand, petitioner claims that its liability
should be limited to the value declared by the shipper/consignee in the
Bill of Lading.
Whether the petitioner is liable for the loss of the goods; if yes,
what is the extent of its liability.
Yes, liable. To the extent of value in bill of lading
Having originated from an unchecked crack in the fuel oil service tank,
the fire could not have been caused by force majeure. Broadly speaking,
force majeure generally applies to a natural accident, such as that caused by
lightning, an earthquake, a tempest or a public enemy. Hence, fire is not
considered a natural disaster or calamity.
The law provides that a common carrier is presumed to have been
negligent if it fails to prove that it exercised extraordinary vigilance over
the goods it transported. Here, petitioner failed to show that it exercised
extraordinary diligence over the goods transported. Ensuring the
seaworthiness of the vessel is the first step in exercising the required
vigilance. Petitioner did not present sufficient evidence showing what
measures or acts it had undertaken to ensure the seaworthiness of the
vessel. It failed to show when the last inspection and care of the auxiliary
engine fuel oil service tank was made, what the normal practice was for its
maintenance, or some other evidence to establish that it had exercised
extraordinary diligence. It merely stated that constant inspection and care
were not possible, and that the last time the vessel was dry-docked was in
November 1990. Necessarily, in accordance with Article 1735 17 of the Civil
Code, we hold petitioner responsible for the loss of the goods covered
by Bills of Lading Nos. 58 and 59.
Extent of liability
A stipulation that limits liability is valid as long as it is not against public
policy. In the present case, the stipulation limiting petitioner's liability is
not contrary to public policy. In fact, it is just and reasonable character is
evident. The shippers/consignees may recover the full value of the goods
by the simple expedient of declaring the true value of the shipment in
the Bill of Lading. Other than the payment of a higher freight, there was
nothing to stop them from placing the actual value of the goods therein.
The SC also agreed with the CA which said “respondent is not bound by the
valuation of the cargo under the Bills of Lading, ...nor is the value of the cargo
under said Bills of Lading conclusive on the respondent. This is so because, in
the first place, the goods were insured with the respondent for the total
amount of P150,000.00, which amount may be considered as the face
value of the goods.”
The liability of a common carrier for the loss of goods may, by
stipulation in the bill of lading, be limited to the value declared by the
shipper. On the other hand, the liability of the insurer is determined by
the actual value covered by the insurance policy and the insurance
premiums paid therefor, and not necessarily by the value declared in the
bill of lading.
II. Facts of the case
Petitioner – COKALIONG SHIPPING LINES
Respondent – UCPB GENERAL INSURANCE
Nestor Angelia delivered to Edgar Cokaliong Shipping Lines cargo
consisting of 1 carton of Christmas décor and 2 sacks of plastic toys to be
transported on board MV Tandag on its Voyage T-189. It is scheduled to
depart on 12 December 1991 from Cebu City to Surigao Del Sur. This was
covered by bill of lading no. 58 the value on the face thereof was P6,500.
Zosimo Mercado also loaded cargo on board petitioner’s vessel 2
cartons of plastic toys, Christmas décor, floor mat, and a bundle of various
assorted goods from Cebu to Surigao Del Sur. This was covered by bill of
lading no. 59 and the value on the face thereof was P14,000.
Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59 ,
with the respondent for the amount of P100,000.00 'against all-risks’
under Open Policy No. 002/91/254 for which she was issued, by respondent,
Marine Risk Note No. 18409 on said date. She also insured the cargo covered
by Bill of Lading No. 58,with respondent, for the amount of P50,000.00,
under Open Policy No. 002/91/254 on the basis of which respondent
issued Marine Risk Note No. 18410 on said date.
The vessel while on its voyage burned down despite earnest efforts of
the officers and crew of the vessel. The cargo were also list along with the
vessel. So, the Captain filed the required marine protest.
Feliciana Legaspi then filed a claim with respondent and the latter issued
checks for the insurance policy proceeds. Feliciana Legaspi in return, also
executed subrogation receipts/deeds for the amount received.
Now, respondents as subrogee of Feliciana Legaspi filed a complaint
anchored on torts against petitioner for the collection of the total principal
amount of P148,500 which it paid to Feliciana Legaspi for the loss of the
cargo.
If petitioner would be held liable, respondent contends that petitioner's
liability should be based on the actual insured value of the goods, subject of
this case. On the other hand, petitioner claims that its liability should be
limited to the value declared by the shipper/consignee in the Bill of Lading.
III. Issue/s
Whether petitioner is liable for the loss of the goods; if yes, what is the extent
of its liability.
IV. Ratio/Legal Basis
Cause of the loss was not due to force majeure
The uncontroverted findings of the Philippine Coast Guard show that the
M/V Tandag sank due to a fire, which resulted from a crack in the auxiliary
engine fuel oil service tank. Fuel spurted out of the crack and dripped to the
heating exhaust manifold, causing the ship to burst into flames. The crack
was located on the side of the fuel oil tank, which had a mere two-inch gap
from the engine room walling, thus precluding constant inspection and care
by the crew. Having originated from an unchecked crack in the fuel oil service
tank, the fire could not have been caused by force majeure. Broadly speaking,
force majeure generally applies to a natural accident, such as that caused by
a lightning, an earthquake, a tempest or a public enemy. Hence, fire is not
considered a natural disaster or calamity.
The law provides that a common carrier is presumed to have been negligent
if it fails to prove that it exercised extraordinary vigilance over the goods it
transported. Ensuring the seaworthiness of the vessel is the first step in
exercising the required vigilance. Petitioner did not present sufficient
evidence showing what measures or acts it had undertaken to ensure the
seaworthiness of the vessel. It failed to show when the last inspection and
care of the auxiliary engine fuel oil service tank was made, what the normal
practice was for its maintenance, or some other evidence to establish that it
had exercised extraordinary diligence. It merely stated that constant
inspection and care were not possible, and that the last time the vessel was
dry-docked was in November 1990. Necessarily, in accordance with Article
1735 17 of the Civil Code, we hold petitioner responsible for the loss of the
goods covered by Bills of Lading Nos. 58 and 59.
Extent of Liability
The record sshow that the Bills of Lading covering the lost goods contain the
stipulation that in case of claim for loss or for damage to the shipped
merchandise or property, "[t]he liability of the common carrier . . . shall
not exceed the value of the goods as appearing in the bill of lading."
A stipulation that limits liability is valid as long as it is not against public
policy. In the present case, the stipulation limiting petitioner's liability is not
contrary to public policy. In fact, it is just and reasonable character is evident.
The shippers/consignees may recover the full value of the goods by the
simple expedient of declaring the true value of the shipment in the Bill of
Lading. Other than the payment of a higher freight, there was nothing to stop
them from placing the actual value of the goods therein. In fact, they
committed fraud against the common carrier by deliberately undervaluing
the goods in their Bill of Lading, thus depriving the carrier of its proper and
just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of
Lading is to protect the common carrier. Such stipulation obliges the
shipper/consignee to notify the common carrier of the amount that the latter
may be liable for in case of loss of the goods. The common carrier can then
take appropriate measures — getting insurance, if needed, to cover or
protect itself. This precaution on the part of the carrier is reasonable and
prudent. Hence, a shipper/consignee that undervalues the real worth of the
goods it seeks to transport does not only violate a valid contractual
stipulation, but commits a fraudulent act when it seeks to make the common
carrier liable for more than the amount it declared in the bill of lading.
In Aboitiz v. CA, the description of the nature and the value of the
goods shipped were declared and reflected in the bill of lading, like in the
present case. The Court therein considered this declaration as the basis of the
carrier's liability and ordered payment based on such amount. Following this
ruling, petitioner should not be held liable for more than what was declared
by the shippers/consignees as the value of the goods in the bills of lading.
Payment to whom
Feliciana Legaspi was the owner of the goods covered by Bills of
Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to
Nestor Angelia and Zosimo Mercado, respectively; thus, Feliciana Legaspi or
her subrogee (respondent) was entitled to the goods or, in case of loss, to
compensation therefor. There is no evidence showing that petitioner paid her
for the loss of those goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for
the lost goods under Bill of Lading No. 59, for which the latter subsequently
paid P14,000. But nothing in the records convincingly shows that the former
was the owner of the goods. Respondent was, however, able to prove that it
was Feliciana Legaspi who owned those goods, and who was thus entitled to
payment for their loss. Hence, the claim for the goods under Bill of Lading
No. 59 cannot be deemed to have been extinguished, because payment was
made to a person who was not entitled thereto.
Extent of liability
With regard to the claim for the goods that were covered by Bill of
Lading No. 58 and valued at P6,500, the parties have not convinced us to
disturb the findings of the CA that compensation could not validly take place.
Thus, we uphold the appellate court's ruling on this point. This is what the CA
said: “Finally, it ruled that respondent "is not bound by the valuation of the
cargo under the Bills of Lading, ...nor is the value of the cargo under said Bills
of Lading conclusive on the respondent. This is so because, in the first place,
the goods were insured with the respondent for the total amount of
P150,000.00, which amount may be considered as the face value of the
goods.”
The liability of a common carrier for the loss of goods may, by
stipulation in the bill of lading, be limited to the value declared by the
shipper. On the other hand, the liability of the insurer is determined by the
actual value covered by the insurance policy and the insurance premiums
paid therefor, and not necessarily by the value declared in the bill of lading.
It is well to point out that, for assuming a higher risk (the alleged actual value
of the goods) the insurance company was paid the correct higher premium
by Feliciana Legaspi; while petitioner was paid a fee lower than what it was
entitled to for transporting the goods that had been deliberately undervalued
by the shippers in the Bill of Lading. Between the two of them, the insurer
should bear the loss in excess of the value declared in the Bills of Lading. This
is the just and equitable solution.

V. Notes