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TRANSPORTATION LAW CASES:

1.) DE GUZMAN v. C.A., CENDANA (G.R. No. L-47822, December 22, 1988)
2.) VILUAN v. C.A., HUFANA (G.R. Nos. L-21477-81, April 29, 1966)
3.) PLANTERS PRODUCT INC., v. C.A. (G.R. No. 101503, Sept. 15, 1993)
4.) YEPES v. SAMAR TRANSIT (G.R. Nos. L-19815-16, May 19, 1966)
5.) SWEET LINES v. HON. TEVES (G.R. No. 37750, May 19, 1978)
6.) LOPEZ v. PAN AMERICAN WORLD AIRWAYS (G.R. No. 22415, March 30,
1966)
7.) ZULUETA v. PAN AMERICAN WORLD AIRWAYS (G.R. No. L-28589, Jan. 8,
1973)
8.) TRANS WORLD AIRLINES v. C.A., VINLUAN (G.R. No. 78656, Aug. 30, 1988)
9.) SPOUSES PERENA v. SPOUSES ZARATE (G.R. No. 157917, G.R. No. Aug.
29, 2012)
10.) F.C. FISHER v. YANGCO STEAMSHIP COMPANY (G.R. No. L-8095,
March 31, 1915)
11.) LOADSTAR SHIPPING CO., v. C.A. (G.R. No. 131621, Sept. 28, 1999)
12.) ZAMBOANGA TRANSPO. CO., v. C.A. (G.R. No. L-25292, Nov. 29,
1969)
13.) FIRST PHIL. INDUSTRIAL CO., v. C.A. (G.R. No. 125948, Dec. 29,
1998)
14.) HOME INSURANCE COMPANY v. AMERICAN STEAMSHIP
AGENCIES, INC., (G.R. No. L-2559, April 4, 1968)
15.) EPITACIO SAN PABLO v. PANTRANCO SOUTH EXPRESS, INC., (G.R.
No. L-61461, Aug. 21, 1987)
16.) NATIONAL STEEL CORP., v. C.A. (G.R. No. 112287, Dec. 12, 1997)
17.) AETNA INSURANCE CO., v. BARBER STEAMSHIP LINES, INC., (G.R.
No. L- 25266, Jan. 15, 1975)

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1.

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

PEDRO DE GUZMAN, petitioner,


vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.

Vicente D. Millora for petitioner.

Jacinto Callanta for private respondent.

FELICIANO, J.:

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

Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized


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

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

On 6 January 1971, petitioner commenced action against private respondent in the


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

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

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

On appeal before the Court of Appeals, respondent urged that the trial court had erred
in considering him a common carrier; in finding that he had habitually offered trucking

2
services to the public; in not exempting him from liability on the ground of force
majeure; and in ordering him to pay damages and attorney's fees.

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

1. that private respondent was not a common carrier;

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

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

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

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

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


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

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

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

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

3
It appears to the Court that private respondent is properly characterized as a common
carrier even though he merely "back-hauled" goods for other merchants from Manila to
Pangasinan, although such back-hauling was done on a periodic or occasional rather
than regular or scheduled manner, and even though private
respondent's principal occupation was not the carriage of goods for others. There is no
dispute that private respondent charged his customers a fee for hauling their goods; that
fee frequently fell below commercial freight rates is not relevant here.

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

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

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

Article 1734 establishes the general rule that common carriers are responsible for the
loss, destruction or deterioration of the goods which they carry, "unless the same is due
to any of the following causes only:

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


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

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

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the


preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently,

4
unless they prove that they observed extraordinary diligence as required
in Article 1733. (Emphasis supplied)

Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific
cause alleged in the instant case the hijacking of the carrier's truck does not fall
within any of the five (5) categories of exempting causes listed in Article 1734. It would
follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the
provisions of Article 1735, in other words, that the private respondent as common
carrier is presumed to have been at fault or to have acted negligently. This presumption,
however, may be overthrown by proof of extraordinary diligence on the part of private
respondent.

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

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

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

Any of the following or similar stipulations shall be considered


unreasonable, unjust and contrary to public policy:

xxx xxx xxx

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

(6) that the common carrier's liability for acts committed by


thieves, or of robbers who donot act with grave or
irresistible threat, violence or force, is dispensed with or
diminished; and

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

Under Article 1745 (6) above, a common carrier is held responsible and will not be
allowed to divest or to diminish such responsibility even for acts of strangers like
thieves or robbers, except where such thieves or robbers in fact acted "with grave or
irresistible threat, violence or force." We believe and so hold that the limits of the duty of
extraordinary diligence in the vigilance over the goods carried are reached where the
goods are lost as a result of a robbery which is attended by "grave or irresistible threat,
violence or force."

In the instant case, armed men held up the second truck owned by private respondent
which carried petitioner's cargo. The record shows that an information for robbery in

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

In these circumstances, we hold that the occurrence of the loss must reasonably be
regarded as quite beyond the control of the common carrier and properly regarded as a
fortuitous event. It is necessary to recall that even common carriers are not made
absolute insurers against all risks of travel and of transport of goods, and are not held
liable for acts or events which cannot be foreseen or are inevitable, provided that they
shall have complied with the rigorous standard of extraordinary diligence.

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

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

SO ORDERED.

2.

G.R. Nos. L-21477-81 April 29, 1966

FRANCISCA VILUAN, petitioner,


vs.
THE COURT OF APPEALS, PATRICIO HUFANA and GREGORIO
HUFANA, respondents.

Jose A. Solomon, for petitioner.


Lourdes M. Garcia, for respondents.

REGALA, J.:

Seven persons were killed and thirteen others were injured in Bangar, La Union, on
February 16, 1958, when a passenger bus on which they were riding caught fire after
hitting a post and crashing against a tree. The bus, owned by petitioner and driven by
Hermenegildo Aquino, came from San Fernando, La Union and was on its way to
Candon, Ilocos Sur.

It appears that, as the bus neared the gate of the Gabaldon school building in the
municipality of Bangar, another passenger bus owned by Patricio Hufana and driven by
Gregorio Hufana tried to overtake it but that instead of giving way, Aquino increased the
speed of his bus and raced with the overtaking bus. Aquino lost control of his bus as a
result of which it hit a post, crashed against a tree and then burst into flames.

6
Among those who perished were Timoteo Mapanao, Francisca Lacsamana, Narcisa
Mendoza and Gregorio Sibayan, whose heirs sued petitioner and the latter's driver,
Hermenegildo Aquino, for damages for breach of contract of carriage. Carolina Sabado,
one of those injured, also sued petitioner and the driver for damages. The complaints
were filed in the Court of First Instance of La Union.

In their answer, petitioner and her driver blamed respondent Gregorio Hufana for the
accident. With leave of court, they filed third party complaints against Hufana and the
latter's employer, Patricio Hufana.

After trial, the court found that the accident was due to the concurrent negligence of the
drivers of the two buses and held both, together with their respective employers, jointly
and severally liable for damages.

The dispositive portion of its decision reads:

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered, declaring the


plaintiff's entitled to damages to be paid jointly and severally by the defendants
and third-party defendants as follows:

(1) For plaintiff Juliana C. Vda. de Mapanao for the death of her son Timoteo
Mapanao, the sum of P5,000.00 for actual damages, P1,000.00 as moral
damages and P250.00 as attorney's fees;

(2) For plaintiff Leon Lacsamana for the death of his daughter Francisca
Lacsamana, the sum of P4,000.00 as actual damages, P1,000.00 as moral
damages and P250.00 as attorney's fees;

(3) For plaintiffs Juan Mendoza and Magdalena Mendoza for the death of their
mother Narcisa Mendoza, the sum of P4,000.00 for actual damages, P1,000.00
for moral damages and P250.00 as attorney's fees;

(4) For plaintiffs Agustina Sabado, Quintin Sibayan, Julita Sibayan, Primitivo
Sibayan and Avelina Sibayan, the sum of P4,000.00 for actual damages,
P1,500.00 for moral damages and P250.00 as attorney's fees;

(5) For the injured passenger Carolina Sabado, P649.00 for actual damages,
P1,000.00 for moral damages and P250.00 for attorney's fees.

All such amounts awarded as damages shall bear interest at the legal rate of six
per cent (6%) per annum from the date of this decision until the same shall have
been duly paid in full.

Defendants and third-party defendants are further ordered to pay proportionate


costs."

Both petitioner and her driver and the respondents herein appealed to the Court of
Appeals. While affirming the finding that the accident was due to the concurrent
negligence of the drivers of both the Viluan and the Hufana buses, the Court of Appeals
differed with the trial court in the assessment of liabilities of the parties. In its view only
petitioner Francisca Viluan, as operator of the bus, is liable for breach of contract of
carriage. The driver, Hermenegildo Aquino, cannot be made jointly and severally liable
with petitioner because he is merely the latter's employee and is in no way a party to the
contract of carriage. The court added, however

Hermenegildo Aquino is not entirely free from liability. He may be held liable,
criminally and civilly, under the Revised Penal Code (Articles 100 and 103), but

7
not in a civil suit for damages predicated upon a breach of contract, such as this
one (Aguas, et al. vs. Vargas, et al., CA-G.R. No. 27161-R, Jan. 22, 1963).
Furthermore, the common carrier, Francisca Viluan could recover from Aquino
any damages that she might have suffered by reason of the latter's negligence.

Neither may respondents Patricio Hufana and Gregorio Hufana be held liable in the
opinion of the appellate court because the plaintiffs did not amend complaints in the
main action so as to assert a claim against the respondents as third party defendants.

The appellate court likewise disallowed the award of moral damages for P1,000.00 to
Carolina Sabado, there being no showing that the common carrier was guilty of fraud or
bad faith in the performance of her obligation. Accordingly, it rendered judgment as
follows:

IN VIEW OF ALL THE FOREGOING, we hereby find defendant-appellant


Francisca Viluan solely liable to the plaintiffs-appellees for the damages and
attorney's fees awarded to them by the court below and further declare null and
void the lower court's award of moral damages in the amount of P1,000.00 in
favor of plaintiff Carolina Sabado. Thus modified, the judgment appealed from is
affirmed in all other respects, with costs in this instance against defendant-
appellant Francisca Viluan.

From this judgment petitioner brought this appeal. In brief, her position is that since the
proximate cause of the accident was found to be the concurrent negligence of the
drivers of the two buses, then she and respondent Patricio and Gregorio Hufana should
have been held equally liable to the plaintiffs in the damage suits. The fact that the
respondents were not sued as principal defendants but were brought into the cases as
third party defendants should not preclude a finding of their liability.

We agree with petitioner's contention. To begin with, the Court of Appeals' ruling is
based on section 5 of Rule 12 of the former Rules of Court, 1 which was adopted from
Rule 14-a of the Federal Rules of Civil Procedure. While the latter provision has indeed
been held to preclude a judgment in favor of a plaintiff and against a third party
defendant where the plaintiff has not amended his complaint to assert a claim against a
third party defendant, 2 yet, as held in subsequent decisions, this rule applies only to
cases where the third party defendant is brought in on an allegation of liability to the
defendants. The rule does not apply where a third-party defendant is impleaded on the
ground of direct liability to the plaintiffs, in which case no amendment of the plaintiffs
complaint is necessary. 3 As explained in the Atlantic Coast Line R. Co. vs. U. S. Fidelity
& Guaranty Co., 52 F. Supp. 177 (1943):

From the sources of Rule 14 and the decisions herein cited, it is clear that this
rule, like the admiralty rule, "covers two distinct subjects, the addition of parties
defendant to the main cause of action, and the bringing in of a third party for a
defendant's remedy over." x x x

If the third party complaint alleges facts showing a third party's direct liability to
plaintiff on the claim set out in plaintiff's petition, then third party "shall" make his
defenses as provided in Rule 12 and his counterclaims against plaintiff as
provided in Rule 13. In the case of alleged direct liability, no amendment is
necessary or required. The subject-matter of the claim is contained in plaintiff's
complaint, the ground of third party's liability on that claim is alleged in third party
complaint, and third party's defense to set up in his an to plaintiff's complaint. At
that point and without amendment, the plaintiff and third party are at issue as to
their rights respecting the claim.

8
The provision in the rule that, "The third-party defendant may assert any
defenses which the third-party plaintiff may assert to the plaintiff's claim," applies
to the other subject, namely, the alleged liability of third party defendant. The
next sentence in the rule, "The third-party defendant is bound by the adjudication
of the third party plaintiff's liability to the plaintiff, as well as of his own to the
plaintiff or to the third-party plaintiff," applies to both subjects. If third party is
brought in as liable only to defendant and judgment is rendered adjudicating
plaintiff's right to recover against defendant and defendant's rights to recover
against third party, he is bound by both adjudications. That part of the sentence
refers to the second subject. If third party is brought in as liable to plaintiff, then
third party is bound by the adjudication as between him and plaintiff. That refers
to the first subject. If third party is brought in as liable to plaintiff and also over to
defendant, then third party is bound by both adjudications. The next sentence in
the rule, "The plaintiff may amend his pleadings to assert against the third-party
defendant any claim which the plaintiff might have asserted against the third-
party defendant had he been joined originally as a defendant," refers to the
second subject, that is, to bringing in third party as liable to defendant only, and
does not apply to the alleged liability of third party directly to plaintiff."

In this case the third-party complaints filed by petitioner and her driver charged
respondents with direct liability to the plaintiffs. It was contended that the accident was
due "to the fault, negligence, carelessness and imprudence of the third party defendant
Gregorio Hufana" and, in petitioner's motion for leave to file a third party complaint, it
was stated that "Patricio Hufana and Gregorio Hufana were not made parties to this
action, although the defendants are entitled to indemnity and/or subrogation against
them in respect of plaintiff's claim."

It should make no difference therefore whether the respondents were brought in as


principal defendants or as third-party defendants. As Chief Justice Moran points out,
since the liability of the third-party defendant is already asserted in the third-party
complaint, the amendment of the complaint to assert such liability is merely a matter of
form, to insist on which would not be in keeping with the liberal spirit of the Rules of
Court. 4

Nor should it make any difference that the liability of petitioner springs from contract
while that of respondents arises from quasi-delict. As early as 1913, we already ruled
in Gutierrez vs. Gutierrez, 56 Phil. 177,5 that in case of injury to a passenger due to the
negligence of the driver of the bus on which he was riding and of the driver of another
vehicle, the drivers as well as the owners of the two vehicles are jointly and severally
liable for damages. Some members of the Court, though, are of the view that under the
circumstances they are liable on quasi-delict.

Wherefore, the decision appealed from is hereby modified in the sense that petitioner as
well as respondents Patricio Hufana and Gregorio Hufana are jointly and severally liable
for the damages awarded by the trial court. The disallowance of moral damages in the
amount of P1,000.00 is correct and should be affirmed. No costs.

3.

G.R. No. 101503 September 15, 1993

PLANTERS PRODUCTS, INC., petitioner,


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

Gonzales, Sinense, Jimenez & Associates for petitioner.


9
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.

BELLOSILLO, J.:

Does a charter-party1 between a shipowner and a charterer transform a common carrier


into a private one as to negate the civil law presumption of negligence in case of loss or
damage to its cargo?

Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation


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

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

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

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


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

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

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

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

10
and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were
placed in-between and alongside the trucks to contain spillages of the ferilizer.9

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

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

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

. . . Prescinding from the provision of the law that a common carrier is


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

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

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


plaintiff-appellee to adduce sufficient evidence to prove the negligence of
the defendant carrier as alleged in its complaint. It is an old and well

11
settled rule that if the plaintiff, upon whom rests the burden of proving his
cause of action, fails to show in a satisfactory manner the facts upon
which he bases his claim, the defendant is under no obligation to prove his
exception or defense (Moran, Commentaries on the Rules of Court,
Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202).

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

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

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

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

A "charter-party" is defined as a contract by which an entire ship, or some principal part


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

Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the
Civil Code. 23 The definition extends to carriers either by land, air or water which hold

12
themselves out as ready to engage in carrying goods or transporting passengers or
both for compensation as a public employment and not as a casual occupation. The
distinction between a "common or public carrier" and a "private or special carrier" lies in
the character of the business, such that if the undertaking is a single transaction, not a
part of the general business or occupation, although involving the carriage of goods for
a fee, the person or corporation offering such service is a private carrier. 24

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

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

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

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

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

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


cases in which a ship is used to convey the goods of one and of several
persons. Where the ship herself is let to a charterer, so that he takes over
the charge and control of her, the case is different; the shipowner is not
then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or

13
many. The master and the crew are in each case his servants, the
freighter in each case is usually without any representative on board the
ship; the same opportunities for fraud or collusion occur; and the same
difficulty in discovering the truth as to what has taken place arises . . .

In an action for recovery of damages against a common carrier on the goods shipped,
the shipper or consignee should first prove the fact of shipment and its consequent loss
or damage while the same was in the possession, actual or constructive, of the carrier.
Thereafter, the burden of proof shifts to respondent to prove that he has exercised
extraordinary diligence required by law or that the loss, damage or deterioration of the
cargo was due to fortuitous event, or some other circumstances inconsistent with its
liability. 31

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

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

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

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

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

The period during which private respondent was to observe the degree of diligence
required of it as a public carrier began from the time the cargo was unconditionally
placed in its charge after the vessel's holds were duly inspected and passed scrutiny by

14
the shipper, up to and until the vessel reached its destination and its hull was
reexamined by the consignee, but prior to unloading. This is clear from the limitation
clause agreed upon by the parties in the Addendum to the standard "GENCON" time
charter-party which provided for an F.I.O.S., meaning, that the loading, stowing,
trimming and discharge of the cargo was to be done by the charterer, free from all risk
and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo
resulting from improper stowage only when the stowing is done by stevedores
employed by him, and therefore under his control and supervision, not when the same
is done by the consignee or stevedores under the employ of the latter. 36

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

Respondent carrier presented a witness who testified on the characteristics of the


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

The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by


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

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

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

15
The Court notes that it was in the month of July when the vessel arrived port and
unloaded her cargo. It rained from time to time at the harbor area while the cargo was
being discharged according to the supply officer of PPI, who also testified that it was
windy at the waterfront and along the shoreline where the dump trucks passed enroute
to the consignee's warehouse.

Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like
fertilizer carries with it the risk of loss or damage. More so, with a variable weather
condition prevalent during its unloading, as was the case at bar. This is a risk the
shipper or the owner of the goods has to face. Clearly, respondent carrier has
sufficiently proved the inherent character of the goods which makes it highly vulnerable
to deterioration; as well as the inadequacy of its packaging which further contributed to
the loss. On the other hand, no proof was adduced by the petitioner showing that the
carrier was remise in the exercise of due diligence in order to minimize the loss or
damage to the goods it carried.

WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of


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

Costs against petitioner.

SO ORDERED.

4.

G.R. Nos. L-19815-16 May 19, 1966

FILEMON YEPES and MATEO SUSAYA, plaintiffs and appellees,


vs.
SAMAR EXPRESS TRANSIT, represented by PEDRO TY BELIZAR
operator, defendant and appellant.

Lope C. Quimbo for defendant and appellant.


Nicolas A. Superable for plaintiffs and appellees.

DIZON, J.:

On July 23, 1959, appellees boarded appellant's Bus No. 56, with its driver, Alfredo
Acol, at the wheel, at Borongan, bound for Dolores, both of the province of Samar.
While on its way the bus turned turtle and caught fire, causing injuries to some of its
passengers, amongst them the appellees who suffered serious burns. Appellant had
them taken to the Borongan Emergency Hospital in Borongan, Samar, where they
received medical treatment, but were later brought, upon their request, to the Leyte
Provincial Hospital at Tacloban City, for further treatment. Appellant paid all the
expenses for their hospitalization and medical treatment. 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." This document notwithstanding, appellees filed with the lower
court separate complaints for damages for breach of contract of carriage (Civil Cases
Nos. 2709 and 2815) against appellant. In its answers to the complaints the latter
invoked the following defenses: (a) that the accident was due to a fortuitous event
beyond its control and/or due to the negligence of one of its passengers, and (b) that
the plaintiffs (appellees here) had waived their right to claim for damages against it.
16
After a joint trial, the lower court rendered judgment ruling the above-mentioned waiver
null and void as being contrary to public policy, and awarding damages in the sum of
P204.00 and P272.00 to appellees Filemon Yepes and Mateo Susaya, respectively, and
the further sum of P300.00 as attorney's fees, and costs. Hence the. present appeal.

Sole contention of appellant is that the lower court erred in declaring that the "waiver"
made by appellees pursuant to Exhibit I is against public policy and morals, and
therefore void. This claim, in our opinion, is without merit.

Even a cursory examination of the document mentioned above will readily show that
appellees did not actually waive their right to claim damages from appellant for the
latter's failure to comply with their contract of carriage. All that said document proves is
that they expressed a "desire" to make the waiver which obviously is not the same as
making an actual waiver of their right. A waiver of the kind invoked by appellant must be
clear and unequivocal (Decision of the Supreme Court of Spain of July 8, 1887)
which is not the case of the one relied upon in this appeal.1wph1.t

In the light of the above conclusion, We deem it unnecessary to consider the question of
whether or not such waiver if actually made upon the consideration stated in the
document already referred to, is against public policy and morals.

Wherefore, the decision appealed from is affirmed, with costs.

5.

G.R. No. L-37750 May 19, 1978

SWEET LINES, INC., petitioner,


vs.
HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental Branch VII,
LEOVIGILDO TANDOG, JR., and ROGELIO TIRO, respondents.

Filiberto Leonardo, Abelardo C. Almario & Samuel B. Abadiano for petitioner.

Leovigildo Vallar for private respondents.

SANTOS, J.:

This is an original action for Prohibition with Pre Injunction filed October 3, 1973 to
restrain respondent Judge from proceeding further with Civil Case No. 4091,
entitled Leovigildo D. Tandog, Jr. and Rogelio Tiro v. Sweet Lines, Inc." after he denied
petitioner's Motion to Dismiss the complaint, and the Motion for Reconsideration of said
order. 1

Briefly, the facts of record follow. Private respondents Atty. Leovigildo Tandog and
Rogelio Tiro, a contractor by professions, bought tickets Nos. 0011736 and 011737 for
Voyage 90 on December 31, 1971 at the branch office of petitioner, a shipping company
transporting inter-island passengers and cargoes, at Cagayan de Oro City.
Respondents were to board petitioner's vessel, M/S "Sweet Hope" bound for Tagbilaran
City via the port of Cebu. Upon learning that the vessel was not proceeding to Bohol,
since many passengers were bound for Surigao, private respondents per advice, went
to the branch office for proper relocation to M/S "Sweet Town". Because the said vessel
was already filled to capacity, they were forced to agree "to hide at the cargo section to
avoid inspection of the officers of the Philippine Coastguard." Private respondents
alleged that they were, during the trip," "exposed to the scorching heat of the sun and
17
the dust coming from the ship's cargo of corn grits," and that the tickets they bought at
Cagayan de Oro City for Tagbilaran were not honored and they were constrained to pay
for other tickets. In view thereof, private respondents sued petitioner for damages and
for breach of contract of carriage in the alleged sum of P10,000.00 before respondents
Court of First Instance of Misamis Oriental. 2

Petitioner moved to dismiss the complaint on the ground of improper venue. This motion
was premised on the condition printed at the back of the tickets, i.e., Condition No. 14,
which reads:

14. It is hereby agreed and understood that any and all actions arising out
of the conditions and provisions of this ticket, irrespective of where it is
issued, shall be filed in the competent courts in the City of Cebu. 3

The motion was denied by the trial court. 4 Petitioner moved to reconnsider the order of
denial, but no avail. 5 Hence, this instant petition for prohibition for preliminary injunction,
'alleging that the respondent judge has departed from the accepted and usual course of
judicial preoceeding" and "had acted without or in excess or in error of his jurisdicton or
in gross abuse of discretion. 6

In Our resolution of November 20, 1973, We restrained respondent Judge from


proceeding further with the case and required respondent to comment. 7 On January 18,
1974, We gave due course to the petition and required respondent to
answer. 8 Thereafter, the parties submitted their respesctive memoranda in support of
their respective contentions. 9

Presented thus for Our resolution is a question is aquestion which, to all appearances,
is one of first impression, to wit Is Condition No. 14 printed at the back of the
petitioner's passage tickets purchased by private respondents, which limits the venue of
actions arising from the contract of carriage to theCourt of First Instance of Cebu, valid
and enforceable? Otherwise stated, may a common carrier engaged in inter-island
shipping stipulate thru condition printed at the back of passage tickets to its vessels that
any and all actions arising out of the ocntract of carriage should be filed only in a
particular province or city, in this case the City of Cebu, to the exclusion of all others?

Petitioner contends thaty Condition No. 14 is valid and enforceable, since private
respndents acceded to tit when they purchased passage tickets at its Cagayan de Oro
branch office and took its vessel M/S "Sweet Town" for passage to Tagbilaran, Bohol
that the condition of the venue of actions in the City of Cebu is proper since venue may
be validly waived, citing cases; 10 that is an effective waiver of venue, valid and binding
as such, since it is printed in bold and capital letters and not in fine print and merely
assigns the place where the action sing from the contract is institution likewise citing
cases; 11 and that condition No. 14 is unequivocal and mandatory, the words and
phrases "any and all", "irrespective of where it is issued," and "shag" leave no doubt that
the intention of Condition No. 14 is to fix the venue in the City of Cebu, to the exclusion
of other places; that the orders of the respondent Judge are an unwarranted departure
from established jurisprudence governing the case; and that he acted without or in
excess of his jurisdiction in is the orders complained of. 12

On the other hand, private respondents claim that Condition No. 14 is not valid, that the
same is not an essential element of the contract of carriage, being in itself a different
agreement which requires the mutual consent of the parties to it; that they had no say in
its preparation, the existence of which they could not refuse, hence, they had no choice
but to pay for the tickets and to avail of petitioner's shipping facilities out of necessity;
that the carrier "has been exacting too much from the public by inserting impositions in
the passage tickets too burdensome to bear," that the condition which was printed in
fine letters is an imposition on the riding public and does not bind respondents, citing

18
cases; 13 that while venue 6f actions may be transferred from one province to another,
such arrangement requires the "written agreement of the parties", not to be imposed
unilaterally; and that assuming that the condition is valid, it is not exclusive and does
not, therefore, exclude the filing of the action in Misamis Oriental, 14

There is no question that there was a valid contract of carriage entered into by petitioner
and private respondents and that the passage tickets, upon which the latter based their
complaint, are the best evidence thereof. All the essential elements of a valid contract,
i.e., consent, cause or consideration and object, are present. As held in Peralta de
Guerrero, et al. v. Madrigal Shipping Co., Inc., 15

It is a matter of common knowledge that whenever a passenger boards a


ship for transportation from one place to another he is issued a ticket by
the shipper which has all the elements of a written contract, Namely: (1)
the consent of the contracting parties manifested by the fact that the
passenger boards the ship and the shipper consents or accepts him in the
ship for transportation; (2) cause or consideration which is the fare paid by
the passenger as stated in the ticket; (3) object, which is the transportation
of the passenger from the place of departure to the place of destination
which are stated in the ticket.

It should be borne in mind, however, that with respect to the fourteen (14) conditions
one of which is "Condition No. 14" which is in issue in this case printed at the back of
the passage tickets, these are commonly known as "contracts of adhesion," the validity
and/or enforceability of which will have to be determined by the peculiar circumstances
obtaining in each case and the nature of the conditions or terms sought to be enforced.
For, "(W)hile generally, stipulations in a contract come about after deliberate drafting by
the parties thereto, ... there are certain contracts almost all the provisions of which have
been drafted only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of the party is the signing of
his signature or his 'adhesion' thereto. Insurance contracts, bills of lading, contracts of
make of lots on the installment plan fall into this category" 16

By the peculiar circumstances under which contracts of adhesion are entered into
namely, that it is drafted only by one party, usually the corporation, and is sought to be
accepted or adhered to by the other party, in this instance the passengers, private
respondents, who cannot change the same and who are thus made to adhere thereto
on the "take it or leave it" basis certain guidelines in the determination of their validity
and/or enforceability have been formulated in order to that justice and fan play
characterize the relationship of the contracting parties. Thus, this Court speaking
through Justice J.B.L. Reyes in Qua Chee Gan v. Law Union and Rock Insurance
Co., 17 and later through Justice Fernando in Fieldman Insurance v. Vargas, 18 held

The courts cannot ignore that nowadays, monopolies, cartels and


concentration of capital endowed with overwhelm economic power,
manage to impose upon parties d with them y prepared 'agreements' that
the weaker party may not change one whit his participation in the
'agreement' being reduced to the alternative 'to take it or leave it,' labelled
since Raymond Saleilles 'contracts by adherence' (contracts d' adhesion)
in contrast to those entered into by parties bargaining on an equal footing.
Such contracts (of which policies of insurance and international bill of
lading are prime examples) obviously cap for greater strictness and
vigilance on the part of the courts of justice with a view to protecting the
weaker party from abuses and imposition, and prevent their becoming
traps for the unwary.

19
To the same effect and import, and, in recognition of the character of contracts of this
kind, the protection of the disadvantaged is expressly enjoined by the New Civil Code

In 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 and other handicap, the courts must be
vigilant for his
protection. 19

Considered in the light Of the foregoing norms and in the context Of circumstances
Prevailing in the inter-island ship. ping industry in the country today, We find and hold
that Condition No. 14 printed at the back of the passage tickets should be held as void
and unenforceable for the following reasons first, under circumstances obligation in the
inter-island ship. ping industry, it is not just and fair to bind passengers to the terms of
the conditions printed at the back of the passage tickets, on which Condition No. 14 is
Printed in fine letters, and second, Condition No. 14 subverts the public policy on
transfer of venue of proceedings of this nature, since the same will prejudice rights and
interests of innumerable passengers in different s of the country who, under Condition
No. 14, will have to file suits against petitioner only in the City of Cebu.

1. It is a matter of public knowledge, of which We can take judicial notice, that there is a
dearth of and acute shortage in inter- island vessels plying between the country's
several islands, and the facilities they offer leave much to be desired. Thus, even under
ordinary circumstances, the piers are congested with passengers and their cargo
waiting to be transported. The conditions are even worse at peak and/or the rainy
seasons, when Passengers literally scramble to whatever accommodations may be
availed of, even through circuitous routes, and/or at the risk of their safety their
immediate concern, for the moment, being to be able to board vessels with the hope of
reaching their destinations. The schedules are as often as not if not more so
delayed or altered. This was precisely the experience of private respondents when they
were relocated to M/S "Sweet Town" from M/S "Sweet Hope" and then any to the
scorching heat of the sun and the dust coming from the ship's cargo of corn grits, "
because even the latter was filed to capacity.

Under these circumstances, it is hardly just and proper to expect the passengers to
examine their tickets received from crowded/congested counters, more often than not
during rush hours, for conditions that may be printed much charge them with having
consented to the conditions, so printed, especially if there are a number of such
conditions m fine print, as in this case. 20

Again, it should be noted that Condition No. 14 was prepared solely at the ms of the
petitioner, respondents had no say in its preparation. Neither did the latter have the
opportunity to take the into account prior to the purpose chase of their tickets. For,
unlike the small print provisions of contracts the common example of contracts of
adherence which are entered into by the insured in his awareness of said conditions,
since the insured is afforded the op to and co the same, passengers of inter-island v do
not have the same chance, since their alleged adhesion is presumed only from the fact
that they purpose chased the tickets.

It should also be stressed that slapping companies are franchise holders of certificates
of public convenience and therefore, posses a virtual monopoly over the business of
transporting passengers between the ports covered by their franchise. This being so,
shipping companies, like petitioner, engaged in inter-island shipping, have a virtual
monopoly of the business of transporting passengers and may thus dictate their terms
of passage, leaving passengers with no choice but to buy their tickets and avail of their
vessels and facilities. Finally, judicial notice may be taken of the fact that the bulk of

20
those who board these inter-island vested come from the low-income groups and are
less literate, and who have little or no choice but to avail of petitioner's vessels.

2. Condition No. 14 is subversive of public policy on transfers of venue of actions. For,


although venue may be changed or transferred from one province to another by
agreement of the parties in writing t to Rule 4, Section 3, of the Rules of Court, such an
agreement will not be held valid where it practically negates the action of the claimants,
such as the private respondents herein. The philosophy underlying the provisions on
transfer of venue of actions is the convenience of the plaintiffs as well as his witnesses
and to promote 21 the ends of justice. Considering the expense and trouble a passenger
residing outside of Cebu City would incur to prosecute a claim in the City of Cebu, he
would most probably decide not to file the action at all. The condition will thus defeat,
instead of enhance, the ends of justice. Upon the other hand, petitioner has branches or
offices in the respective ports of call of its vessels and can afford to litigate in any of
these places. Hence, the filing of the suit in the CFI of Misamis Oriental, as was done in
the instant case, will not cause inconvenience to, much less prejudice, petitioner.

Public policy is ". . . that principle of the law which holds that no subject or citizen can
lawfully do that which has a tendency to be injurious to the public or against the public
good ... 22 Under this principle" ... freedom of contract or private dealing is restricted by
law for the good of the public. 23 Clearly, Condition No. 14, if enforced, will be
subversive of the public good or interest, since it will frustrate in meritorious cases,
actions of passenger cants outside of Cebu City, thus placing petitioner company at a
decided advantage over said persons, who may have perfectly legitimate claims against
it. The said condition should, therefore, be declared void and unenforceable, as contrary
to public policy to make the courts accessible to all who may have need of their
services.

WHEREFORE, the petition for prohibition is DISMISS. ED. The restraining order issued
on November 20, 1973, is hereby LIFTED and SET ASIDE. Costs against petitioner.

6.

G.R. No. L-22415 March 30, 1966

FERNANDO LOPEZ, ET AL., plaintiffs-appellants,


vs.
PAN AMERICAN WORLD AIRWAYS, defendant-appellant.

Ross, Selph and Carrascoso for the defendant-appellant.


Vicente J. Francisco for the plaintiffs-appellants.

BENGZON, J.P., J.:

Plaintiffs and defendant appeal from a decision of the Court of First Instance of Rizal.
Since the value in controversy exceeds P200,000 the appeals were taken directly to this
Court upon all questions involved (Sec. 17, par. 3[5], Judiciary Act).

Stated briefly the facts not in dispute are as follows: Reservations for first class
accommodations in Flight No. 2 of Pan American World Airways hereinafter
otherwise called PAN-AM from Tokyo to San Francisco on May 24, 1960 were made
with
PAN-AM on March 29, 1960, by "Your Travel Guide" agency, specifically, by Delfin
Faustino, for then Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law
Alfredo Montelibano, Jr., and his daughter, Mrs. Alfredo Montelibano, Jr., (Milagros
Lopez Montelibano). PAN-AM's San Francisco head office confirmed the reservations
on March 31, 1960.
21
First class tickets for the abovementioned flight were subsequently issued by
PAN-AM on May 21 and 23, 1960, in favor of Senator Lopez and his party. The total
fare of P9,444 for all of them was fully paid before the tickets were issued.

As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24,
1960, arriving in Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator Lopez
requested Minister Busuego of the Philippine Embassy to contact PAN-AM's Tokyo
office regarding their first class accommodations for that evening's flight. For the given
reason that the first class seats therein were all booked up, however, PAN-AM's Tokyo
office informed Minister Busuego that PAN-AM could not accommodate Senator Lopez
and party in that trip as first class passengers. Senator Lopez thereupon gave their first
class tickets to Minister Busuego for him to show the same to PAN-AM's Tokyo office,
but the latter firmly reiterated that there was no accommodation for them in the first
class, stating that they could not go in that flight unless they took the tourist class
therein.

Due to pressing engagements awaiting Senator Lopez and his wife, in the United States
he had to attend a business conference in San Francisco the next day and she had
to undergo a medical check-up in Mayo Clinic, Rochester, Minnesota, on May 28, 1960
and needed three days rest before that in San Francisco Senator Lopez and party
were constrained to take PAN-AM's flight from Tokyo to San Francisco as tourist
passengers. Senator Lopez however made it clear, as indicated in his letter to PAN-
AM's Tokyo office on that date (Exh. A), that they did so "under protest" and without
prejudice to further action against the airline.1wph1.t

Suit for damages was thereafter filed by Senator Lopez and party against PAN-AM on
June 2, 1960 in the Court of First Instance of Rizal. Alleging breach of contracts in bad
faith by defendant, plaintiffs asked for P500,000 actual and moral damages, P100,000
exemplary damages, P25,000 attorney's fees plus costs. PAN-AM filed its answer on
June 22, 1960, asserting that its failure to provide first class accommodations to
plaintiffs was due to honest error of its employees. It also interposed a counterclaim for
attorney's fees of P25,000.

Subsequently, further pleadings were filed, thus: plaintiffs' answer to the counterclaim,
on July 25, 1960; plaintiffs' reply attached to motion for its admittance, on December 2,
1961; defendant's supplemental answer, on March 8, 1962; plaintiffs' reply to
supplemental answer, on March 10, 1962; and defendant's amended supplemental
answer, on July 10, 1962.

After trial which took twenty-two (22) days ranging from November 25, 1960 to
January 5, 1963 the Court of First Instance rendered its decision on November 13,
1963, the dispositive portion stating:

In view of the foregoing considerations, judgment is hereby rendered in favor of


the plaintiffs and against the defendant, which is accordingly ordered to pay the
plaintiffs the following: (a) P100,000.00 as moral damages; (b) P20,000.00 as
exemplary damages; (c) P25,000.00 as attorney's fees, and the costs of this
action.

So ordered.

Plaintiffs, however, on November 21, 1963, moved for reconsideration of said judgment,
asking that moral damages be increased to P400,000 and that six per cent (6%) interest
per annum on the amount of the award be granted. And defendant opposed the same.
Acting thereon the trial court issued an order on December 14, 1963, reconsidering the
dispositive part of its decision to read as follows:

22
In view of the foregoing considerations, judgment is hereby rendered in favor of
the plaintiffs and against the defendant, which is accordingly ordered to pay the
plaintiffs the following: (a) P150,000.00 as moral damages; (b) P25,000.00 as
exemplary damages; with legal interest on both from the date of the filing of the
complaint until paid; and (c) P25,000.00 as attorney's fees; and the costs of this
action.

So ordered.

It is from said judgment, as thus reconsidered, that both parties have appealed.

Defendant, as stated, has from the start admitted that it breached its contracts with
plaintiffs to provide them with first class accommodations in its Tokyo-San Francisco
flight of May 24, 1960. In its appeal, however, it takes issue with the finding of the
court a quo that it acted in bad faith in the branch of said contracts. Plaintiffs, on the
other hand, raise questions on the amount of damages awarded in their favor, seeking
that the same be increased to a total of P650,000.

Anent the issue of bad faith the records show the respective contentions of the parties
as follows.

According to plaintiffs, defendant acted in bad faith because it deliberately refused to


comply with its contract to provide first class accommodations to plaintiffs, out of racial
prejudice against Orientals. And in support of its contention that what was done to
plaintiffs is an oftrepeated practice of defendant, evidence was adduced relating to two
previous instances of alleged racial discrimination by defendant against Filipinos in
favor of "white" passengers. Said previous occasions are what allegedly happened to
(1) Benito Jalbuena and (2) Cenon S. Cervantes and his wife.

And from plaintiffs' evidence this is what allegedly happened; Jalbuena bought a first
class ticket from PAN-AM on April 13, 1960; he confirmed it on April 15, 1960 as to the
Tokyo-Hongkong flight of April 20, 1960; PAN-AM similarly confirmed it on April 20,
1960. At the airport he and another Oriental Mr. Tung were asked to step aside
while other passengers - including "white" passengers boarded PAN-AM's plane.
Then PAN-AM officials told them that one of them had to stay behind. Since Mr. Tung
was going all the way to London, Jalbuena was chosen to be left behind. PAN-AM's
officials could only explain by saying there was "some mistake". Jalbuena thereafter
wrote PAN-AM to protest the incident (Exh. B).

As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN-AM on September


29, 1958 from Bangkok to Hongkong, he and his wife had to take tourist class, although
they had first class tickets, which they had previously confirmed, because their seats in
first class were given to "passengers from London."

Against the foregoing, however, defendant's evidence would seek to establish its theory
of honest mistake, thus:

The first class reservations of Senator Lopez and party were made on March 29, 1960
together with those of four members of the Rufino family, for a total of eight (8) seats, as
shown in their joint reservation card (Exh. 1). Subsequently on March 30, 1960, two
other Rufinos secured reservations and were given a separate reservation card (Exh.
2). A new reservation card consisting of two pages (Exhs. 3 and 4) was then made for
the original of eight passengers, namely, Senator Lopez and party and four members of
the Rufino family, the first page (Exh. 3) referring to 2 Lopezes, 2 Montelibanos and 1
Rufino and the second page (Exh. 4) referring to 3 Rufinos. On April 18, 1960 "Your
Travel Guide" agency cancelled the reservations of the Rufinos. A telex message was
thereupon sent on that date to PAN-AM's head office at San Francisco by Mariano

23
Herranz, PAN-AM's reservations employee at its office in Escolta, Manila. (Annex A-
Acker's to Exh. 6.) In said message, however, Herranz mistakenly cancelled all the
seats that had been reserved, that is, including those of Senator Lopez and party.

The next day April 1960 Herranz discovered his mistake, upon seeing the
reservation card newly prepared by his co-employee Pedro Asensi for Sen. Lopez and
party to the exclusion of the Rufinos (Exh. 5). It was then that Herranz sent another
telex wire to the San Francisco head office, stating his error and asking for the
reinstatement of the four (4) first class seats reserved for Senator Lopez and party
(Annex A-Velasco's to Exh. 6). San Francisco head office replied on April 22, 1960 that
Senator Lopez and party are waitlisted and that said office is unable to reinstate them
(Annex B-Velasco's to Exh. 6).

Since the flight involved was still more than a month away and confident that
reinstatement would be made, Herranz forgot the matter and told no one about it except
his co-employee, either Armando Davila or Pedro Asensi or both of them (Tsn., 123-
124, 127, Nov. 17, 1961).

Subsequently, on April 27, 1960, Armando Davila, PAN-AM's reservations employee


working in the same Escolta office as Herranz, phoned PAN-AM's ticket sellers at its
other office in the Manila Hotel, and confirmed the reservations of Senator Lopez and
party.

PAN-AM's reservations supervisor Alberto Jose, discovered Herranz's mistake after


"Your Travel Guide" phone on May 18, 1960 to state that Senator Lopez and party were
going to depart as scheduled. Accordingly, Jose sent a telex wire on that date to PAN-
AM's head office at San Francisco to report the error and asked said office to continue
holding the reservations of Senator Lopez and party (Annex B-Acker's to Exh. 6). Said
message was reiterated by Jose in his telex wire of May 19, 1960 (Annex C-Acker's to
Exh. 6). San Francisco head office replied on May 19, 1960 that it regrets being unable
to confirm Senator Lopez and party for the reason that the flight was solidly booked
(Exh. 7). Jose sent a third telex wire on May 20, 1960 addressed to PAN-AM's offices at
San Francisco, New York (Idlewild Airport), Tokyo and Hongkong, asking all-out
assistance towards restoring the cancelled spaces and for report of cancellations at
their end (Annex D-Acker's to Exh. 6). San Francisco head office reiterated on May 20,
1960 that it could not reinstate the spaces and referred Jose to the Tokyo and
Hongkong offices (Exh. 8). Also on May 20, the Tokyo office of PAN-AM wired Jose
stating it will do everything possible (Exh. 9).

Expecting that some cancellations of bookings would be made before the flight time,
Jose decided to withhold from Senator Lopez and party, or their agent, the information
that their reservations had been cancelled.

Armando Davila having previously confirmed Senator Lopez and party's first class
reservations to PAN-AM's ticket sellers at its Manila Hotel office, the latter sold and
issued in their favor the corresponding first class tickets on the 21st and 23rd of May,
1960.

From the foregoing evidence of defendant it is in effect admitted that defendant


through its agents first cancelled plaintiffs, reservations by mistake and
thereafter deliberately and intentionally withheld from plaintiffs or their travel agent the
fact of said cancellation, letting them go on believing that their first class reservations
stood valid and confirmed. In so misleading plaintiffs into purchasing first class tickets in
the conviction that they had confirmed reservations for the same, when in fact they had
none, defendant wilfully and knowingly placed itself into the position of having to breach
its a foresaid contracts with plaintiffs should there be no last-minute cancellation by
other passengers before flight time, as it turned out in this case. Such actuation of

24
defendant may indeed have been prompted by nothing more than the promotion of its
self-interest in holding on to Senator Lopez and party as passengers in its flight and
foreclosing on their chances to seek the services of other airlines that may have been
able to afford them first class accommodations. All the time, in legal contemplation such
conduct already amounts to action in bad faith. For bad faith means a breach of a
known duty through some motive of interest or ill-will (Spiegel vs. Beacon Participations,
8 NE 2d 895, 907). As stated in Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R. 1,
7: "Self-enrichment or fraternal interest, and not personal ill-will, may well have been the
motive; but it is malice nevertheless."

As of May 18, 1960 defendant's reservations supervisor, Alberto Jose knew that
plaintiffs' reservations had been cancelled. As of May 20 he knew that the San
Francisco head office stated with finality that it could not reinstate plaintiffs' cancelled
reservations. And yet said reservations supervisor made the "decision" to use his
own, word to withhold the information from the plaintiffs. Said Alberto Jose in his
testimony:

Q Why did you not notify them?

A Well, you see, sir, in my fifteen (15) years of service with the air lines business
my experience is that even if the flights are solidly booked months in advance,
usually the flight departs with plenty of empty seats both on the first class and
tourist class. This is due to late cancellation of passengers, or because
passengers do not show up in the airport, and it was our hope others come in
from another flight and, therefore, are delayed and, therefore, missed their
connections. This experience of mine, coupled with that wire from Tokyo that
they would do everything possible prompted me to withhold the information, but
unfortunately, instead of the first class seat that I was hoping for and which I
anticipated only the tourists class was open on which Senator and Mrs. Lopez,
Mr. and Mrs. Montelibano were accommodated. Well, I fully realize now the
gravity of my decision in not advising Senator and Mrs. Lopez, Mr. and Mrs.
Montelibano nor their agents about the erroneous cancellation and for which I
would like them to know that I am very sorry.

xxx xxx xxx

Q So it was not your duty to notify Sen. Lopez and parties that their reservations
had been cancelled since May 18, 1960?

A As I said before it was my duty. It was my duty but as I said again with respect
to that duty I have the power to make a decision or use my discretion and
judgment whether I should go ahead and tell the passenger about the
cancellation. (Tsn., pp. 17-19, 28-29, March 15, 1962.)

At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known
duty, made plaintiffs believe that their reservation had not been cancelled. An additional
indication of this is the fact that upon the face of the two tickets of record, namely, the
ticket issued to Alfredo Montelibano, Jr. on May 21, 1960 (Exh. 22) and that issued to
Mrs. Alfredo Montelibano, Jr., on May 23, 1960 (Exh. 23), the reservation status is
stated as "OK". Such willful-non-disclosure of the cancellation or pretense that the
reservations for plaintiffs stood and not simply the erroneous cancellation itself is
the factor to which is attributable the breach of the resulting contracts. And, as above-
stated, in this respect defendant clearly acted in bad faith.

As if to further emphasize its bad faith on the matter, defendant subsequently promoted
the employee who cancelled plaintiffs' reservations and told them nothing about it. The
record shows that said employee Mariano Herranz was not subjected to

25
investigation and suspension by defendant but instead was given a reward in the form
of an increase of salary in June of the following year (Tsn., 86-88, Nov. 20, 1961).

At any rate, granting all the mistakes advanced by the defendant, there would at least
be negligence so gross and reckless as to amount to malice or bad faith (Fores vs.
Miranda, L-12163, March 4, 1959; Necesito v. Paras, L-10605-06, June 30, 1958).
Firstly, notwithstanding the entries in the reservation cards (Exhs. 1 & 3) that the
reservations cancelled are those of the Rufinos only, Herranz made the mistake, after
reading said entries, of sending a wire cancelling all the reservations, including those of
Senator Lopez and party (Tsn., pp. 108-109, Nov. 17, 1961). Secondly, after sending a
wire to San Francisco head office on April 19, 1960 stating his error and asking for
reinstatement, Herranz simply forgot about the matter. Notwithstanding the reply of San
Francisco head Office on April 22, 1960 that it cannot reinstate Senator Lopez and party
(Annex B-Velasco's to Exh. 6), it was assumed and taken for granted that reinstatement
would be made. Thirdly, Armando Davila confirmed plaintiff's reservations in a phone
call on April 27, 1960 to defendant's ticket sellers, when at the time it appeared in
plaintiffs' reservation card (Exh. 5) that they were only waitlisted passengers. Fourthly,
defendant's ticket sellers issued plaintiffs' tickets on May 21 and 23, 1960, without first
checking their reservations just before issuing said tickets. And, finally, no one among
defendant's agents notified Senator Lopez and party that their reservations had been
cancelled, a precaution that could have averted their entering with defendant into
contracts that the latter had already placed beyond its power to perform.

Accordingly, there being a clear admission in defendant's evidence of facts amounting


to a bad faith on its part in regard to the breach of its contracts with plaintiffs, it becomes
unnecessary to further discuss the evidence adduced by plaintiffs to establish
defendant's bad faith. For what is admitted in the course of the trial does not need to be
proved (Sec. 2, Rule 129, Rules of Court).

Addressing ourselves now to the question of damages, it is well to state at the outset
those rules and principles. First, moral damages are recoverable in breach of contracts
where the defendant acted fraudulently or in bad faith (Art. 2220, New Civil Code).
Second, in addition to moral damages, exemplary or corrective damages may be
imposed by way of example or correction for the public good, in breach of contract
where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner (Articles 2229, 2232, New Civil Code). And, third, a written contract for an
attorney's services shall control the amount to be paid therefor unless found by the court
to be unconscionable or unreasonable (Sec. 24, Rule 138, Rules of Court).

First, then, as to moral damages. As a proximate result of defendant's breach in bad


faith of its contracts with plaintiffs, the latter suffered social humiliation, wounded
feelings, serious anxiety and mental anguish. For plaintiffs were travelling with first class
tickets issued by defendant and yet they were given only the tourist class. At stop-overs,
they were expected to be among the first-class passengers by those awaiting to
welcome them, only to be found among the tourist passengers. It may not be humiliating
to travel as tourist passengers; it is humiliating to be compelled to travel as such,
contrary to what is rightfully to be expected from the contractual undertaking.

Senator Lopez was then Senate President Pro Tempore. International carriers like
defendant know the prestige of such an office. For the Senate is not only the Upper
Chamber of the Philippine Congress, but the nation's treaty-ratifying body. It may also
be mentioned that in his aforesaid office Senator Lopez was in a position to preside in
impeachment cases should the Senate sit as Impeachment Tribunal. And he was
former Vice-President of the Philippines. Senator Lopez was going to the United States
to attend a private business conference of the Binalbagan-Isabela Sugar Company; but
his aforesaid rank and position were by no means left behind, and in fact he had a
second engagement awaiting him in the United States: a banquet tendered by Filipino

26
friends in his honor as Senate President Pro Tempore (Tsn., pp. 14-15, Nov. 25, 1960).
For the moral damages sustained by him, therefore, an award of P100,000.00 is
appropriate.

Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his
humiliation. In addition she suffered physical discomfort during the 13-hour trip,(5 hours
from Tokyo to Honolulu and 8 hours from Honolulu to San Francisco). Although Senator
Lopez stated that "she was quite well" (Tsn., p. 22, Nov. 25, 1960) he obviously
meant relatively well, since the rest of his statement is that two months before, she was
attackedby severe flu and lost 10 pounds of weight and that she was advised by Dr.
Sison to go to the United States as soon as possible for medical check-up and
relaxation, (Ibid). In fact, Senator Lopez stated, as shown a few pages after in the
transcript of his testimony, that Mrs. Lopez was sick when she left the Philippines:

A. Well, my wife really felt very bad during the entire trip from Tokyo to San
Francisco. In the first place, she was sick when we left the Philippines, and then
with that discomfort which she [experienced] or suffered during that evening, it
was her worst experience. I myself, who was not sick, could not sleep because of
the discomfort. (Tsn., pp. 27-28, Nov. 25, 1960).

It is not hard to see that in her condition then a physical discomfort sustained for thirteen
hours may well be considered a physical suffering. And even without regard to the noise
and trepidation inside the plane which defendant contends, upon the strengh of
expert testimony, to be practically the same in first class and tourist class the fact
that the seating spaces in the tourist class are quite narrower than in first class, there
beingsix seats to a row in the former as against four to a row in the latter, and that in
tourist class there is very little space for reclining in view of the closer distance between
rows (Tsn., p. 24, Nov. 25, 1960), will suffice to show that the aforesaid passenger
indeed experienced physical suffering during the trip. Added to this, of course, was the
painfull thought that she was deprived by defendant after having paid for and
expected the same of the most suitable, place for her, the first class, where evidently
the best of everything would have been given her, the best seat, service, food and
treatment. Such difference in comfort between first class and tourist class is too obvious
to be recounted, is in fact the reason for the former's existence, and is recognized by
the airline in charging a higher fare for it and by the passengers in paying said higher
rate Accordingly, considering the totality of her suffering and humiliation, an award to
Mrs. Maria J. Lopez of P50,000.00 for moral damages will be reasonable.

Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the
family of Senator Lopez. They formed part of the Senator's party as shown also by the
reservation cards of PAN-AM. As such they likewise shared his prestige and
humiliation. Although defendant contends that a few weeks before the flight they had
asked their reservations to be charged from first class to tourist class which did not
materialize due to alleged full booking in the tourist class the same does not mean
they suffered no shared in having to take tourist class during the flight. For by that time
they had already been made to pay for first class seats and therefore to expect first
class accommodations. As stated, it is one thing to take the tourist class by free choice;
a far different thing to be compelled to take it notwithstanding having paid for first class
seats. Plaintiffs-appellants now ask P37,500.00 each for the two but we note that in
their motion for reconsideration filed in the court a quo, they were satisfied with
P25,000.00 each for said persons. (Record on Appeal, p. 102). For their social
humiliation, therefore, the award to them of P25,000.00 each is reasonable.

The rationale behind exemplary or corrective damages is, as the name implies, to
provide an example or correction for public good. Defendant having breached its
contracts in bad faith, the court, as stated earlier, may award exemplary damages in
addition to moral damages (Articles 2229, 2232, New Civil Code).

27
In view of its nature, it should be imposed in such an amount as to sufficiently and
effectively deter similar breach of contracts in the future by defendant or other airlines.
In this light, we find it just to award P75,000.00 as exemplary or corrective damages.

Now, as to attorney's fees, the record shows a written contract of services executed on
June 1, 1960 (Exh. F) whereunder plaintiffs-appellants engaged the services of their
counsel Atty. Vicente J. Francisco and agreedto pay the sum of P25,000.00 as
attorney's fees upon the termination of the case in the Court of First Instance, and an
additional sum of P25,000.00 in the event the case is appealed to the Supreme Court.
As said earlier, a written contract for attorney's services shall control the amount to be
paid therefor unless found by the court to be unconscionable or unreasonable. A
consideration of the subject matter of the present controversy, of the professional
standing of the attorney for plaintiffs-appellants, and of the extent of the service
rendered by him, shows that said amount provided for in the written agreement is
reasonable. Said lawyer whose prominence in the legal profession is well known
studied the case, prepared and filed the complaint, conferred with witnesses, analyzed
documentary evidence, personally appeared at the trial of the case in twenty-two days,
during a period of three years, prepared four sets of cross-interrogatories for deposition
taking, prepared several memoranda and the motion for reconsideration, filed a joint
record on appeal with defendant, filed a brief for plaintiffs as appellants consisting of 45
printed pages and a brief for plaintiffs as appellees consisting of 265 printed pages. And
we are further convinced of its reasonableness because defendant's counsel likewise
valued at P50,000.00 the proper compensation for his services rendered to defendant in
the trial court and on appeal.

In concluding, let it be stressed that the amount of damages awarded in this appeal has
been determined by adequately considering the official, political, social, and financial
standing of the offended parties on one hand, and the business and financial position of
the offender on the other (Domingding v. Ng, 55 O.G. 10). And further considering the
present rate of exchange and the terms at which the amount of damages awarded
would approximately be in U.S. dollars, this Court is all the more of the view that said
award is proper and reasonable.

Wherefore, the judgment appealed from is hereby modified so as to award in favor of


plaintiffs and against defendant, the following: (1) P200,000.00 as moral damages,
divided among plaintiffs, thus: P100,000.00 for Senate President Pro
Tempore Fernando Lopez; P50,000.00 for his wife Maria J. Lopez; P25,000.00 for his
son-in-law Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs. Alfredo
Montelibano, Jr.; (2) P75,000.00 as exemplary or corrective damages; (3) interest at the
legal rate of 6% per annum on the moral and exemplary damages aforestated, from
December 14, 1963, the date of the amended decision of the court a quo, until said
damages are fully paid; (4) P50,000.00 as attorney's fees; and (5) the costs.
Counterclaim dismissed.So ordered.

7.

G.R. No. L-28589 January 8, 1973

RAFAEL ZULUETA, ET AL., plaintiffs-appellees,


vs.
PAN AMERICAN WORLD AIRWAYS, INC., defendant-appellant.

Alfredo L. Benipayo for plaintiffs-appellee Rafael Zulueta and Carolina Zulueta.

Justo L. Albert for plaintiff-appellee Telly Albert Zulueta.

28
V.E. del Rosario and Associates and Salcedo, Del Rosario, Bito, Misa and Lozada for
defendant-appellant.

RESOLUTION

CONCEPCION, C.J.:

Both parties in this case have moved for the reconsideration of the decision of this Court
promulgated on February 29, 1972. Plaintiffs maintain that the decision appealed from
should be affirmed in toto. The defendant, in turn, prays that the decision of this Court
be "set aside ... with or without a new trial, ... and that the complaint be dismissed, with
costs; or, in the alternative, that the amount of the award embodied therein be
considerably reduced." .

Subsequently to the filing of its motion for reconsideration, the defendant filed a "petition
to annul proceedings and/or to order the dismissal of plaintiffs-appellees' complaint"
upon the ground that "appellees' complaint actually seeks the recovery of only
P5,502.85 as actual damages, because, for the purpose of determining the jurisdiction
of the lower court, the unspecified sums representing items of alleged damages, may
not be considered, under the settled doctrines of this Honorable Court," and "the
jurisdiction of courts of first instance when the complaint in the present case was filed
on Sept. 30, 1965" was limited to cases "in which the demand, exclusive of interest, or
the value of the property in controversy amounts to more than ten thousand pesos" and
"the mere fact that the complaint also prays for unspecified moral damages and
attorney's fees, does not bring the action within the jurisdiction of the lower court."

We find no merit in this contention. To begin with, it is not true that "the unspecified
sums representing items or other alleged damages, may not be considered" for the
purpose of determining the jurisdiction of the court "under the settled doctrines of this
Honorable Court." In fact, not a single case has been cited in support of this allegation.

Secondly, it has been held that a clam for moral damages is one not susceptible of
pecuniary estimation.1 In fact, Article 2217 of the Civil Code of the Philippines explicitly
provides that "(t)hough incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendant's wrongful act or omission."
Hence, "(n)o proof pecuniary loss necessary" pursuant to Article 2216 of the same
Code "in order that moral ... damages may be adjudicated." And "(t)he assessment of
such damages ... is left to the discretion of the court" - said article adds - "according to
the circumstances of each case." Appellees' complaint is, therefore, within the original
jurisdiction of courts of first instance, which includes "all civil actions in which the subject
of the litigation is not capable of pecuniary estimation." 2

Thirdly, in its answer to plaintiffs' original and amended complainants, defendant had set
up a counterclaim in the aggregate sum of P12,000, which is, also, within the original
jurisdiction of said courts, thereby curing the alleged defect if any, in plaintiffs'
complaint.3

We need not consider the jurisdictional controversy as to the amount the


appellant sues to recover because the counterclaim interposed
establishes the jurisdiction of the District Court. Merchants' Heat & Light
Co. v. James B. Clow & Sons, 204 U.S. 286, 27 S. Ct. 285, 51 L. Ed.
488; O. J. Lewis Mercantile Co. v. Klepner, 176 F. 343 (C.C.A. 2),
certiorari denied 216 U.S. 620, 30 S Ct. 575, 54 L. Ed. 641. ... . 4

29
... courts have said that "when the jurisdictional amount is in question, the
tendering of a counterclaim in an amount which in itself, or added to the
amount claimed in the petition, makes up a sum equal to the amount
necessary to the jurisdiction of this court, jurisdiction is established,
whatever may be the state of the plaintiff's complaint." American Sheet &
Tin Plate Co. v. Winzeler (D.C.) 227 F. 321, 324.5

Thus, in Ago v. Buslon,6 We held:

... . Then, too, petitioner's counterclaim for P37,000.00 was, also, within
the exclusive original jurisdiction of the latter courts, and there are ample
precedents to the effect that "although the original claim involves less than
the jurisdictional amount, ... jurisdiction can be sustained if the
counterclaim (of the compulsory type)" such as the one set up by
petitioner herein, based upon the damages allegedly suffered by him in
consequence of the filing of said complaint "exceeds the jurisdictional
amount." (Moore Federal Practice, 2nd ed. [1948], Vol. 3, p. 41; Ginsburg
vs. Pacific Mutual Life Ins. Co. of California, 69 Fed. [2d] 97; Home Life
Ins. Co. vs. Sipp., 11 Fed. [2d]474; American Sheet & Tin Plate Co. vs.
Winzeler [D.C.], 227 Fed. 321, 324; Brix vs. People's Mutual Life Ins. Co.,
41 P. 2d. 537, 2 Cal. 2d. 446; Emery vs. Pacific Employees Ins. Co., 67 P.
2d. 1046, 8 Cal. 2d. 663).

Needless to say, having not only failed to question the jurisdiction of the trial court
either in that court or in this Court, before the rendition of the latter's decision, and even
subsequently thereto, by filing the aforementioned motion for reconsideration and
seeking the reliefs therein prayed for but, also, urged both courts to exercise
jurisdiction over the merits of the case, defendant is now estopped from impugning said
jurisdiction.7

Before taking up the specific questions raised in defendant's motion for reconsideration,
it should be noted that the same is mainly predicated upon the premise that plaintiffs'
version is inherently incredible, and that this Court should accept the theory of the
defense to the effect that petitioner was off-loaded because of a bomb-scare allegedly
arising from his delay in boarding the aircraft and subsequent refusal to open his bags
for inspection. We need not repeat here the reasons given in Our decision for rejecting
defendant's contention and not disturbing the findings of fact of His Honor, the Trial
Judge, who had the decided advantage denied to Us of observing the behaviour
of the witnesses in the course of the trial and found those of the plaintiffs worthy of
credence, not the evidence for the defense.

It may not be amiss however, to stress the fact that, in his written report, made in transit
from Wake to Manila or immediately after the occurrence and before the legal
implications or consequences thereof could have been the object of mature deliberation,
so that it could, in a way, be considered as part of the res gestae Capt. Zentner
stated that Zulueta had been off-loaded "due to drinking" and "belligerent attitude,"
thereby belying the story of the defense about said alleged bomb-scare, and confirming
the view that said agent of the defendant had acted out of resentment because his ego
had been hurt by Mr. Zulueta's adamant refusal to be bullied by him. Indeed, had there
been an iota of truth in said story of the defense, Capt. Zentner would have caused
every one of the passengers to be frisked or searched and the luggage of all of them
examined as it is done now before resuming the flight from Wake Island. His
failure to do so merely makes the artificious nature of defendant's version more
manifest. Indeed, the fact that Mrs. Zulueta and Miss Zulueta were on board the plane
shows beyond doubt that Mr. Zulueta could not possibly have intended to blow it up.

30
The defense tries to explain its failure to introduce any evidence to contradict the
testimony of Mr. Zulueta as to why he had gone to the beach and what he did there,
alleging that, in the very nature of things, nobody else could have witnessed it.
Moreover, the defense insists, inter alia, that the testimony of Mr. Zulueta is inherently
incredible because he had no idea as to how many toilets the plane had; it could not
have taken him an hour to relieve himself in the beach; there were eight (8) commodes
at the terminal toilet for men ; if he felt the need of relieving himself, he would have seen
to it that the soldiers did not beat him to the terminal toilets; he did not tell anybody
about the reason for going to the beach, until after the plane had taken off from Wake.

We find this pretense devoid of merit. Although Mr. Zulueta had to look for a secluded
place in the beach to relieve himself, beyond the view of others, defendant's airport
manager, whom Mr. Zulueta informed about it, soon after the departure of the
plane, could have forthwith checked the veracity of Mr. Zulueta's statement by asking
him to indicate the specific place where he had been in the beach and then proceeding
thereto for purposes of verification.

Then, again, the passenger of a plane seldom knows how many toilets it has. As a
general rule, his knowledge is limited to the toilets for the class first class or tourist
class in which he is. Then, too, it takes several minutes for the passengers of big
aircrafts, like those flying from the U.S. to the Philippines, to deplane. Besides, the
speed with which a given passenger may do so depends, largely, upon the location of
his seat in relation to the exit door. He cannot go over the heads of those nearer than he
thereto. Again, Mr. Zulueta may have stayed in the toilet terminal for some time,
expecting one of the commodes therein to be vacated soon enough, before deciding to
go elsewhere to look for a place suitable to his purpose. But he had to walk, first, from
the plane to the terminal building and, then, after vainly waiting therein for a while, cover
a distance of about 400 yards therefrom to the beach, and seek there a place not visible
by the people in the plane and in the terminal, inasmuch as the terrain at Wake Island is
flat. What is more, he must have had to takeoff part, at least, of his clothing, because,
without the facilities of a toilet, he had to wash himself and, then, dry himself up before
he could be properly attired and walk back the 400 yards that separated him from the
terminal building and/or the plane. Considering, in addition to the foregoing, the fact that
he was not feeling well, at that time, We are not prepared to hold that it could not have
taken him around an hour to perform the acts narrated by him.

But, why asks the defendant did he not reveal the same before the plane took off?
The record shows that, even before Mr. Zulueta had reached the ramp leading to the
plane, Capt. Zentner was already demonstrating at him in an intemperate and arrogant
tone and attitude ("What do you think you are?), thereby impelling Mr. Zulueta to answer
back in the same vein. As a consequence, there immediately ensued an altercation in
the course of which each apparently tried to show that he could not be cowed by the
other. Then came the order of Capt. Zentner to off-load all of the Zuluetas, including
Mrs. Zulueta and the minor Miss Zulueta, as well as their luggage, their overcoats and
other effects handcarried by them; but, Mr. Zulueta requested that the ladies be allowed
to continue the trip. Meanwhile, it had taken time to locate his four (4) pieces of luggage.
As a matter of fact, only three (3) of them were found, and the fourth eventually
remained in the plane. In short, the issue between Capt. Zentner and Mr. Zulueta had
been limited to determining whether the latter would allow himself to be browbeaten by
the former. In the heat of the altercation, nobody had inquired about the cause of Mr.
Zulueta's delay in returning to the plane, apart from the fact that it was rather
embarrassing for him to explain, in the presence and within the hearing of the
passengers and the crew, then assembled around them, why he had gone to the beach
and why it had taken him some time to answer there a call of nature, instead of doing so
in the terminal building.

31
Defendant's motion for reconsideration assails: (1) the amount of damages awarded as
excessive; (2) the propriety of accepting as credible plaintiffs' theory; (3) plaintiffs' right
to recover either moral or exemplary damages; (4) plaintiffs' right to recover attorney's
fees; and (5) the non-enforcement of the compromise agreement between the
defendant and plaintiff's wife, Mrs. Zulueta. Upon the other hand, plaintiffs' motion for
reconsideration contests the decision of this Court reducing the amount of damages
awarded by the trial court to approximately one-half thereof, upon the ground, not only
that, contrary to the findings of this Court, in said decision, plaintiff had not contributed
to the aggravation of his altercation or incident with Capt. Zentner by reacting to his
provocation with extreme belligerency thereby allowing himself to be dragged down to
the level on which said agent of the defendant had placed himself, but, also, because
the purchasing power of our local currency is now much lower than when the trial court
rendered its appealed decision, over five (5) years ago, on July 5, 1967, which is an
undeniable and undisputed fact. Precisely, for this reason, defendant's characterization
as exorbitant of the aggregate award of over P700,000 by way of damages, apart from
attorney's fees in the sum of P75,000, is untenable. Indeed, said award is now barely
equivalent to around 100,000 U. S. dollars.

It further support of its contention, defendant cites the damages awarded in previous
cases to passengers of airlines,8 as well as in several criminal cases, and some cases
for libel and slander. None of these cases is, however, in point. Said cases against
airlines referred to passengers who were merely constrained to take a tourist class
accommodation, despite the fact that they had first class tickets, and that although, in
one of such cases, there was proof that the airline involved had acted as it did to give
preference to a "white" passenger, this motive was not disclosed until the trial in court.
In the case at bar, plaintiff Rafael Zulueta was "off-loaded" at Wake Island, for having
dared to retort to defendant's agent in a tone and manner matching, if not befitting his
intemperate language and arrogant attitude. As a consequence, Capt. Zentner's attempt
to humiliate Rafael Zulueta had boomeranged against him (Zentner), in the presence of
the other passengers and the crew. It was, also, in their presence that defendant's
agent had referred to the plaintiffs as "monkeys," a racial insult not made openly and
publicly in the abovementioned previous cases against airlines.

In other words, Mr. Zulueta was off-loaded, not to protect the safety of the aircraft and
its passengers, but to retaliate and punish him for the embarrassment and loss of face
thus suffered by defendant's agent. This vindictive motive is made more manifest by the
note delivered to Mr. Zulueta by defendant's airport manager at Wake Island, Mr. Sitton,
stating that the former's stay therein would be "for a minimum of one week," during
which he would be charged $13.30 per day. This reference to a "minimum of one week"
revealed the intention to keep him there stranded that long, for no other plane, headed
for Manila, was expected within said period of time, although Mr. Zulueta managed to
board, days later, a plane that brought him to Hawaii, whence he flew back to the
Philippines, via Japan.

Neither may criminal cases, nor the cases for libel and slander cited in the defendant's
motion for reconsideration, be equated with the present case. Indeed, in ordinary
criminal cases, the award for damages is, in actual practice, of purely academic value,
for the convicts generally belong to the poorest class of society. There is, moreover, a
fundamental difference between said cases and the one at bar. The Zuluetas had a
contract of carriage with the defendant, as a common carrier, pursuant to which the
latter was bound, for a substantial monetary considerationpaid by the former, not merely
to transport them to Manila, but, also, to do so with "extraordinary diligence" or "utmost
diligence."9 The responsibility of the common carrier, under said contract, as regards
the passenger's safety, is of such a nature, affecting as it does public interest, that it
"cannot be dispensed with" or even "lessened by stipulation, by the posting of notices,
by statements on tickets, or otherwise." 10 In the present case, the defendant did not
only fail to comply with its obligation to transport Mr. Zulueta to Manila, but, also, acted

32
in a manner calculated to humiliate him, to chastise him, to make him suffer, to cause to
him the greatest possible inconvenience, by leaving him in a desolate island, in the
expectation that he would be stranded there for a "minimum of one week" and, in
addition thereto, charged therefor $13.30 a day.

It is urged by the defendant that exemplary damages are not recoverable in quasi-
delicts, pursuant to Article 2231 of our Civil Code, except when the defendant has acted
with "gross negligence," and that there is no specific finding that it had so acted. It is
obvious, however, that in off-loading plaintiff at Wake Island, under the circumstances
heretofore adverted to, defendant's agents had acted with malice aforethought and
evident bad faith. If "gross negligence" warrants the award of exemplary damages, with
more reason is its imposition justified when the act performed is deliberate, malicious
and tainted with bad faith. Thus, in Lopez v. PANAM, 11 We held:

The rationale behind exemplary or corrective damages is, as the name


implies, to provide an example or correction for public good. Defendant
having breached its contracts in bad faith, the court, as stated earlier, may
award exemplary damages in addition to moral damages (Articles 2229,
2232, New Civil Code.)

Similarly, in NWA v. Cuenca, 12 this Court declared that an award for exemplary
damages was justified by the fact that the airline's "agent had acted in a wanton,
reckless and oppressive manner" in compelling Cuenca, upon arrival at Okinawa, to
transfer, over his objection, from the first class, where he was accommodated from
Manila to Okinawa, to the tourist class, in his trip to Japan, "under threat of otherwise
leaving him in Okinawa," despite the fact that he had paid in full the first class fare and
was issued in Manila a first class ticket.

Defendant cites Rotea v. Halili, 13 in support of the proposition that a principal is not
liable for exemplary damages owing to acts of his agent unless the former has
participated in said acts or ratified the same. Said case involved, however, the
subsidiary civil liability of an employer arising from criminal acts of his employee, and
"exemplary damages ... may be imposed when the crime was committed with one or
more aggravating circumstances." 14Accordingly, the Rotea case is not in point, for the
case at bar involves a breach of contract, as well as a quasi-delict.

Neither may the case of Palisoc v. Brillantes, 15 invoked by the defendant, be equated
with the case at bar. The Palisoc case dealt with the liability of school officials for
damages arising from the death of a student (Palisoc) due to fist blows given by another
student (Daffon), in the course of a quarrel between them, while in a laboratory room of
the Manila Technical Institute. In an action for damages, the head thereof and the
teacher in charge of said laboratory were held jointly and severally liable with the
student who caused said death, for failure of the school to provide "adequate
supervision over the activities of the students in the school premises," to protect them
"from harm, whether at the hands of fellow students or other parties." Such liability was
predicated upon Article 2180 of our Civil Code, the pertinent part of which reads:

ART. 2180. The obligation imposed by Article 2176 is demandable not


only for one's own acts or omissions, but also for those of persons for
whom one is responsible.

xxx xxx xxx

Lastly, teachers or heads of establishments of arts and trades shall be


liable for damages caused by their pupils and students or apprentices, so
long as they remain in their custody.

33
xxx xxx xxx

Obviously, the amount of damages warded in the Palisoc case is not and cannot serve
as the measure of the damages recoverable in the present case, the latter having been
caused directly and intentionally by an employee or agent of the defendant, whereas the
student who killed the young Palisoc was in no wise an agent of the school. Moreover,
upon her arrival in the Philippines, Mrs. Zulueta reported her husband's predicament to
defendant's local manager and asked him to forthwith have him (Mr. Zulueta) brought to
Manila, which defendant's aforementioned manager refused to do, thereby impliedly
ratifying the off-loading of Mr. Zulueta at Wake Island.

It is next urged that, under the contract of carriage with the defendant, Mr. Zulueta was
bound to be present at the time scheduled for the departure of defendant's plane and
that he had, consequently, violated said contract when he did not show up at such time.
This argument might have had some weight had defendant's plane taken off beforeMr.
Zulueta had shown up. But the fact is that he was ready, willing and able to board the
plane about two hours before it actually took off, and that he was deliberately and
maliciously off-loaded on account of his altercation with Capt. Zentner. It should, also,
be noted that, although Mr. Zulueta was delayed some 20 to 30 minutes, the arrival or
departure of planes is often delayed for much longer periods of time. Followed to its
logical conclusion, the argument adduced by the defense suggests that airlines should
be held liable for damages due to the inconvenience and anxiety, aside from actual
damages, suffered by many passengers either in their haste to arrive at the airport on
scheduled time just to find that their plane will not take off until later, or by reason of the
late arrival of the aircraft at its destination.

PANAM impugns the award of attorney's fees upon the ground that no penalty should
be imposed upon the right to litigate; that, by law, it may be awarded only in exceptional
cases; that the claim for attorney's fees has not been proven; and that said defendant
was justified in resisting plaintiff's claim "because it was patently exorbitant."

Nothing, however, can be farther from the truth. Indeed apart from plaintiff's claim for
actual damages, the amount of which is not contested, plaintiffs did not ask any specific
sum by way of exemplary and moral damages, as well as attorney's fees, and left the
amount thereof to the "sound discretion" of the lower court. This, precisely, is the reason
why PANAM, now, alleges without justification that the lower court had no jurisdiction
over the subject matter of the present case.

Moreover, Article 2208 of our Civil Code expressly authorizes the award of attorney's
fees "when exemplary damages are awarded," as they are in this case as well as
"in any other case where the court deems it just and equitable that attorney's fees ... be
recovered," and We so deem it just and equitable in the present case, considering the
"exceptional" circumstances obtaining therein, particularly the bad faith with which
defendant's agent had acted, the place where and the conditions under which Rafael
Zulueta was left at Wake Island, the absolute refusal of defendant's manager in Manila
to take any step whatsoever to alleviate Mr. Zulueta's predicament at Wake and have
him brought to Manila which, under their contract of carriage, was defendant's
obligation to discharge with "extra-ordinary" or "utmost" diligence and, the "racial"
factor that had, likewise, tainted the decision of defendant's agent, Capt. Zentner, to off-
load him at Wake Island.

As regards the evidence necessary to justify the sum of P75,000 awarded as attorney's
fees in this case, suffice it to say that the quantity and quality of the services rendered
by plaintiffs' counsel appearing on record, apart from the nature of the case and the
amount involved therein, as well as his prestige as one of the most distinguished
members of the legal profession in the Philippines, of which judicial cognizance may be
taken, amply justify said award, which is a little over 10% of the damages (P700,000)

34
collectible by plaintiffs herein. Indeed, the attorney's fees in this case is proportionally
much less than that adjudged in Lopez v. PANAM 16 in which the judgment rendered for
attorney's fees (P50,000) was almost 20% of the damages (P275,000) recovered by the
plaintiffs therein.

The defense assails the last part of the decision sought to be reconsidered, in which
relying upon Article 172 of our Civil Code, which provides that "(t)he wife cannot bind
the conjugal partnership without the husband's consent, except in cases provided by
law," and it is not claimed that this is one of such cases We denied a motion, filed by
Mrs. Zulueta, for the dismissal of this case, insofar as she is concerned - she having
settled all her differences with the defendant, which appears to have paid her the sum of
P50,000 therefor - "without prejudice to this sum being deducted from the award made
in said decision." Defendant now alleges that this is tantamount to holding that said
compromise agreement is both effective and ineffective.

This, of course, is not true. The payment is effective, insofar as it is deductible from the
award, and, because it is due (or part of the amount due) from the defendant, with or
without its compromise agreement with Mrs. Zulueta. What is ineffective is the
compromise agreement, insofar as the conjugal partnership is concerned. Mrs.
Zulueta's motion was for the dismissal of the case insofar as she was concerned, and
the defense cited in support thereof Article 113 of said Code, pursuant to which "(t)he
husband must be joined in all suits by or against the wife except: ... (2) If they have in
fact been separated for at least one year." This provision, We held, however, refers to
suits in which the wife is the principal or real party in interest, not to the case at bar, "in
which the husband is the main party in interest, both as the person principally aggrieved
and as administrator of the conjugal partnership ... he having acted in this capacity in
entering into the contract of carriage with PANAM and paid the amount due to the latter,
under the contract, with funds of the conjugal partnership," to which the amounts
recoverable for breach of said contract, accordingly, belong. The damages suffered by
Mrs. Zulueta were mainly an in accident of the humiliation to which her husband had
been subjected. The Court ordered that said sum of P50,00 paid by PANAM to Mrs.
Zulueta be deducted from the aggregate award in favor of the plaintiffs herein for the
simple reason that upon liquidation of the conjugal partnership, as provided by law, said
amount would have to be reckoned with, either as part of her share in the partnership,
or as part of the support which might have been or may be due to her as wife of Rafael
Zulueta. It would surely be inane to sentence the defendant to pay the P700,000 due to
the plaintiffs and to direct Mrs. Zulueta to return said P50,000 to the defendant.

In this connection, it is noteworthy that, for obvious reasons of public policy, she is not
allowed by law to waive her share in the conjugal partnership, before the dissolution
thereof. 17 She cannot even acquire any property by gratuitous title, without the
husband's consent, except from her ascendants, descendants, parents-in-law, and
collateral relatives within the fourth degree. 18

It is true that the law favors and encourages the settlement of litigations by compromise
agreement between the contending parties, but, it certainly does not favor a settlement
with one of the spouses, both of whom are plaintiffs or defendants in a common cause,
such as the defense of the rights of the conjugal partnership, when the effect, even if
indirect, of the compromise is to jeopardize "the solidarity of the family" which the
law 19 seeks to protect by creating an additional cause for the misunderstanding that
had arisen between such spouses during the litigation, and thus rendering more difficult
a reconciliation between them.

It is urged that there is no proof as to the purpose of the trip of the plaintiffs, that neither
is there any evidence that the money used to pay the plane tickets came from the
conjugal funds and that the award to Mrs. Zulueta was for her personal suffering or
injuries. There was, however, no individual or specific award in favor of Mrs. Zulueta or

35
any of the plaintiffs. The award was made in their favor collectively. Again, in the
absence of said proof, the presumption is that the purpose of the trip was for the
common benefit of the plaintiffs and that the money had come from the conjugal funds,
for, unless there is proof to the contrary, it is presumed "(t)hat things have happened
according to the ordinary course of nature and the ordinary habits of life." 20 In fact
Manresa maintains 21 that they are deemed conjugal, when the source of the money
used therefor is not established, even if the purchase had been made by the
wife. 22 And this is the rule obtaining in the Philippines. Even property registered, under
the Torrens system, in the name of one of the spouses, or in that of the wife only, if
acquired during the marriage, is presumed to belong to the conjugal partnership, unless
there is competent proof to the contrary. 23

PANAM maintains that the damages involved in the case at bar are not among those
forming part of the conjugal partnership pursuant to Article 153 of the Civil Code,
reading:

ART. 153. The following are conjugal partnership property:

(1) That which is acquired by onerous title during the marriage at the
expense of the common fund, whether the acquisition be for the
partnership, or for only one of the spouses;

(2) That which is obtained by the industry, or work, or as salary of the


spouses, or of either of them;

(3) The fruits, rents or interests received or due during the marriage,
coming from the common property or from the exclusive property of each
spouse.

Considering that the damages in question have arisen from, inter alia, a breach of
plaintiffs' contract of carriage with the defendant, for which plaintiffs paid their fare with
funds presumably belonging to the conjugal partnership, We hold that said damages fall
under paragraph (1) of said Article 153, the right thereto having been "acquired
by onerous title during the marriage ... ." This conclusion is bolstered up by Article 148
of our Civil Code, according to which:

ART. 148. The following shall be the exclusive property of each spouse:

(1) That which is brought to the marriage as his or her own;

(2) That which each acquires, during the marriage, by lucrative title;

(3) That which is acquired by right of redemption or by exchange with


other property belonging to only one of the spouses;

(4) That which is purchased with exclusive money of the wife or of the
husband.

The damages involved in the case at bar do not come under any of these provisions or
of the other provisions forming part of Chapter 3, Title VI, of Book I of the Civil Code,
which chapter is entitled "Paraphernal Property." What is more, if "(t)hat which is
acquired by right of redemption or by exchange with other property belonging to only
one of the spouses," and "(t)hat which is purchased with exclusive money of the wife or
of the husband," 24 belong exclusively to such wife or husband, it follows necessarily
that that which is acquired with money of the conjugal partnership belongs thereto or
forms part thereof. The rulings in Maramba v. Lozano 25 and Perez v. Lantin, 26 cited in
defendant's motion for reconsideration, are, in effect, adverse thereto. In both cases, it

36
was merely held that the presumption under Article 160 of our Civil Code to the effect
that all property of the marriage belong to the conjugal partnership does not apply
unless it is shown that it was acquired during marriage. In the present case, the contract
of carriage was concededly entered into, and the damages claimed by the plaintiffs
were incurred, during marriage. Hence, the rights accruing from said contract, including
those resulting from breach thereof by the defendant, are presumed to belong to the
conjugal partnership of Mr. and Mrs. Zulueta. The fact that such breach of contract was
coupled, also, with a quasi-delict constitutes an aggravating circumstance and can not
possibly have the effect of depriving the conjugal partnership of such property rights.

Defendant insists that the use of conjugal funds to redeem property does not make the
property redeemed conjugal if the right of redemption pertained to the wife. In the
absence, however, of proof that such right of redemption pertains to the wife and
there is no proof that the contract of carriage with PANAM or the money paid therefor
belongs to Mrs. Zulueta the property involved, or the rights arising therefrom, must
be presumed, therefore, to form part of the conjugal partnership.

It is true that in Lilius v. Manila Railroad Co., 27 it was held that the "patrimonial and
moral damages" awarded to a young and beautiful woman by reason of a scar in
consequence of an injury resulting from an automobile accident which disfigured her
face and fractured her left leg, as well as caused a permanent deformity, are her
paraphernal property. Defendant cites, also, in support of its contention the following
passage from Colin y Capitant:

No esta resuelta expresamente en la legislacion espaola la cuestion de


si las indemnizaciones debidas por accidentes del trabaho tienen la
consideracion de gananciales, o son bienes particulares de los conyuges.

Inclinan a la solucion de que estas indemnizaciones deben ser


consideradas como gananciales, el hecho de que la sociedad pierde la
capacidad de trabajocon el accidente, que a ella le pertenece, puesto que
de la sociedad son losfrutos de ese trabajo; en cambio, la consideracion
de que igual manera que losbienes que sustituyen a los que cada
conyuge lleva al matrimonio como propiostienen el caracter de propios,
hace pensar que las indemnizaciones que vengana suplir la capacidad de
trabajo aportada por cada conyuge a la sociedad, debenser juridicamente
reputadas como bienes propios del conyuge que haya sufrido elaccidente.
Asi se llega a la misma solucion aportada por la jurisprudencia
francesca. 28

This opinion is, however, undecisive, to say the least. It should be noted that Colin y
Capitant were commenting on the French Civil Code; that their comment referred to
indemnities due in consequence of "accidentes del trabajo "resulting in physical injuries
sustained by one of the spouses (which Mrs. Zulueta has not suffered); and that said
commentators admit that the question whether or not said damages are paraphernal
property or belong to the conjugal partnership is not settled under the Spanish
law. 29 Besides, the French law and jurisprudence to which the comments of Planiol
and Ripert, likewise, refer are inapposite to the question under consideration,
because they differ basically from the Spanish law in the treatment of the property
relations between husband and wife. Indeed, our Civil Code, like the Spanish Civil
Code, favors the system of conjugal partnership of gains. Accordingly, the former
provides that, "(i)n the absence of marriage settlements, or when the same are void, the
system of relative community or conjugal partnership of gains ... shall govern the
property relations between" the spouses. 30Hence, "(a)ll property of the marriage is
presumed to belong to the conjugal partnership, unless it be proved that it pertains
exclusively to the husband or to the wife." 31

37
No similar rules are found in the French Civil Code. What is more, under the provisions
thereof, the conjugal partnership exists only when so stipulated in the "capitulaciones
matrimoniales" or by way of exception. In the language of Manresa

Prescindimos de los preceptos de los Condigos de Francia, Italia,


Holanda, Portugal, Alemania y Suiza, porsue solo excepcionalmente,
o cuando asi se pacta en las capitulaciones, admiten el sistema de
gananciales. 32

Again, Colin y Capitant, as well as the Lilius case, refer to damages recovered
for physical injuries suffered by the wife. In the case at bar, the party mainly injured,
although not physically, is the husband.

Accordingly, the other Philippine cases 33 and those from Louisiana whose civil law is
based upon the French Civil Code cited by the defendant, which similarly refer to
moral damages due to physical injuries suffered by the wife, are, likewise, inapplicable
to the case at bar.

We find, therefore, no plausible reason to disturb the views expressed in Our decision
promulgated on February 29, 1972.

WHEREFORE, the motions for reconsideration above-referred to should be, as they are
hereby denied.

8.

G.R. No. 78656 August 30, 1988

TRANS WORLD AIRLINES, petitioner,


vs.
COURT OF APPEALS and ROGELIO A. VINLUAN, respondents.

Guerrero & Torres Law Offices for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for private respondent.

The Solicitor General for public respondent.

GANCAYCO, J.:

Rogelio A. Vinluan is a practicing lawyer who had to travel in April, 1979 to several cities
in Europe and the U.S. to attend to some matters involving several clients. He entered
into a contract for air carriage for valuable consideration with Japan Airlines first class
from Manila to Tokyo, Moscow, Paris, Hamburg, Zurich, New York, Los Angeles,
Honolulu and back to Manila thru the same airline and other airlines it represents for
which he was issued the corresponding first class tickets for the entire trip.

On April 18, 1979, while in Paris, he went to the office of Trans World Airlines (TWA) at
the De Gaulle Airport and secured therefrom confirmed reservation for first class
accommodation on board its Flight No. 41 from New York to San Francisco which was
scheduled to depart on April 20, 1979. A validated stub was attached to the New York-
Los Angeles portion of his ticket evidencing his confirmed reservation for said flight with
the mark "OK " 1 On April 20, 1979, at about 8:00 o'clock A.M., Vinluan reconfirrred his
reservation for first class accommodation on board TWA Flight No. 41 with its New York
office. He was advised that his reservation was confirmed. He was even requested to
38
indicate his seat preference on said flight on said scheduled date of departure of TWA
Flight No. 41. Vinluan presented his ticket for check-in at the counter of TWA at JFK
International Airport at about 9:45 o'clock A.M., the scheduled time of the departure
being 11:00 o'clock A.M. He was informed that there was no first class seat available for
him on the flight. He asked for an explanation but TWA employees on duty declined to
give any reason. When he began to protest, one of the TWA employees, a certain Mr.
Braam, rudely threatened him with the words "Don't argue with me, I have a very bad
temper."

To be able to keep his schedule, Vinluan was compelled to take the economy seat
offered to him and he was issued a refund application" as he was downgraded from first
class to economy class.

While waiting for the departure of Flight No. 41. Vinluan noticed that other passengers
who were white Caucasians and who had checked-in later than him were given
preference in some first class seats which became available due to "no show"
passengers.

On February 15, 1980, Vinluan filed an action for damages against the TWA in the
Court of First Instance of Rizal alleging breach of contract and bad faith. After trial on
the merits, a decision was rendered the dispositive part of which reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and


against the defendant holding the latter liable to the for-mer for the amount
representing the difference in fare between first class and economy class
accommodations on board Flight No. 6041 from New York to San
Francisco, the amount of P500,000.00 as moral damages, the amount of
P300,000.00 as exemplary damages, and the amount of P100,000.00 as
and for attorney's fees, all such amounts to earn interest at the rate of
twelve (12%) percent per annum from February 15, 1980 when the
complainant was filed until fully paid.

Correspondingly, defendant's counterclaim is dismissed. Costs against the


defendant.

SO ORDERED.

Not satisfied therewith, the TWA appealed to the Court of Appeals wherein in due
course a decision was rendered on May 27, 1987, 2 the dispositive part of which reads
as follows:

WHEREFORE, the decision dated March 8, 1984 is hereby modified by


(1) fixing the interest which appellant must pay on the awards of moral and
exemplary damages at six per cent (6%) per annum from the date of the
decision a quo, March 8, 1984 until date of full payment and (2) reducing
the attorne's fees to P50,000.00 without interest, the rest of the decision is
affirmed. Cost against appellant.

SO ORDERED.

Hence, the herein petition for review.

The theory of the petitioner is that because of maintenance problems of the aircraft on
the day of the flight, TWA Flight No. 41 was cancelled and a special Flight No. 6041
was organized to operate in lieu of Flight No. 41. 3 Flight No. 41 was to have utilized a
Lockheed 1011 with 34 first class seats, but instead, a smaller Boeing 707 with only 16
first class seats was substituted for use in Flight No. 6041. Hence, passengers who had

39
first class reservations on Flight No. 41 had to be accommodated on Flight No. 6041 on
a first-come, first-served basis. An announcement was allegedly made to all passengers
in the entire terminal of the airport advising them to get boarding cards for Flight No.
6041 to San Francisco and that the first ones getting them would get first preference as
to seats in the aircraft. It denied declining to give any explanation for the downgrading of
private respondent as well as the discourteous attitude of Mr. Braam.

On the other hand, private respondent asserts that he did not hear such announcement
at the terminal and that he was among the early passengers to present his ticket for
check-in only to be informed that there was no first class seat available for him and that
he had to be downgraded.

The petitioner contends that the respondent Court of Appeals committed a grave abuse
of discretion in finding that petitioner acted maliciously and discriminatorily, and in
granting excessive moral and exemplary damages and attorney's fees.

The contention is devoid of merit. Private respondent had a first class ticket for Flight
No. 41 of petitioner from New York to San Francisco on April 20, 1979. It was twice
confirmed and yet respondent unceremoniously told him that there was no first class
seat available for him and that he had to be downgraded to the economy class. As he
protested, he was arrogantly threatened by one Mr. Braam. Worst still, while he was
waiting for the flight, he saw that several Caucasians who arrived much later were
accommodated in first class seats when the other passengers did not show up.

The discrimination is obvious and the humiliation to which private respondent was
subjected is undeniable. Consequently, the award of moral and exemplary damages by
the respondent court is in order. 4

Indeed, private respondent had shown that the alleged switch of planes from a
Lockheed 1011 to a smaller Boeing 707 was because there were only 138 confirmed
economy class passengers who could very well be accommodated in the smaller plane
and not because of maintenance problems.

Petitioner sacrificed the comfort of its first class passengers including private
respondent Vinluan for the sake of econonmy. Such inattention and lack of care for the
interest of its passengers who are entitled to its utmost consideration, particularly as to
their convenience, amount to bad faith which entitles the passenger to the award of
moral damages.5 More so in this case where instead of courteously informing private
respondent of his being downgraded under the circumstances, he was angrily rebuffed
by an employee of petitioner.

At the time of this unfortunate incident, the private respondent was a practicing lawyer,
a senior partner of a big law firm in Manila. He was a director of several companies and
was active in civic and social organizations in the Philippines. Considering the
circumstances of this case and the social standing of private respondent in the
community, he is entitled to the award of moral and exemplary damages. However, the
moral damages should be reduced to P300,000.00, and the exemplary damages should
be reduced to P200,000.00. This award should be reasonably sufficient to indemnify
private respondent for the humiliation and embarrassment that he suffered and to serve
as an example to discourage the repetition of similar oppressive and discriminatory
acts.

WHEREFORE, with the above modification reducing the moral and exemplary damages
as above-stated, the decision subject of the petition for review is AFFIRMED in all other
respects, without pronouncement as to costs in this instance.

SO ORDERED.

40
9.

G.R. No. 157917 August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,


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

DECISION

BERSAMIN, J.:

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

The Case

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

Antecedents

The Pereas were engaged in the business of transporting students from their
respective residences in Paraaque City to Don Bosco in Pasong Tamo, Makati City,
and back. In their business, the Pereas used a KIA Ceres Van (van) with Plate No.
PYA 896, which had the capacity to transport 14 students at a time, two of whom would
be seated in the front beside the driver, and the others in the rear, with six students on
either side. They employed Clemente Alfaro (Alfaro) as driver of the van.

In June 1996, the Zarates contracted the Pereas to transport Aaron to and from Don
Bosco. On August 22, 1996, as on previous school days, the van picked Aaron up
around 6:00 a.m. from the Zarates residence. Aaron took his place on the left side of
the van near the rear door. The van, with its air-conditioning unit turned on and the
stereo playing loudly, ultimately carried all the 14 student riders on their way to Don
Bosco. Considering that the students were due at Don Bosco by 7:15 a.m., and that
they were already running late because of the heavy vehicular traffic on the South
Superhighway, Alfaro took the van to an alternate route at about 6:45 a.m. by traversing
the narrow path underneath the Magallanes Interchange that was then commonly used
by Makati-bound vehicles as a short cut into Makati. At the time, the narrow path was
marked by piles of construction materials and parked passenger jeepneys, and the
railroad crossing in the narrow path had no railroad warning signs, or watchmen, or
other responsible persons manning the crossing. In fact, the bamboo barandilla was up,
leaving the railroad crossing open to traversing motorists.

At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302
(train), operated by Jhonny Alano (Alano), was in the vicinity of the Magallanes
Interchange travelling northbound. As the train neared the railroad crossing, Alfaro

41
drove the van eastward across the railroad tracks, closely tailing a large passenger bus.
His view of the oncoming train was blocked because he overtook the passenger bus on
its left side. The train blew its horn to warn motorists of its approach. When the train was
about 50 meters away from the passenger bus and the van, Alano applied the ordinary
brakes of the train. He applied the emergency brakes only when he saw that a collision
was imminent. The passenger bus successfully crossed the railroad tracks, but the van
driven by Alfaro did not. The train hit the rear end of the van, and the impact threw nine
of the 12 students in the rear, including Aaron, out of the van. Aaron landed in the path
of the train, which dragged his body and severed his head, instantaneously killing him.
Alano fled the scene on board the train, and did not wait for the police investigator to
arrive.

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

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

A. FACTS:

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

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

(3) During the effectivity of the contract of carriage and in the


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

(4) At the time of the vehicular/train collision, the subject site of the
vehicular/train collision was a railroad crossing used by motorists for
crossing the railroad tracks;

(5) During the said time of the vehicular/train collision, there were no
appropriate and safety warning signs and railings at the site commonly
used for railroad crossing;

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

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

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

42
(9) PNR received the demand letter of the spouses Zarate;

(10) PNR refused to acknowledge any liability for the vehicular/train


collision;

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

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

B. ISSUES

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

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

(3) Whether or not defendant Philippine National Railways being the


operator of the railroad system is liable for negligence in failing to provide
adequate safety warning signs and railings in the area commonly used by
motorists for railroad crossings, constituting the proximate cause of the
vehicular collision which resulted in the death of the plaintiff spouses' son;

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

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

(6) Whether or not defendants spouses Teodorico and Nanette Perea


observed the diligence of employers and school bus operators;

(7) Whether or not defendant-spouses are civilly liable for the accidental
death of Aaron John Zarate;

(8) Whether or not defendant PNR was grossly negligent in operating the
commuter train involved in the accident, in allowing or tolerating the
motoring public to cross, and its failure to install safety devices or
equipment at the site of the accident for the protection of the public;

(9) Whether or not defendant PNR should be made to reimburse


defendant spouses for any and whatever amount the latter may be held
answerable or which they may be ordered to pay in favor of plaintiffs by
reason of the action;

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

(11) Whether or not defendant PNR is liable to defendants spouses for


actual, moral and exemplary damages and attorney's fees.2

43
The Zarates claim against the Pereas was upon breach of the contract of carriage for
the safe transport of Aaron; but that against PNR was based on quasi-delict under
Article 2176, Civil Code.

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

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

Ruling of the RTC

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

WHEREFORE, premises considered, judgment is hereby rendered in favor of the


plaintiff and against the defendants ordering them to jointly and severally pay the
plaintiffs as follows:

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

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

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

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

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

(6) Attorneys fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.

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

The CAs Ruling

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

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly


and severally liable together with defendant-appellants spouses Teodorico
and Nanette Perea and defendant-appellant Clemente Alfaro to pay
plaintiffs-appellees for the death of Aaron Zarate and damages.

44
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees
witnesses despite overwhelming documentary evidence on record,
supporting the case of defendants-appellants Philippine National
Railways.

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

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

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

The trial court erred in awarding excessive damages and attorneys fees.

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

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

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

SO ORDERED.

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

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

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

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

Issues

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

45
I. The lower court erred when it upheld the trial courts decision holding the petitioners
jointly and severally liable to pay damages with Philippine National Railways and
dismissing their cross-claim against the latter.

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

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

Ruling

The petition has no merit.

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

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

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

We concur with the CA.

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

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

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

A carrier is a person or corporation who undertakes to transport or convey goods or


persons from one place to another, gratuitously or for hire. The carrier is classified
either as a private/special carrier or as a common/public carrier.10 A private carrier is
one who, without making the activity a vocation, or without holding himself or itself out to
the public as ready to act for all who may desire his or its services, undertakes, by
special agreement in a particular instance only, to transport goods or persons from one
place to another either gratuitously or for hire.11 The provisions on ordinary contracts of
the Civil Code govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In contrast, a
common carrier is a person, corporation, firm or association engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for

46
compensation, offering such services to the public.12 Contracts of common carriage are
governed by the provisions on common carriers of the Civil Code, the Public Service
Act,13 and other special laws relating to transportation. A common carrier is required to
observe extraordinary diligence, and is presumed to be at fault or to have acted
negligently in case of the loss of the effects of passengers, or the death or injuries to
passengers.14

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

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

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code
avoided any distinction between a person or an enterprise offering transportation on a
regular or an isolated basis; and has not distinguished a carrier offering his services to
the general public, that is, the general community or population, from one offering his
services only to a narrow segment of the general population.

Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil
Code coincides neatly with the notion of public service under the Public Service Act,
which supplements the law on common carriers found in the Civil Code. Public service,
according to Section 13, paragraph (b) of the Public Service Act, includes:

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

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

As all the foregoing indicate, the true test for a common carrier is not the quantity or
extent of the business actually transacted, or the number and character of the
conveyances used in the activity, but whether the undertaking is a part of the activity
engaged in by the carrier that he has held out to the general public as his business or
occupation. If the undertaking is a single transaction, not a part of the general business
or occupation engaged in, as advertised and held out to the general public, the
individual or the entity rendering such service is a private, not a common, carrier. The
question must be determined by the character of the business actually carried on by the

47
carrier, not by any secret intention or mental reservation it may entertain or assert when
charged with the duties and obligations that the law imposes. 21

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

The common carriers standard of care and vigilance as to the safety of the passengers
is defined by law. Given the nature of the business and for reasons of public policy, the
common carrier is bound "to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case."22 Article 1755 of the Civil Code specifies that the common
carrier should "carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due regard for all
the circumstances." To successfully fend off liability in an action upon the death or injury
to a passenger, the common carrier must prove his or its observance of that
extraordinary diligence; otherwise, the legal presumption that he or it was at fault or
acted negligently would stand.23 No device, whether by stipulation, posting of notices,
statements on tickets, or otherwise, may dispense with or lessen the responsibility of
the common carrier as defined under Article 1755 of the Civil Code. 24

And, secondly, the Pereas have not presented any compelling defense or reason by
which the Court might now reverse the CAs findings on their liability. On the contrary,
an examination of the records shows that the evidence fully supported the findings of
the CA.

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

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

The Pereas were liable for the death of Aaron despite the fact that their driver might
have acted beyond the scope of his authority or even in violation of the orders of the
common carrier.27 In this connection, the records showed their drivers actual
negligence. There was a showing, to begin with, that their driver traversed the railroad
tracks at a point at which the PNR did not permit motorists going into the Makati area to
cross the railroad tracks. Although that point had been used by motorists as a shortcut
into the Makati area, that fact alone did not excuse their driver into taking that route. On

48
the other hand, with his familiarity with that shortcut, their driver was fully aware of the
risks to his passengers but he still disregarded the risks. Compounding his lack of care
was that loud music was playing inside the air-conditioned van at the time of the
accident. The loudness most probably reduced his ability to hear the warning horns of
the oncoming train to allow him to correctly appreciate the lurking dangers on the
railroad tracks. Also, he sought to overtake a passenger bus on the left side as both
vehicles traversed the railroad tracks. In so doing, he lost his view of the train that was
then coming from the opposite side of the passenger bus, leading him to miscalculate
his chances of beating the bus in their race, and of getting clear of the train. As a result,
the bus avoided a collision with the train but the van got slammed at its rear, causing
the fatality. Lastly, he did not slow down or go to a full stop before traversing the railroad
tracks despite knowing that his slackening of speed and going to a full stop were in
observance of the right of way at railroad tracks as defined by the traffic laws and
regulations.28He thereby violated a specific traffic regulation on right of way, by virtue of
which he was immediately presumed to be negligent.29

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

The test by which to determine the existence of negligence in a particular case has
been aptly stated in the leading case of Picart v. Smith,34 thuswise:

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

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

Pursuant to the Picart v. Smith test of negligence, the Pereas driver was entirely
negligent when he traversed the railroad tracks at a point not allowed for a motorists

49
crossing despite being fully aware of the grave harm to be thereby caused to his
passengers; and when he disregarded the foresight of harm to his passengers by
overtaking the bus on the left side as to leave himself blind to the approach of the
oncoming train that he knew was on the opposite side of the bus.

Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate


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

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

2.
Was the indemnity for loss of
Aarons earning capacity proper?

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

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

Yet, the Pereas submit that the indemnity for loss of earning capacity was speculative
and unfounded.1wphi1 They cited People v. Teehankee, Jr.,37 where the Court deleted

50
the indemnity for victim Jussi Leinos loss of earning capacity as a pilot for being
speculative due to his having graduated from high school at the International School in
Manila only two years before the shooting, and was at the time of the shooting only
enrolled in the first semester at the Manila Aero Club to pursue his ambition to become
a professional pilot. That meant, according to the Court, that he was for all intents and
purposes only a high school graduate.

We reject the Pereas submission.

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

And, secondly, the fact that Aaron was then without a history of earnings should not be
taken against his parents and in favor of the defendants whose negligence not only cost
Aaron his life and his right to work and earn money, but also deprived his parents of
their right to his presence and his services as well. Our law itself states that the loss of
the earning capacity of the deceased shall be the liability of the guilty party in favor of
the heirs of the deceased, and shall in every case be assessed and awarded by the
court "unless the deceased on account of permanent physical disability not caused by
the defendant, had no earning capacity at the time of his death." 38 Accordingly, we
emphatically hold in favor of the indemnification for Aarons loss of earning capacity
despite him having been unemployed, because compensation of this nature is awarded
not for loss of time or earnings but for loss of the deceaseds power or ability to earn
money.39

This favorable treatment of the Zarates claim is not unprecedented. In Cariaga v.


Laguna Tayabas Bus Company and Manila Railroad Company,40 fourth-year medical
student Edgardo Carriagas earning capacity, although he survived the accident but his
injuries rendered him permanently incapacitated, was computed to be that of the
physician that he dreamed to become. The Court considered his scholastic record
sufficient to justify the assumption that he could have finished the medical course and
would have passed the medical board examinations in due time, and that he could have
possibly earned a modest income as a medical practitioner. Also, in People v.
Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and murder
victim Allan Gomez could have easily landed good-paying jobs had they graduated in
due time, and that their jobs would probably pay them high monthly salaries from
10,000.00 to 15,000.00 upon their graduation. Their earning capacities were
computed at rates higher than the minimum wage at the time of their deaths due to their
being already senior agriculture students of the University of the Philippines in Los
Baos, the countrys leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

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

The plea is unwarranted.

The moral damages of 2,500,000.00 were really just and reasonable under the
established circumstances of this case because they were intended by the law to

51
assuage the Zarates deep mental anguish over their sons unexpected and violent
death, and their moral shock over the senseless accident. That amount would not be
too much, considering that it would help the Zarates obtain the means, diversions or
amusements that would alleviate their suffering for the loss of their child. At any rate,
reducing the amount as excessive might prove to be an injustice, given the passage of
a long time from when their mental anguish was inflicted on them on August 22, 1996.

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

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

SO ORDERED.

10.

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

F.C. FISHER, plaintiff,


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

Haussermann, Cohn and Fisher for plaintiff.


Office of the Solicitor-General Harvey for respondents.

CARSON, J.:

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

Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco
Steamship Company, the owner of a large number of steam vessels, duly licensed to
engage in the coastwise trade of the Philippine Islands; that on or about June 10, 1912,
the directors of the company adopted a resolution which was thereafter ratified and
affirmed by the shareholders of the company, "expressly declaring and providing that
the classes of merchandise to be carried by the company in its business as a common
carrier do not include dynamite, powder or other explosives, and expressly prohibiting
the officers, agents and servants of the company from offering to carry, accepting for
carriage said dynamite, powder or other explosives;" that thereafter the respondent
52
Acting Collector of Customs demanded and required of the company the acceptance
and carriage of such explosives; that he has refused and suspended the issuance of the
necessary clearance documents of the vessels of the company unless and until the
company consents to accept such explosives for carriage; that plaintiff is advised and
believes that should the company decline to accept such explosives for carriage, the
respondent Attorney-General of the Philippine Islands and the respondent prosecuting
attorney of the city of Manila intend to institute proceedings under the penal provisions
of sections 4, 5, and 6 of Act No. 98 of the Philippine Commission against the company,
its managers, agents and servants, to enforce the requirements of the Acting Collector
of Customs as to the acceptance of such explosives for carriage; that notwithstanding
the demands of the plaintiff stockholder, the manager, agents and servants of the
company decline and refuse to cease the carriage of such explosives, on the ground
that by reason of the severity of the penalties with which they are threatened upon
failure to carry such explosives, they cannot subject themselves to "the ruinous
consequences which would inevitably result" from failure on their part to obey the
demands and requirements of the Acting Collector of Customs as to the acceptance for
carriage of explosives; that plaintiff believes that the Acting Collector of Customs
erroneously construes the provisions of Act No. 98 in holding that they require the
company to accept such explosives for carriage notwithstanding the above mentioned
resolution of the directors and stockholders of the company, and that if the Act does in
fact require the company to carry such explosives it is to that extent unconstitutional and
void; that notwithstanding this belief of complainant as to the true meaning of the Act,
the questions involved cannot be raised by the refusal of the company or its agents to
comply with the demands of the Acting Collector of Customs, without the risk of
irreparable loss and damage resulting from his refusal to facilitate the documentation of
the company's vessels, and without assuming the company to test the questions
involved by refusing to accept such explosives for carriage.

The prayer of the complaint is as follows:

Wherefore your petitioner prays to this honorable court as follows:

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

Second. That a writ of prohibition be issued perpetually enjoining the respondent


J.S. Stanley as Acting Collector of Customs of the Philippine Islands, his
successors, deputies, servants or other representatives, from obligating the said
Yangco Steamship Company, by any means whatever, to carry dynamite,
powder or other explosive substance.

Third. That a writ of prohibition be issued perpetually enjoining the respondent


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

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

53
To this complaint the respondents demurred, and we are of opinion that the demurrer
must be sustained, on the ground that the complaint does not set forth facts sufficient to
constitute a cause of action.

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

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

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

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

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

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


as aforesaid shall, under any pretense whatsoever, fail or refuse to receive for
carriage, and as promptly as it is able to do so without discrimination, to carry
any person or property offering for carriage, and in the order in which such
persons or property are offered for carriage, nor shall any such common carrier
enter into any arrangement, contract or agreement with any other person or
corporation whereby the latter is given an exclusive or preferential or monopolize

54
the carriage any class or kind of property to the exclusion or partial exclusion of
any other person or persons, and the entering into any such arrangement,
contract or agreement, under any form or pretense whatsoever, is hereby
prohibited and declared to be unlawful.

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

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

We may dismiss without extended discussion any argument or contention as to the


invalidity of the statute based on alleged absurdities inherent in its provisions or on
alleged unreasonable or impossible requirements which may be read into it by a
strained construction of its terms.

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

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

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

55
So also we may dismiss without much discussion the contentions as to the invalidity of
the statute, which are based on the alleged excessive severity of the penalties
prescribed for violation of its provisions. Upon general principles it is peculiarly and
exclusively within the province of the legislator to prescribe the pains and penalties
which may be imposed upon persons convicted of violations of the laws in force within
his territorial jurisdiction. With the exercise of his discretion in this regard where it is
alleged that excessive fines or cruel and unusual punishments have been prescribed,
and even in such cases the courts will not presume to interfere in the absence of the
clearest and most convincing argument and proof in support of such contentions.
(Weems vs. United States, 217 U.S., 349; U.S. vs.Pico, 18 Phil. Rep., 386.) We need
hardly add that there is no ground upon which to rest a contention that the penalties
prescribed in the statute under consideration are either excessive or cruel and unusual,
in the sense in which these terms are used in the organic legislation in force in the
Philippine Islands.

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

But when the legislature, in an effort to prevent any inquiry of the validity of a particular
statute, so burdens any challenge thereof in the courts that the party affected is
necessarily constrained to submit rather than take the chances of the penalties
imposed, then it becomes a serious question whether the party is not deprived of the
equal protection of the laws. (Cotting vs. Goddard, 183 U. S., 79, 102.)

It may therefore be said that when the penalties for disobedience are by fines so
enormous and imprisonment so severe as to intimidate the company and its
officers from resorting to the courts to test the validity of the legislation, the result
is the same as if the law in terms prohibited the company from seeking judicial
construction of laws which deeply affect its rights.

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

56
We hold, therefore, that the provisions of the acts relating to the enforcement of
the rates, either for freight or passengers, by imposing such enormous fines and
possible imprisonment as a result of an unsuccessful effort to test the validity of
the laws themselves, are unconstitutional on their face, without regard to the
question of the insufficiency of those rates. (Ex parte Young, 209 U.S., 123 147,
148.)

An examination of the general provisions of our statute, of the circumstances under


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

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

To require of a carrier, as a condition to his continuing in said business, that he


must carry anything and every thing is to render useless the facilities he may
have for the carriage of certain lines of freight. It would be almost as complete a
confiscation of such facilities as if the same were destroyed. Their value as a

57
means of livelihood would be utterly taken away. The law is a prohibition to him
to continue in business; the alternative is to get out or to go into some other
business the same alternative as was offered in the case of the Chicago &
N.W. Ry. vs. Dey (35 Fed. Rep., 866, 880), and which was there commented on
as follows:

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


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

It is manifest, however, that this contention is directed against a construction of the


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

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

58
has publicly professed such a limitation upon his business and held himself out as
unwilling to carry the same for anyone."

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

The nature of the business of a common carrier as a public employment is such that it is
clearly within the power of the state to impose such just and reasonable regulations
thereon in the interest of the public as the legislator may deem proper. Of course such
regulations must not have the effect of depriving an owner of his property without due
process of law, nor of confiscating or appropriating private property without just
compensation, nor of limiting or prescribing irrevocably vested rights or privileges
lawfully acquired under a charter or franchise. But aside from such constitutional
limitations, the determination of the nature and extent of the regulations which should be
prescribed rests in the hands of the legislator.

Common carriers exercise a sort of public office, and have duties to perform in which
the public is interested. Their business is, therefore, affected with a public interest, and
is subject of public regulation. (New Jersey Steam Nav. Co. vs. Merchants Bank, 6
How., 344, 382; Munn vs. Illinois, 94 U.S., 113, 130.) Indeed, this right of regulation is
so far beyond question that it is well settled that the power of the state to exercise
legislative control over railroad companies and other carriers "in all respects necessary
to protect the public against danger, injustice and oppression" may be exercised
through boards of commissioners. (New York etc. R. Co. vs. Bristol, 151 U.S., 556, 571;
Connecticut etc. R. Co. vs. Woodruff, 153 U.S., 689.)

Regulations limiting of passengers the number of passengers that may be carried in a


particular vehicle or steam vessel, or forbidding the loading of a vessel beyond a certain
point, or prescribing the number and qualifications of the personnel in the employ of a
common carrier, or forbidding unjust discrimination as to rates, all tend to limit and
restrict his liberty and to control to some degree the free exercise of his discretion in the
conduct of his business. But since the Granger cases were decided by the Supreme
Court of the United States no one questions the power of the legislator to prescribe
such reasonable regulations upon property clothed with a public interest as he may
deem expedient or necessary to protect the public against danger, injustice or
oppression. (Munn vs. Illinois, 94 U.S., 113, 130; Chicago etc. R. Co. vs. Cutts, 94 U.S.,
155; Budd vs. New York, 143 U.S., 517; Cotting vs. Goddard, 183 U.S., 79.) The right to

59
enter the public employment as a common carrier and to offer one's services to the
public for hire does not carry with it the right to conduct that business as one pleases,
without regard to the interest of the public and free from such reasonable and just
regulations as may be prescribed for the protection of the public from the reckless or
careless indifference of the carrier as to the public welfare and for the prevention of
unjust and unreasonable discrimination of any kind whatsoever in the performance of
the carrier's duties as a servant of the public.

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

Of course this power to regulate is not a power to destroy, and limitation is not the
equivalent of confiscation. Under pretense of regulating fares and freight the state can
not require a railroad corporation to carry persons or property without reward. Nor can it
do that which in law amounts to a taking of private property for public use without just
compensation, or without due process of law. (Chicago etc. R. Co. vs. Minnesota, 134
U.S., 418; Minneapolis Eastern R. Co. vs. Minnesota, 134 U.S., 467.) But the judiciary
ought not to interfere with regulations established and palpably unreasonable as to
make their enforcement equivalent to the taking of property for public use without such
compensation as under all the circumstances is just both to the owner and to the public,
that is, judicial interference should never occur unless the case presents, clearly and
beyond all doubt, such a flagrant attack upon the rights of property under the guise of
regulations as to compel the court to say that the regulation in question will have the
effect to deny just compensation for private property taken for the public use. (Chicago
etc. R. Co. vs. Wellman, 143 U.S., 339; Smyth vs. Ames, 169 U.S., 466, 524;
Henderson Bridge Co. vs. Henderson City, 173 U.S., 592, 614.)

Under the common law of England it was early recognized that common carriers owe to
the public the duty of carrying indifferently for all who may employ them, and in the
order in which application is made, and without discrimination as to terms. True, they
were allowed to restrict their business so as to exclude particular classes of goods, but
as to the kinds of property which the carrier was in the habit of carrying in the
prosecution of his business he was bound to serve all customers alike
(State vs. Cincinnati etc. R. Co., 47 Ohio St., 130, 134, 138; Louisville etc. Ry.
Co. vs. Quezon City Coal Co., 13 Ky. L. Rep., 832); and it is to be observed in passing
that these common law rules are themselves regulations controlling, limiting and
prescribing the conditions under which common carriers were permitted to conduct their
business. (Munn vs. Illinois, 94 U. S., 113, 133.)

It was found, in the course of time, that the correction of abuses which had grown up
with the enormously increasing business of common carriers necessitated the adoption
of statutory regulations controlling the business of common carriers, and imposing
severe and drastic penalties for violations of their terms. In England, the Railway
Clauses Consolidation Act was enacted in 1845, the Railway and Canal Traffic Act in
1854, and since the passage of those Acts much additional legislation has been
adopted tending to limit and control the conduct of their business by common carriers.
In the United States, the business of common carriers has been subjected to a great

60
variety of statutory regulations. Among others Congress enacted "The Interstate
Commerce Act" (1887) and its amendments, and the Elkins Act as amended (1906);
and most if not all of the States of the Union have adopted similar legislation regulating
the business of common carriers within their respective jurisdictions. Unending litigation
has arisen under these statutes and their amendments, but nowhere has the right of the
state to prescribe just and reasonable regulations controlling and limiting the conduct of
the business of common carriers in the public interest and for the general welfare been
successfully challenged, though of course there has been wide divergence of opinion as
to the reasonableness, the validity and legality of many of the regulations actually
adopted.

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

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

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

This of course is, in each case, a question of fact, and we are of the opinion that the
facts alleged in the complaint are not sufficient to sustain a finding in favor of the
contentions of the petitioner. It is not alleged in the complaint that "dynamite, gunpowder
and other explosives" can in no event be transported with reasonable safety on board
steam vessels engaged in the business of common carriers. It is not alleged that all, or

61
indeed any of the defendant steamship company's vessels are unsuited for the carriage
of such explosives. It is not alleged that the nature of the business in which the
steamship company is engaged is such as to preclude a finding that a refusal to accept
such explosives on any of its vessels would subject the traffic in such explosives to an
undue and unreasonable prejudice and discrimination.

Plaintiff's contention in this regard is as follows:

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

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

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

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

62
necessity for the refusal by the carrier to undertake the transportation of this class of
merchandise.

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

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

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

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

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

63
We think, however, that we should not finally dispose of the case without indicating that
since the institution of these proceedings the enactment of Acts No. 2307 and No. 2362
(creating a Board of Public Utility Commissioners and for other purposes) may have
materially modified the right to institute and maintain such proceedings in this
jurisdiction. But the demurrer having been formallly submitted for judgment before the
enactment of these statutes, counsel have not been heard in this connection. We
therefore refrain from any comment upon any questions which might be raised as to
whether or not there may be another adequate and appropriate remedy for the alleged
wrong set forth in the complaint. Our disposition of the question raised by the demurrer
renders that unnecessary at this time, though it may not be improper to observe that a
careful examination of those acts confirms us in the holding upon which we base our
ruling on this demurrer, that is to say "That whatever may have been the rule at the
common law, common carriers in this jurisdiction cannot lawfully decline to accept a
particular class of goods for carriage, to the prejudice of the traffic in those goods,
unless it appears that for some sufficient reason the discrimination against the traffic in
such goods is reasonable and necessary. Mere prejudice or whim will not suffice. The
grounds of the discrimination must be substantial ones, such as will justify the courts in
holding the discrimination to have been reasonable and necessary under all the
circumstances of the case."

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

11. [G.R. No. 131621. September 28, 1999]

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

DECISION
DAVIDE, JR., C.J.:

Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for
review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse
and set aside the following: (a) the 30 January 1997 decision[1] of the Court of Appeals in
CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991[2] of the Regional
Trial Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay
private respondent Manila Insurance Co. (hereafter MIC) the amount of P6,067,178, with
legal interest from the filing of the complaint until fully paid, P8,000 as attorneys fees, and
the costs of the suit; and (b) its resolution of 19 November 1997,[3] denying LOADSTARs
motion for reconsideration of said decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter,
the vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.

64
The goods, amounting to P6,067,178, were insured for the same amount with MIC
against various risks including TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The
vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI)
for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit,
Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result
of the total loss of its shipment, the consignee made a claim with LOADSTAR which,
however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full
settlement of its claim, and the latter executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging
that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its
employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the
loss of the vessel directly to MIC, said amount to be deducted from MICs claim from
LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and
claimed that the sinking of its vessel was due to force majeure. PGAI, on the other hand,
averred that MIC had no cause of action against it, LOADSTAR being the party insured. In
any event, PGAI was later dropped as a party defendant after it paid the insurance
proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting
LOADSTAR to elevate the matter to the Court of Appeals, which, however, agreed with
the trial court and affirmed its decision in toto.
In dismissing LOADSTARs appeal, the appellate court made the following
observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that
there was a single shipper on that fateful voyage. The court noted that the
charter of the vessel was limited to the ship, but LOADSTAR retained control
over its crew.[4]
2) As a common carrier, it is the Code of Commerce, not the Civil Code, which
should be applied in determining the rights and liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the day of the
voyage. If it had been seaworthy, it could have withstood the natural and
inevitable action of the sea on 20 November 1984, when the condition of the
sea was moderate. The vessel sank, not because of force majeure, but
because it was not seaworthy. LOADSTARS allegation that the sinking was
probably due to the convergence of the winds, as stated by a PAGASA expert,
was not duly proven at the trial. The limited liability rule, therefore, is not
applicable considering that, in this case, there was an actual finding of
negligence on the part of the carrier.[5]
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply
because said provisions bind only the shipper/consignee and the
carrier. When MIC paid the shipper for the goods insured, it was subrogated
to the latters rights as against the carrier, LOADSTAR.[6]
5) There was a clear breach of the contract of carriage when the shippers goods
never reached their destination. LOADSTARs defense of diligence of a good
father of a family in the training and selection of its crew is unavailing because
this is not a proper or complete defense in culpa contractual.
6) Art. 361 (of the Code of Commerce) has been judicially construed to mean that
when goods are delivered on board a ship in good order and condition, and
the shipowner delivers them to the shipper in bad order and condition, it then
devolves upon the shipowner to both allege and prove that the goods were
damaged by reason of some fact which legally exempts him from
liability. Transportation of the merchandise at the risk and venture of the

65
shipper means that the latter bears the risk of loss or deterioration of his goods
arising from fortuitous events, force majeure, or the inherent nature and
defects of the goods, but not those caused by the presumed negligence or
fault of the carrier, unless otherwise proved.[7]
The errors assigned by LOADSTAR boil down to a determination of the following
issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier
because it was not issued a certificate of public convenience, it did not have a regular trip
or schedule nor a fixed route, and there was only one shipper, one consignee for a special
cargo.
In refutation, MIC argues that the issue as to the classification of the M/V Cherokee
was not timely raised below; hence, it is barred by estoppel. While it is true that the vessel
had on board only the cargo of wood products for delivery to one consignee, it was also
carrying passengers as part of its regular business. Moreover, the bills of lading in this
case made no mention of any charter party but only a statement that the vessel was a
general cargo carrier.Neither was there any special arrangement between LOADSTAR
and the shipper regarding the shipment of the cargo. The singular fact that the vessel was
carrying a particular type of cargo for one shipper is not sufficient to convert the vessel
into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot
be presumed to have been negligent, and the burden of proving otherwise devolved upon
MIC.[8]
LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage
on 19 November 1984, the vessel was allegedly dry docked at Keppel Philippines
Shipyard and was duly inspected by the maritime safety engineers of the Philippine Coast
Guard, who certified that the ship was fit to undertake a voyage. Its crew at the time was
experienced, licensed and unquestionably competent. With all these precautions, there
could be no other conclusion except that LOADSTAR exercised the diligence of a good
father of a family in ensuring the vessels seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such
loss being due to force majeure. It points out that when the vessel left Nasipit, Agusan
del Norte, on 19 November 1984, the weather was fine until the next day when the vessel
sank due to strong waves. MICs witness, Gracelia Tapel, fully established the existence
of two typhoons, WELFRING and YOLING, inside the Philippine area of responsibility. In
fact, on 20 November 1984, signal no. 1 was declared over Eastern Visayas, which
includes Limasawa Island. Tapel also testified that the convergence of winds brought
about by these two typhoons strengthened wind velocity in the area, naturally producing
strong waves and winds, in turn, causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its
liability, such as what transpired in this case, is valid. Since the cargo was being shipped
at owners risk, LOADSTAR was not liable for any loss or damage to the same. Therefore,
the Court of Appeals erred in holding that the provisions of the bills of lading apply only
to the shipper and the carrier, and not to the insurer of the goods, which conclusion runs
counter to the Supreme Courts ruling in the case of St. Paul Fire & Marine Insurance Co.
v. Macondray & Co., Inc.,[9] and National Union Fire Insurance Company of Pittsburg v.
Stolt-Nielsen Phils., Inc.[10]
Finally, LOADSTAR avers that MICs claim had already prescribed, the case having
been instituted beyond the period stated in the bills of lading for instituting the same suits
based upon claims arising from shortage, damage, or non-delivery of shipment shall be

66
instituted within sixty days from the accrual of the right of action. The vessel sank on 20
November 1984; yet, the case for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the
loss of the cargo was due to force majeure, because the same concurred with
LOADSTARs fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below;
hence, the same must be deemed waived.
Thirdly, the limited liability theory is not applicable in the case at bar because
LOADSTAR was at fault or negligent, and because it failed to maintain a seaworthy
vessel. Authorizing the voyage notwithstanding its knowledge of a typhoon is tantamount
to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not
necessary that the carrier be issued a certificate of public convenience, and this public
character is not altered by the fact that the carriage of the goods in question was periodic,
occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co.
v. American Steamship Agencies, Inc.,[11] where this Court held that a common carrier
transporting special cargo or chartering the vessel to a special person becomes a private
carrier that is not subject to the provisions of the Civil Code. Any stipulation in the charter
party absolving the owner from liability for loss due to the negligence of its agent is void
only if the strict policy governing common carriers is upheld. Such policy has no force
where the public at large is not involved, as in the case of a ship totally chartered for the
use of a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply,
Inc. v. Court of Appeals[12] and National Steel Corp. v. Court of Appeals,[13] both of which
upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for simple
reason that the factual settings are different. The records do not disclose that the M/V
Cherokee, on the date in question, undertook to carry a special cargo or was chartered
to a special person only. There was no charter party. The bills of lading failed to show any
special arrangement, but only a general provision to the effect that the M/V Cherokee was
a general cargo carrier.[14] Further, the bare fact that the vessel was carrying a particular
type of cargo for one shipper, which appears to be purely coincidental, is not reason
enough to convert the vessel from a common to a private carrier, especially where, as in
this case, it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the
definition of a common carrier under Article 1732 of the Civil Code. In the case of De
Guzman v. Court of Appeals,[15] the Court juxtaposed the statutory definition of common
carriers with the peculiar circumstances of that case, viz.:

The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water,
or air for compensation, offering their services to the public.

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

67
who offers services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from making such
distinctions.

xxx

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


carrier even though he merely back-hauled goods for other merchants from Manila to
Pangasinan, although such backhauling was done on a periodic or occasional rather
than regular or scheduled manner, and even though private
respondents principal occupation was not the carriage of goods for others. There is no
dispute that private respondent charged his customers a fee for hauling their goods; that
that fee frequently fell below commercial freight rates is not relevant here.

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

Moving on to the second assigned error, we find that the M/V Cherokee was not
seaworthy when it embarked on its voyage on 19 November 1984. The vessel was not
even sufficiently manned at the time. For a vessel to be seaworthy, it must be adequately
equipped for the voyage and manned with a sufficient number of competent officers and
crew. The failure of a common carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of
the Civil Code.[16]
Neither do we agree with LOADSTARs argument that the limited liability theory
should be applied in this case. The doctrine of limited liability does not apply where there
was negligence on the part of the vessel owner or agent. [17] LOADSTAR was at fault or
negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail
despite knowledge of an approaching typhoon. In any event, it did not sink because of
any storm that may be deemed as force majeure, inasmuch as the wind condition in the
area where it sank was determined to be moderate. Since it was remiss in the
performance of its duties, LOADSTAR cannot hide behind the limited liability doctrine to
escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss
of the goods, in utter disregard of this Courts pronouncements in St. Paul Fire & Marine
Ins. Co. v. Macondray & Co., Inc.,[18] and National Union Fire Insurance v. Stolt-Nielsen
Phils., Inc.[19] It was ruled in these two cases that after paying the claim of the insured for
damages under the insurance policy, the insurer is subrogated merely to the rights of the
assured, that is, it can recover only the amount that may, in turn, be recovered by the
latter. Since the right of the assured in case of loss or damage to the goods is limited or
restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is

68
necessarily subject to the same limitations and restrictions. We do not agree. In the first
place, the cases relied on by LOADSTAR involved a limitation on the carriers liability to
an amount fixed in the bill of lading which the parties may enter into, provided that the
same was freely and fairly agreed upon (Articles 1749-1750). On the other hand, the
stipulation in the case at bar effectively reduces the common carriers liability for the loss
or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745),
that is, the carrier is not liable for any loss or damage to shipments made at owners
risk. Such stipulation is obviously null and void for being contrary to public policy. [20] It has
been said:

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

Since the stipulation in question is null and void, it follows that when MIC paid the shipper,
it was subrogated to all the rights which the latter has against the common carrier,
LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by
prescription. MICs cause of action had not yet prescribed at the time it was
concerned. Inasmuch as neither the Civil Code nor the Code of Commerce states a
specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)
which provides for a one-year period of limitation on claims for loss of, or damage to,
cargoes sustained during transit may be applied suppletorily to the case at bar. This one-
year prescriptive period also applies to the insurer of the good.[22] In this case, the period
for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the
one-year period is null and void;[23] it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30
January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs
against petitioner.
SO ORDERED.

12.

G.R. No. L-25292 November 29, 1969

ZAMBOANGA TRANSPORTATION COMPANY, INC., and ZAMBOANGA RAPIDS


COMPANY, INC., petitioners,
vs.
THE COURT OF APPEALS and JOSE MARIO DAGAMANUEL, represented by
PASCUALA JULIAN DE PUNZALAN, respondents.

Oscar L. Uy for petitioners.


Climaco, Azcarraga and Silang for respondents.

BARREDO, J.:

Appeal by certiorari from the decision of the Court of Appeals in CA-G.R. No. 28297-R,
affirming, with modifications, the decision of the Court of First Instance of Zamboanga
City in its Civil Case No. 574 for breach of contract of carriage wherein herein
petitioners-appellants, along with their driver named Valeriano Marcos, 1 were

69
condemned to pay damages to herein private respondent minor Jose Mario
Dagamanuel, for the deaths of his father and mother while on board a passenger bus
owned (by purchase) and operated by petitioner-appellant Zamboanga Transportation
Co., Inc. but which, at the time of the mishap causing the deaths referred to, was still
registered with the Public Service Commission in the name of petitioner-appellant
Zamboanga Rapids Co., Inc.

The appeal being purely on question of law, We quote the antecedent facts, as set forth
in the pertinent portions of the decision of the Court of Appeals appealed from, as
follows:

In the evening of August 13, 1955, the spouses Ramon and Josefina
Dagamanuel boarded a bus at Manicahan, Zamboanga City, to attend a benefit
dance at the Bunguiao Elementary School, also in Zamboanga City, where
Josefina was a public school teacher. After the dance, the couple boarded the
same bus to return to Manicahan. At around 1 o'clock in the early morning of
August 14, 1955, the bus, with plate 1955 TPU-1137, and driven by Valeriano
Marcos, fell off the road and pinned to death the said spouses and several other
passengers.

The plaintiff, the only child of the deceased spouses, through his maternal
grandmother, as guardian ad-litem, instituted this action against the defendants
Zamboanga Transportation Co., Inc. and the Zamboanga Rapids Co., Inc.
(hereinafter referred to as Zamtranco and Zambraco, respectively) for breach of
contract of carriage, alleging that the accident was due to the fault and
negligence of the driver in operating the bus and due to the negligence of the
defendant companies in their supervision of their driver. The plaintiff asks for
actual or compensatory damages in the sum of P40,000, moral damages in the
sum of P40,000, exemplary damages in the sum of P20,000, attorney's fees in
the sum of P5,000 and costs.

The Zamtranco filed a third-party complaint against the driver Marcos, admitting
that 'it is the owner by purchase of Motor Vehicle with plate number 1955 TPU-
11327 and employer' of said driver, but contending, among others, that the said
driver had no authority to drive the bus, hence, the driver alone should be
adjudged liable. In addition, the said defendant company alleged that with intent
to place his property beyond the reach of the creditors, the driver sold his
property to his brother, hence its additional prayer that the sale executed by the
driver be declared null and void. The Zambraco also filed a third-party complaint
against the driver, admitting that "it is the registered owner of Motor Vehicle with
plate number 1955 TPU-11327 and employer of herein third-party defendant"
(the driver), but also contending, among others, that the accident occurred due
solely to the negligence of the driver for taking out the bus without authority from
it. It also asked for the annulment of the deed of sale made by the driver of his
property.

Answering the complaint, the Zambraco alleges that it is engaged in land


transportation business and that at the time of the accident it was the registered
owner of the ill-fated vehicle. In exculpation, it denies that Marcos was authorized
to operate the vehicle when it met with the accident. In its own answer, the
Zambraco admits that it is also engaged in land transportation business at the
time of the accident, and likewise claims that Marcos had no authority to operate
the vehicle.

Finding that (1) the Zamtranco and the Zambraco were under one management
at the time of the accident; (2) the accident was due to the negligence of the
driver who was under their employ; and (3) the sale made by Marcos of his

70
property was done with intent to defraud his creditors, the trial court rendered
judgment (1) sentencing the three, jointly and severally, to pay the plaintiff
P16,000 for the death of the spouses, P4,000 as exemplary damages, P2,000 as
attorney's fees, and costs; and (2) annulling the deed of sale executed by
Marcos.

All the three defendants appealed. Marcos' appeal was later dismissed; hence as
to him the judgment is already final and executory.

In their joint brief, the two appellant companies allege that the trial court erred in
(1) "deciding the case against the defendant Zamboanga Transportation
Company, Inc., it being the wrong party"; (2) "awarding damages based on an
alleged contract of carriage"; (3) "misquoting the very provision on which it based
its decision, and consequently gave a substantively wrong interpretation of the
same to the detriment of the appellants"; (4) "awarding excessive compensatory
damages to the plaintiffs"; and (5) "awarding exemplary damages."

xxx xxx xxx

With respect to the contract of carriage, the testimony of the principal teacher
Filoteo de los Reyes sufficiently establishes the existence of such contract. The
appellants have not introduced evidence to dispute the fact that De los Reyes
entered into a contract for the bus to make the trip to Bungiao, and that he paid
for it. Neither have they contradicted Marcos' affidavit (exh. C-28) to the effect
that he was authorized by the manager of the Zamtranco to make the trip in
question.

xxx xxx xxx

This being a case of violation of a contract of carriage resulting in death to


passengers, the presumption is that the appellants as carriers have been at fault
or have acted negligently (art. 1756, new Civil Code; Sy vs. Malate Taxicab, L-
8937, Nov. 29, 1957). This presumption can, however, be rebutted by (1) proof of
extraordinary diligence or (2) proof that the accident was due to a fortuitous
event.

With respect to the first possible defense, the appellants have not even as much
as hinted either at the trial or in this appeal that they had exercised the diligence
required of them as carriers. All they did was to deny that the driver was
authorized to operate the vehicle in question. As to the second, we note that only
the driver has interposed fortuitous event below, but as we have already noted,
his appeal has been dismissed, and as to him, the decision a quo had already
become final and executory. Anent his second defense, the appellants have
raised this belatedly, as they did it only on appeal. At all events, the occurrence
of fortuitous event is belied by the report of investigation (exh. C) to the effect
that the driver was under the influence of liquor, and that the bus was running at
a fast clip in spite of the fact that the road was slippery.

xxx xxx xxx

It is undisputed that Josefina was 32 years old it the time she died and a public
school teacher receiving P120 a month or P1,440 a year, with the prospect of
increase in salary. The probabilities that she would live until she reached the
compulsory retirement age of 65 cannot be discounted for there is no evidence
that she was suffering from any sickness. There is likewise no dispute that her
husband Ramon was 27 years old at the time of his death, a farmer by calling
and in good health. All these have been established, and the appellants have not

71
presented rebuttal evidence (t.s.n. 60. id). Allowing him a minimum income of
P120 a month, he was earning at least P1,440 a year. The probabilities of
advancement are also not remote as he was still young.

xxx xxx xxx

. . . . The manner with which the driver operated the vehicle as described in exh.
C, and appellants' absolute lack of precaution in assigning the driver to this
particularly dangerous night trip notwithstanding the driver's record of previous
traffic violations (exh. C-47), are so reprehensible as to call for the imposition of
large exemplary damages to serve as a deterrent to others. To us, the amount of
P5,000 could serve the purpose.

ACCORDINGLY, with the modification that the following damages are hereby
awarded, to wit, (1) P12,000 for the death of the spouses Ramon and Josefina
Dagamanuel, (2) P11,520 for the loss of earnings of both spouses, (3) P5,000 as
moral damages, and (4) P5,000 as exemplary damages, the judgment a quo is
affirmed in all other respects, at defendants-appellants' cost.

In due time petitioners-appellants moved for the reconsideration of the above-quoted


judgment of the Court of Appeals, but the same was denied; hence, this appeal via the
present petition for certiorari.

Petitioners now contend that the Court of Appeals committed the following errors:

I. THE COURT OF APPEALS ERRED, AS A MATTER OF LAW AND


APPLICABLE DECISIONS OF THE SUPREME COURT, IN HOLDING
PETITIONER ZAMTRANCO, THE UNREGISTERED OWNER OF THE ILL-
FATED VEHICLE, JOINTLY AND SEVERALLY LIABLE WITH THE ZAMBRACO,
THE REGISTERED OWNER, AND WITH THE DRIVER THEREOF.

II. THE COURT OF APPEALS ERRED, AS A MATTER OF LAW AND


APPLICABLE DECISIONS OF THE SUPREME COURT, IN (A) AWARDING
EXCESSIVE DAMAGES FOR THE DEATH OF THE PARENTS OF
RESPONDENT DAGAMANUEL; EXCESSIVE COMPENSATORY DAMAGES;
AND EXCESSIVE MORAL DAMAGES TO RESPONDENT, WITHOUT THE
LATTER APPEALING THE DECISION OF THE TRIAL COURT, AND (B) IN
HOLDING PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH THE
DRIVER BY WAY OF EXEMPLARY DAMAGES FOR THE LATTER'S
WRONGFUL ACT.

That the Court of Appeals did not commit the first error assigned by appellants is
obvious. While it is true that according to previous decisions of this Court, transfer of a
certificate of public convenience to operate a transportation service is not effective and
binding insofar as the responsibility of the grantee under the franchise in its relation to
the public is concerned, without the approval of the transfer by the Public Service
Commission required by the Public Service Act,2 and that in contemplation of law, the
transferor of such certificate continues to be the operator of the service as long as the
transfer is not yet approved, and as such operator, he is the one responsible jointly and
severally with his driver for damages incurred by passengers or third persons in
consequence of injuries or deaths resulting from the operation of such service, 3 We do
not find any need for applying these rulings to the present petitioners for the simple
reason that in their respective third-party complaints, as noted by the Court of Appeals,
they both admitted separately that they are the owners of the bus involved in the
incident in question and that Valeriano Marcos, the driver of said bus at the time of said
incident, was in their employ. And there is nothing strange in this because, as found by
said appellate court:

72
There is abundant evidence that although the Zambraco appears to be the
registered owner, Zamtranco was in fact the operator. To start with, there is the
testimony of Filoteo de los Reyes, principal teacher of Josefina, to the effect that
for the trip to and from Bunguiao where the benefit dance was held, he
contracted with Zamtranco at Tetuan (t.s.n. 13-14, Aug. 7, 1956, Cabato); that he
saw in Bunguiao the bus sent by Zamtranco (t.s.n. 33, id.); and that he paid the
fare to the driver of Zamtranco (t.s.n 21 id.). This testimony was never
contradicted by the appellants, either by documentary or testimonial evidence. . .
.

In their own brief in this instance, appellants make these significant admissions:

The facts that TPU Bus No. 11327 which figured in the accident that caused the
death of the spouses Ramon Dagamanuel and Josefina Punzalan was registered
in the name of Zambraco in the year 1955, is not disputed. At that time, the sale
and merger of this Zambraco with the Zamtranco was to be the subject of
application with the Public Service Commission. Pending such approval, the ill-
fated bus was again registered in the name of the Zambraco in the year 1956,
according to the testimony given at the trial by Leonardo Galvez, then Acting
Registrar of the Motor Vehicle Office in Zamboanga.

Indeed, under these circumstances, We cannot find any reason to disagree with Mr.
Justice Fred Ruiz Castro who penned the appealed decision in his ruling to the effect
that:

We do not find any application of the ruling in the foregoing cases to the case at
bar. There, the registered owners invariably sought to pass on liability to the
actual operators on the pretext that they had already sold or transferred their
units to the latter, whereas in the present case, the registered owner, the
Zambraco, admits whatever liability it has and vigorously objects to any finding
that the actual operator, the Zamtranco, is also liable with it, claiming that as
registered owner, it alone should be adjudged liable. We would not inquire into
the motive of the Zambraco why instead of sharing whatever liability it has with
the Zamtranco, it prefers to shoulder it alone. But the fact stands out in bold relief
that although still the registered owner at the time of the accident, it had already
sold the vehicle to Zamtranco and the latter was actually operating it.

It is our view that it is for the better protection of the public that both the owner of
record and the actual operator, as held by us in the past, should be adjudged
jointly and severally liable with the driver (see Dizon vs. Octavio, et al., 51 O.G.
No. 8, 4059-4061; Castanares vs. Pages, CA-G.R. 21809-R, March 8, 1962;
Redado vs. Bautista, CA-G.R. 19295-R, Sept. 19, 1961; Bering vs. Noeth, CA-
G.R. 28483-R, April 29 1965).

The second assignment of error refers to the different items of damages awarded by the
respondent court. Petitioners complain that the same are excessive if not without legal
basis. To a certain extent, petitioners are right.

It may be recalled that the trial court's judgment regarding the matter of damages was
as follows:

1) P8,000.00 for the death of Ramon Dagamanuel;

2) P8,000.00 for the death of Josefina Punzalan;

3) P4,000.00 as exemplary damages;

73
4) P2,000.00 as attorney's fees; and

5) Costs.

From this judgment, only petitioners appealed. Private respondents did not appeal.
Accordingly, petitioners are correct in inviting Our attention thus:

The respondent did not appeal any portion of the decision of the lower Court,
thus indicating that he is fully satisfied with the same. On the other hand, the
driver of the ill-fated bus failed to perfect his appeal and consequently, as against
him, the decision of the lower Court is already final.

The lower Court rendered a decision against the driver of the bus and the two
petitioners herein for the death of the parents of the respondent in the sum of
P16,000.00 together with P4,000.00 exemplary damages. But notwithstanding
the automatic exclusion of the driver from the effects of the appealed decision,
the Court of Appeals, while reducing the death award to P12,000.00 increased
the exemplary damages to P5,000.00 adding thereto P11,520.00 compensatory
damages and P5,000.00 moral damages. We humbly contend that to award
damages when none was allowed by the lower Court, and to increase damages
when the successful party did not appeal, is simply improper and amounts to
pure abuse of discretion on the part of the respondent appellate Court, contrary
to the doctrines laid down by the Honorable Supreme Court in the following
cases, to wit:

"The discretion in fixing moral and exemplary damages primarily lay in the
trial court and the same should be respected. (Coleongco vs. Claparols,
No. L-18616, March 31, 1964; emphasis ours)."

"It is well-settled rule in this jurisdiction that whenever an appeal is taken


in a civil case, an appellee who has not himself appealed cannot obtain
from the appellate court any affirmative relief other than the ones granted
in the decision of the court below. An appellee, who is not appellant, may
assign errors in his brief where his purpose is to maintain the judgment on
other grounds, but he may not do so if his purpose is to have the judgment
modified or reversed, for, in such a case, he must appeal. HERE, THE
RESPONDENT DID NOT APPEAL AND SO IT WAS ERROR FOR THE
COURT OF APPEALS TO AWARD HIM A RELIEF NOT GRANTED BY
THE LOWER COURT. (Dy, et al. vs. Kuison, L-16654, Nov. 30, 1961;
emphasis ours)."

Furthermore, it is respectfully submitted, that a child 3-year old, as the


respondent herein was when his parents died, cannot yet feel the mental anguish
resulting from their death, as to warrant such excessive award of P5,000.00
moral damages. We venture to ask, therefore, what degree of mental torture
could have been possibly endured by a boy of such tender age? We believe that
the measure of moral damages, if any, must be commensurate with the mental
anguish suffered by the heir. (Mercado, et al. vs. Lira, et al., Nos. L-13328-29
and L-13358, Sept. 29, 1961.)

True it is, the awards of P8,000 each for the death of the parents of respondent Jose
Mario Dagamanuel may not be increased anymore, but We cannot say that they should
be reduced. Quite, on the contrary, We consider the judgment of the Court of Appeals in
respect to the matter of damages to be more in accordance with the facts, except
perhaps, as to the item of moral damages, considering the tender age of the above-
named respondent child, and We would have upheld the same had private respondent
appealed from the decision of the trial court.4 Indeed, the Court of Appeals properly

74
interpreted the P16,000 awarded by the trial court as including not only damages for the
deceased couple but also the other items of recoverable damages, like compensatory
or actual, etc. Thus viewed, the amounts awarded by the trial court cannot be
considered excessive.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Appeals is affirmed,
with the modification that as to damages, petitioners are sentenced to pay jointly and
severally no more than the amounts of damages adjudged by the trial court.

No costs in this instance.

13. [G.R. No. 125948. December 29, 1998]

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF


APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas, respondents.

DECISION
MARTINEZ, J.:

This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional
Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed
petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as
amended, to contract, install and operate oil pipelines. The original pipeline concession
was granted in 1967[1] and renewed by the Energy Regulatory Board in 1992.[2]
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of
the Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross receipts
for the fiscal year 1993 pursuant to the Local Government Code.[3] The respondent City
Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable
in four installments based on the gross receipts for products pumped at GPS-1 for the
fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its
operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first
quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:

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

"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.

75
"The imposition and assessment cannot be categorized as a mere fee authorized under
Section 147 of the Local Government Code. The said section limits the imposition of
fees and charges on business to such amounts as may be commensurate to the cost of
regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for
the license fee, the imposition thereof based on gross receipts is violative of the
aforecited provision. The amount of P956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing. The fee is already a
revenue raising measure, and not a mere regulatory imposition." [4]

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.[5]
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint[6] for tax refund with prayer for a writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and
collection of the business tax on its gross receipts violates Section 133 of the Local
Government Code; (2) the authority of cities to impose and collect a tax on the gross
receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does
not include the authority to collect such taxes on transportation contractors for, as defined
under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3)
the City Treasurer illegally and erroneously imposed and collected the said tax, thus
meriting the immediate refund of the tax paid.[7]
Traversing the complaint, the respondents argued that petitioner cannot be exempt
from taxes under Section 133 (j) of the Local Government Code as said exemption applies
only to "transportation contractors and persons engaged in the transportation by hire and
common carriers by air, land and water." Respondents assert that pipelines are not
included in the term "common carrier" which refers solely to ordinary carriers such as
trucks, trains, ships and the like.Respondents further posit that the term "common carrier"
under the said code pertains to the mode or manner by which a product is delivered to its
destination.[8]
On October 3, 1994, the trial court rendered a decision dismissing the complaint,
ruling in this wise:

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

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

"Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387,
(Exhibit A) whose concession was lately renewed by the Energy Regulatory Board
(Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption
upon the plaintiff.

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

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


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

76
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, x x x So,
consistent with this policy even franchise grantees are taxed (Sec.
137) and contractors are also taxed under Sec. 143 (e) and 151 of
the Code."[9]

Petitioner assailed the aforesaid decision before this Court via a petition for
review. On February 27, 1995, we referred the case to the respondent Court of Appeals
for consideration and adjudication.[10] On November 29, 1995, the respondent court
rendered a decision[11] affirming the trial court's dismissal of petitioner's
complaint. Petitioner's motion for reconsideration was denied on July 18, 1996.[12]
Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.[13] Petitioner moved for a reconsideration which was granted by this
Court in a Resolution[14] of January 20, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the exemption
sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the
public as engaged in the business of transporting persons or property from place to place,
for compensation, offering his services to the public generally.
Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation,
firm or association engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to the
public."
The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying goods for others as a public


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

2. He must undertake to carry goods of the kind to which his business is


confined;

3. He must undertake to carry by the method by which his business is


conducted and over his established roads; and

4. The transportation must be for hire.[15]

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

"The above article (Art. 1732, Civil Code) makes no distinction between one whose
principal business activity is the carrying of persons or goods or both, and one who
does such carrying only as an ancillary activity (in local idiom, as a 'sideline'). Article

77
1732 x x x avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the 'general public,' i.e.,
the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that
Article 1877 deliberately refrained from making such distinctions.

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

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

Also, respondent's argument that the term "common carrier" as used in Section 133
(j) of the Local Government Code refers only to common carriers transporting goods and
passengers through moving vehicles or vessels either by land, sea or water, is erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land, water
or air. It does not provide that the transportation of the passengers or goods should be by
motor vehicle. In fact, in the United States, oil pipe line operators are considered common
carriers.[17]
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
considered a "common carrier." Thus, Article 86 thereof provides that:

"Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the
preferential right to utilize installations for the transportation of petroleum owned by him,
but is obligated to utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by others for transport, and to
charge without discrimination such rates as may have been approved by the Secretary
of Agriculture and Natural Resources."

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

"that everything relating to the exploration for and exploitation of petroleum x x and
everything relating to the manufacture, refining, storage, or transportation by special
methods of petroleum, is hereby declared to be a public utility." (Underscoring
Supplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common


carrier." In BIR Ruling No. 069-83, it declared:

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

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

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. -
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following :

xxxxxxxxx

(j) Taxes on the gross receipts of transportation contractors and persons


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

The deliberations conducted in the House of Representatives on the Local


Government Code of 1991 are illuminating:

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

Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec.
131]. Common Limitations on the Taxing Powers of Local Government Units." x x x

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

Still on page 95, subparagraph 5, on taxes on the business of transportation. This


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

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now
Sec. 131), line 16, paragraph 5. It states that local government units may not impose
taxes on the business of transportation, except as otherwise provided in this code.

Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can
see there that provinces have the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent of the gross annual
receipts. So, transportation contractors who are enjoying a franchise would be subject
to tax by the province. That is the exception, Mr. Speaker.

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

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x[18]

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

79
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.

14.

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

HOME INSURANCE COMPANY, plaintiff-appellee,


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

William H. Quasha and Associates for plaintiff-appellee.


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

BENGZON, J.P., J.:

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

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

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

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

80
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon
Stevedoring Corporation, having found the latter to have merely delivered what it
received from the carrier in the same condition and quality, and ordered American
Steamship Agencies to pay plaintiff P14,870.71 with legal interest plus P1,000
attorney's fees. Said court cited the following grounds:

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

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

(c) In case of loss, destruction or deterioration of goods, common carriers are


presumed at fault or negligent under Article 1735 of the Civil Code unless they
prove extraordinary diligence, and they cannot by contract exempt themselves
from liability resulting from their negligence or that of their servants; and

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

Disagreeing with such judgment, American Steamship Agencies appealed directly to


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

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

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

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

Regarding the stipulation, the Court of First Instance declared the contract as contrary
to Article 587 of the Code of Commerce making the ship agent civilly liable for
indemnities suffered by third persons arising from acts or omissions of the captain in the
care of the goods and Article 1744 of the Civil Code under which a stipulation between
the common carrier and the shipper or owner limiting the liability of the former for loss or
destruction of the goods to a degree less than extraordinary diligence is valid provided it

81
be reasonable, just and not contrary to public policy. The release from liability in this
case was held unreasonable and contrary to the public policy on common carriers.

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

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

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

WHEREFORE, the judgment appealed from is hereby reversed and appellant is


absolved from liability to plaintiff. No costs. So ordered.

15.

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

EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,


vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.

CARDINAL SHIPPING CORPORATION, petitioner,


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

GANCAYCO, J.:

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

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


domestic corporation engaged in the land transportation business with PUB service for
passengers and freight and various certificates for public conveniences CPC to operate
passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March
82
27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority
(MARINA) requesting authority to lease/purchase a vessel named M/V "Black Double"
"to be used for its project to operate a ferryboat service from Matnog, Sorsogon and
Allen, Samar that will provide service to company buses and freight trucks that have to
cross San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by
MARINA that it cannot give due course to the request on the basis of the following
observations:

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


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

2. Market conditions in the proposed route cannot support the entry of


additional tonnage; vessel acquisitions intended for operations therein are
necessarily limited to those intended for replacement purposes only. 2

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

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

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

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


convenience is expected to provide efficient, convenient and adequate
service to the riding public. (Hocking Valley Railroad Co. vs. Public Utilities
Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad
Commissioners, 58 SO 543) It is the right of the public which has
accepted the service of a public utility operator to demand that the service
should be conducted with reasonable efficiency. (Almario, supra, citing 73
C.J.S. 990-991) Thus, when the bus company in the case at bar proposes
to add a ferry service to its Pasay Tacloban route, it merely does so in the

83
discharge of its duty under its current certificate of public convenience to
provide adequate and convenient service to its riders. Requiring said bus
company to obtain another certificate to operate such ferry service when it
merely forms a part and constitutes an improvement of its existing
transportation service would simply be duplicitous and superfluous. 7

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

Let the original Certificate of public convenience granted to Pantranco


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

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

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

A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO


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

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


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

C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT


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

84
D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED
RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING
SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN
AFTER THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN
SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE MARITIME
INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A
VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS
ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING
AUTHORIZATION MAY BE GRANTED UNDER BOT MARINA
AGREEMENT OF AUGUST 10, 1976 AND FEBRUARY 26, 1982?

E. DID RESPONDENT BOARD ERR WHEN IT GRANTED


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

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

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

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


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

c. it contravenes the memorandum of agreement between MARINA and


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

e. PANTRANCO is not a private carrier when it operates its ferry service;

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

g. the operation by PANTRANCO of the ferry service cnstitutes undue


competition.

The foregoing considerations constitutes the substantial errors committed


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

Both cases were consolidated and are now admitted for decision.

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

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

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

The ferry boat service of Pantranco is a continuation of the highway


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

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

The term "ferry" implied the continuation by means of boats, barges, or


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

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

86
A "ferry" has been defined by many courts as "a public highway or
thoroughfare across a stream of water or river by boat instead of a bridge."
(St. Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454,
48 L. ed. 518; etc.)

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

"Ferry" is service necessity for common good to reach point across a


stream lagoon, lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4
Supp. 851,853)'

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

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

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

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

We are not unmindful of the reasons adduced by the Commission in


considering the motorboat service between Calapan and Batangas as
ferry; but from our consideration of the law as it stands, particularly
Commonwealth Act No. 146, known as the Public Service Act and the
provisions of the Revised Administrative Code regarding municipal ferries
and those regarding the jurisdiction of the Bureau of Customs over
documentation, registration, licensing, inspection, etc. of steamboats,
motorboats or motor vessels, and the definition of ferry as above quoted
we have the impression and we are inclined to believe that the Legislature
intended ferry to mean the service either by barges or rafts, even by motor
or steam vessels, between the banks of a river or stream to continue the
highway which is interrupted by the body of water, or in some cases to
connect two points on opposite shores of an arm of the sea such as bay or
lake which does not involve too great a distance or too long a time to
navigate But where the line or service involves crossing the open sea like

87
the body of water between the province of Batangas and the island of
Mindoro which the oppositors describe thus "the intervening waters
between Calapan and Batangas are wide and dangerous with big waves
where small boat barge, or raft are not adapted to the service," then it is
more reasonable to regard said line or service as more properly belonging
to interisland or coastwise trade. According to the finding of the
Commission itself the distance between Calapan is about 24 nautical
miles or about 44.5 kilometers. We do not believe that this is the short
distance contemplated by the Legislature in referring to ferries whether
within the jurisdiction of a single municipality or ferries between two
municipalities or provinces. If we are to grant that water transportation
between Calapan and Batangas is ferry service, then there would be no
reason for not considering the same service between the different islands
of the Philippines, such as Boac Marinduque and Batangas; Roxas City of
Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar
and Surigao, Surigao; and Dumaguete, Negros Oriental and Oroquieta or
Cagayan de Oro.

The Commission makes the distinction between ferry service and


motorship in the coastwise trade, thus:

A ferry service is distinguished from a motorship or motorboat service


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

We cannot agree. The definiteness of the route of a boat is not the


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

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

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

88
Considering the environmental circumstances of the case, the conveyance of
passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat service
but a coastwise or interisland shipping service. Under no circumstance can the sea
between Matnog and Allen be considered a continuation of the highway. While a ferry
boat service has been considered as a continuation of the highway when crossing rivers
or even lakes, which are small body of waters - separating the land, however, when as
in this case the two terminals, Matnog and Allen are separated by an open sea it can
not be considered as a continuation of the highway. Respondent PANTRANCO should
secure a separate CPC for the operation of an interisland or coastwise shipping service
in accordance with the provisions of law. Its CPC as a bus transportation cannot be
merely amended to include this water service under the guise that it is a mere private
ferry service.

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

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

Thus the Court holds that the water transport service between Matnog and Allen is not a
ferry boat service but a coastwise or interisland shipping service. Before private
respondent may be issued a franchise or CPC for the operation of the said service as a
common carrier, it must comply with the usual requirements of filing an application,
payment of the fees, publication, adducing evidence at a hearing and affording the
oppositors the opportunity to be heard, among others, as provided by law. 28

WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent
Board of Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its

89
Order of July 21, 1982 in the same case denying the motions for reconsideration filed by
petitioners are hereby Reversed and set aside and declared null and void. Respondent
PANTRANCO is hereby permanently enjoined from operating the ferryboat service
and/or coastwise/interisland services between Matnog and Allen until it shall have
secured the appropriate Certificate of Public Convenience (CPC) in accordance with the
requirements of the law, with costs against respondent PANTRANCO.

SO ORDERED.

16. [G.R. No. 112287. December 12, 1997]

NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND


VLASONS SHIPPING, INC., respondents.

[G.R. No. 112350. December 12, 1997]

VLASONS SHIPPING, INC., petitioner, vs. COURT OF APPEALS AND NATIONAL


STEEL CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

The Court finds occasion to apply the rules on the seaworthiness of a private carrier,
its owners responsibility for damage to the cargo and its liability for demurrage and
attorneys fees. The Court also reiterates the well-known rule that findings of facts of trial
courts, when affirmed by the Court of Appeals, are binding on this Court.

The Case

Before us are two separate petitions for review filed by National Steel Corporation
(NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993
Decision of the Court of Appeals. [1] The Court of Appeals modified the decision of the
Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. The
RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of defendant and against the


plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay
the defendant on the counterclaim as follows:

1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with


interest at the legal rate on both amounts from April 7, 1976 until the same
shall have been fully paid;
2. Attorneys fees and expenses of litigation in the sum of P100,000.00; and
3. Cost of suit.

90
SO ORDERED. [2]

On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the decision appealed from is modified by


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

SO ORDERED. [3]

The Facts

The MV Vlasons I is a vessel which renders tramping service and, as such, does not
transport cargo or shipment for the general public. Its services are available only to
specific persons who enter into a special contract of charter party with its owner. It is
undisputed that the ship is a private carrier. And it is in this capacity that its owner,
Vlasons Shipping, Inc., entered into a contract of affreightment or contract of voyage
charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:

(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and
defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage
Charter Hire (Exhibit B; also Exhibit 1) whereby NSC hired VSIs vessel, the MV
VLASONS I to make one (1) voyage to load steel products at Iligan City and discharge
them at North Harbor, Manila, under the following terms and conditions, viz:

1. x x x x x x.

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

3. x x x x x x

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. x x x x x x

9. Cargo Insurance: Charterers and/or Shippers 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.

xxxxxxxxx

91
The terms F.I.O.S.T. which is used in the shipping business is a standard provision in
the NANYOZAI Charter Party which stands for Freight In and Out including Stevedoring
and Trading, which means that the handling, loading and unloading of the cargoes are
the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party,
it states, Charterers to load, stow and discharge the cargo free of risk and expenses to
owners. x x x (Underscoring supplied).

Under paragraph 10 thereof, it is provided that (o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the holds and all other parts of
the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the cargo arising or
resulting from: unseaworthiness unless caused by want of due diligence on the part of
the owners to make the vessel seaworthy, and to secure that the vessel is properly
manned, equipped and supplied and to make the holds and all other parts of the vessel
in which cargo is carried, fit and safe for its reception, carriage and preservation; xxx;
perils, dangers and accidents of the sea or other navigable waters; xxx; wastage in bulk
or weight or any other loss or damage arising from inherent defect, quality or vice of the
cargo; insufficiency of packing; xxx; latent defects not discoverable by due diligence;
any other cause arising without the actual fault or privity of Owners or without the fault
of the agents or servants of owners.

Paragraph 12 of said NANYOZAI Charter Party also provides that (o)wners shall not be
responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master and crew.

(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter
Hire, the MV VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of
1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769
packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The
shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando,
acting as agent of the vessel[,] acknowledged receipt of the cargo on board and signed
the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit D) on August 8, 1974.

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

(4) To determine the nature and extent of the wetting and rusting, NSC called for a
survey of the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a
letter to the NSC dated March 17, 1975 (Exhibit G), MASCO made a report of its ocular
inspection conducted on the cargo, both while it was still on board the vessel and later
at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and
stored. MASCO reported that it found wetting and rusting of the packages of hot rolled
sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at
various extents; that container/metal casings of the skids were rusting all over. MASCO
ventured the opinion that rusting of the tinplates was caused by contact with SEA
WATER sustained while still on board the vessel as a consequence of the heavy
weather and rough seas encountered while en route to destination (Exhibit F). It was
also reported that MASCOs surveyors drew at random samples of bad order packing
materials of the tinplates and delivered the same to the M.I.T. Testing Laboratories for
analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770

92
(Exhibit I) which in part, states, The analysis of bad order samples of packing materials
xxx shows that wetting was caused by contact with SEA WATER.

(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed
with the defendant its claim for damages suffered due to the downgrading of the
damaged tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff
formally demanded payment of said claim but defendant VSI refused and failed to
pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was docketed
as Civil Case No. 23317, CFI, Rizal.

(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount
of P941,145.18 as a result of the act, neglect and default of the master and crew in the
management of the vessel as well as the want of due diligence on the part of the
defendant to make the vessel seaworthy and to make the holds and all other parts of
the vessel in which the cargo was carried, fit and safe for its reception, carriage and
preservation -- all in violation of defendants undertaking under their Contract of Voyage
Charter Hire.

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

(a) That despite the full and proper performance by defendant of its obligations under
the Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter
hire of P75,000.00 despite demands made by defendant;

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

(c) For filing a clearly unfounded civil action against defendant, plaintiff should be
ordered to pay defendant attorneys fees and all expenses of litigation in the amount of
not less than P100,000.00.

93
(8) From the evidence presented by both parties, the trial court came out with the
following findings which were set forth in its decision:

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


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

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

(c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of
Voyage Charter Hire, the MV VLASONS I underwent drydocking in Cebu and was
thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the
vessels first voyage after the drydocking. The evidence shows that the MV VLASONS I
was seaworthy and properly manned, equipped and supplied when it undertook the
voyage. It had all the required certificates of seaworthiness.

(d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch
openings were covered by hatchboards which were in turn covered by two or double
tarpaulins. The hatch covers were water tight. Furthermore, under the hatchboards were
steel beams to give support.

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

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

94
(g) It was also established that the vessel encountered rough seas and bad weather
while en route from Iligan City to Manila causing sea water to splash on the ships deck
on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a Marine
Protest on August 13, 1974 (Exh. 15) which can be invoked by defendant as a force
majeure that would exempt the defendant from liability.

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

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

Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV VLASONS I was seaworthy, properly manned,
equipped and supplied, and that there is no proof of willful negligence of the vessels
officers.
II
The trial court erred in finding that the rusting of NSCs tinplates was due to the inherent
nature or character of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in the
unloading of NSCs shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorneys fees, to
VSI.[4]
As earlier stated, the Court of Appeals modified the decision of the trial court by
reducing the demurrage from P88,000.00 to P44,000.00 and deleting the award of
attorneys fees and expenses of litigation.NSC and VSI filed separate motions for
reconsideration. In a Resolution[5] dated October 20, 1993, the appellate court denied
both motions. Undaunted, NSC and VSI filed their respective petitions for review before
this Court. On motion of VSI, the Court ordered on February 14, 1994 the consolidation
of these petitions.[6]

95
The Issues

In its petition[7] and memorandum,[8] NSC raises the following questions of law and
fact:

Questions of Law

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


unloading delays caused by weather interruption;
2. Whether or not the alleged seaworthiness certificates (Exhibits 3, 4, 5, 6, 7, 8,
9, 11 and 12) were admissible in evidence and constituted evidence of the
vessels seaworthiness at the beginning of the voyages; and
3. Whether or not a charterers failure to insure its cargo exempts the shipowner
from liability for cargo damage.

Questions of Fact

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


2. Whether or not vessels officers and crew were negligent in handling and caring
for NSCs cargo;
3. Whether or not NSCs cargo of tinplates did sweat during the voyage and,
hence, rusted on their own; and
(4) Whether or not NSCs stevedores were negligent and caused the
wetting[/]rusting of NSCs tinplates.
In its separate petition, [9] VSI submits for the consideration of this Court the following
alleged errors of the CA:

A. The respondent Court of Appeals committed an error of law in reducing the award of
demurrage from P88,000.00 to P44,000.00.

B. The respondent Court of Appeals committed an error of law in deleting the award
of P100,000 for attorneys fees and expenses of litigation.

Amplifying the foregoing, VSI raises the following issues in its memorandum: [10]

I. Whether or not the provisions of the Civil Code of the Philippines on common carriers
pursuant to which there exist[s] a presumption of negligence against the common
carrier in case of loss or damage to the cargo are applicable to a private carrier.

II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire,
including the Nanyozai Charter, are valid and binding on both contracting parties.

The foregoing issues raised by the parties will be discussed under the following
headings:
1. Questions of Fact
2. Effect of NSCs Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorneys Fees.

96
The Courts Ruling

The Court affirms the assailed Decision of the Court of Appeals, except in respect of
the demurrage.

Preliminary Matter: Common Carrier or Private Carrier?

At the outset, it is essential to establish whether VSI contracted with NSC as a


common carrier or as a private carrier. The resolution of this preliminary question
determines the law, standard of diligence and burden of proof applicable to the present
case.
Article 1732 of the Civil Code defines a common carrier as persons, corporations,
firms or associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering their services to the
public. It has been held that the true test of a common carrier is the carriage of passengers
or goods, provided it has space, for all who opt to avail themselves of its transportation
service for a fee. [11] A carrier which does not qualify under the above test is deemed a
private carrier. Generally, private carriage is undertaken by special agreement and the
carrier does not hold himself out to carry goods for the general public. The most typical,
although not the only form of private carriage, is the charter party, a maritime contract by
which the charterer, a party other than the shipowner, obtains the use and service of all
or some part of a ship for a period of time or a voyage or voyages. [12]
In the instant case, it is undisputed that VSI did not offer its services to the general
public. As found by the Regional Trial Court, it carried passengers or goods only for those
it chose under a special contract of charter party. [13] As correctly concluded by the Court
of Appeals, the MV Vlasons I was not a common but a private carrier. [14] Consequently,
the rights and obligations of VSI and NSC, including their respective liability for damage
to the cargo, are determined primarily by stipulations in their contract of private carriage
or charter party. [15] Recently, in Valenzuela Hardwood and Industrial Supply,
Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, [16] the Court ruled:

x x x in a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve the general public. Hence, the
stringent provisions of the Civil Code on common carriers protecting the general public
cannot justifiably be applied to a ship transporting commercial goods as a private
carrier. Consequently, the public policy embodied therein is not contravened by
stipulations in a charter party that lessen or remove the protection given by law in
contracts involving common carriers.[17]

Extent of VSIs Responsibility and Liability Over NSCs Cargo

It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that
VSI shall not be responsible for losses except on proven willful negligence of the officers
of the vessel. The NANYOZAI Charter Party, which was incorporated in the parties
contract of transportation, further provided that the shipowner shall not be liable for loss
of or damage to the cargo arising or resulting from unseaworthiness, unless the same
was caused by its lack of due diligence to make the vessel seaworthy or to ensure that
the same was properly manned, equipped and supplied, and to make the holds and all
other parts of the vessel in which cargo [was] carried, fit and safe for its reception, carriage
and preservation. [18] The NANYOZAI Charter Party also provided that [o]wners shall not

97
be responsible for split, chafing and/or any damage unless caused by the negligence or
default of the master or crew.[19]

Burden of Proof

In view of the aforementioned contractual stipulations, NSC must prove that the
damage to its shipment was caused by VSIs willful negligence or failure to exercise due
diligence in making MV Vlasons Iseaworthy and fit for holding, carrying and safekeeping
the cargo. Ineluctably, the burden of proof was placed on NSC by the parties agreement.
This view finds further support in the Code of Commerce which pertinently provides:

Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated.

Therefore, the damage and impairment suffered by the goods during the transportation,
due to fortuitous event, force majeure, or the nature and inherent defect of the things,
shall be for the account and risk of the shipper.

The burden of proof of these accidents is on the carrier.

Art. 362. The carrier, however, shall be liable for damages arising from the cause
mentioned in the preceding article if proofs against him show that they occurred on
account of his negligence or his omission to take the precautions usually adopted by
careful persons, unless the shipper committed fraud in the bill of lading, making him to
believe that the goods were of a class or quality different from what they really were.

Because the MV Vlasons I was a private carrier, the shipowners obligations are
governed by the foregoing provisions of the Code of Commerce and not by the Civil Code
which, as a general rule, places the prima facie presumption of negligence on a common
carrier. It is a hornbook doctrine that:

In an action against a private carrier for loss of, or injury to, cargo, the burden is on the
plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the
goods were lost or damaged while in the carriers custody does not put the burden of
proof on the carrier.

Since x x x a private carrier is not an insurer but undertakes only to exercise due care in
the protection of the goods committed to its care, the burden of proving negligence or a
breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo while in
the carriers possession does not cast on it the burden of proving proper care and
diligence on its part or that the loss occurred from an excepted cause in the contract or
bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the
benefit of the presumptions and inferences by which the law aids the bailor in an action
against a bailee, and since the carrier is in a better position to know the cause of the
loss and that it was not one involving its liability, the law requires that it come forward
with the information available to it, and its failure to do so warrants an inference or
presumption of its liability. However, such inferences and presumptions, while they may
affect the burden of coming forward with evidence, do not alter the burden of proof
which remains on plaintiff, and, where the carrier comes forward with evidence
explaining the loss or damage, the burden of going forward with the evidence is again
on plaintiff.

Where the action is based on the shipowners 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 carriers
98
possession does not cast on it the burden of proving seaworthiness. x x x Where the
contract of carriage exempts the carrier from liability for unseaworthiness not
discoverable by due diligence, the carrier has the preliminary burden of proving the
exercise of due diligence to make the vessel seaworthy. [20]

In the instant case, the Court of Appeals correctly found that NSC has not taken the
correct position in relation to the question of who has the burden of proof. Thus, in its brief
(pp. 10-11), after citing Clause 10 and Clause 12 of the NANYOZAI Charter Party
(incidentally plaintiff-appellants [NSCs] interpretation of Clause 12 is not even correct), it
argues that a careful examination of the evidence will show that VSI miserably failed to
comply with any of these obligations as if defendant-appellee [VSI] had the burden of
proof.[21]

First Issue: Questions of Fact

Based on the foregoing, the determination of the following factual questions is


manifestly relevant: (1) whether VSI exercised due diligence in making MV Vlasons
I seaworthy for the intended purpose under the charter party; (2) whether the damage to
the cargo should be attributed to the willful negligence of the officers and crew of the
vessel or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates was
caused by its own sweat or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had
the firsthand opportunity to hear the parties conflicting claims and to carefully weigh their
respective evidence. The findings of the trial court were subsequently affirmed by the
Court of Appeals. Where the factual findings of both the trial court and the Court of
Appeals coincide, the same are binding on this Court. [22] We stress that, subject to some
exceptional instances, [23] only questions of law -- not questions of fact -- may be raised
before this Court in a petition for review under Rule 45 of the Rules of Court. After a
thorough review of the case at bar, we find no reason to disturb the lower courts factual
findings, as indeed NSC has not successfully proven the application of any of the
aforecited exceptions.

Was MV Vlasons I Seaworthy?

In any event, the records reveal that VSI exercised due diligence to make the ship
seaworthy and fit for the carriage of NSCs cargo of steel and tinplates. This is shown by
the fact that it was drydocked and inspected by the Philippine Coast Guard before it
proceeded to Iligan City for its voyage to Manila under the contract of voyage charter
hire. [24] The vessels voyage from Iligan to Manila was the vessels first voyage after
drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted
and equipped; it met all requirements for trading as cargo vessel. [25] The Court of
Appeals itself sustained the conclusion of the trial court that MV Vlasons I was
seaworthy. We find no reason to modify or reverse this finding of both the trial and the
appellate courts.

Who Were Negligent: Seamen or Stevedores?

As noted earlier, the NSC had the burden of proving that the damage to the cargo
was caused by the negligence of the officers and the crew of MV Vlasons I in making their
vessel seaworthy and fit for the carriage of tinplates. NSC failed to discharge this burden.

99
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn
tarpaulin or canvas to cover the hatches through which the cargo was loaded into the
cargo hold of the ship. It faults the Court of Appeals for failing to consider such claim as
an uncontroverted fact [26] and denies that MV Vlasons I was equipped with new canvas
covers in tandem with the old ones as indicated in the Marine Protest xxx. [27] We
disagree.
The records sufficiently support VSIs contention that the ship used the old
tarpaulin, only in addition to the new one used primarily to make the ships 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 ships boatswain, Jose
Pascua. The salient portions of said marine protest read:

x x x That the M/V VLASONS I departed Iligan City or or about 0730 hours of August 8,
1974, loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to
National Steel Corporation; that before departure, the vessel was rigged, fully equipped
and cleared by the authorities; that on or about August 9, 1974, while in the vicinity of
the western part of Negros and Panay, we encountered very rough seas and strong
winds and Manila office was advised by telegram of the adverse weather conditions
encountered; that in the morning of August 10, 1974, the weather condition changed to
worse and strong winds and big waves continued pounding the vessel at her port side
causing sea water to overflow on deck andhatch (sic) covers and which caused the first
layer of the canvass covering to give way while the new canvass covering still holding
on;

That the weather condition improved when we reached Dumali Point protected by
Mindoro; that we re-secured the canvass covering back to position; that in the afternoon
of August 10, 1974, while entering Maricaban Passage, we were again exposed to
moderate seas and heavy rains; that while approaching Fortune Island, we encountered
again rough seas, strong winds and big waves which caused the same canvass to give
way and leaving the new canvass holding on;

xxx xxx xxx [28]


And the relevant portions of Jose Pascuas deposition are as follows:
Q: What is the purpose of the canvas cover?
A: So that the cargo would not be soaked with water.
A: And will you describe how the canvas cover was secured on the hatch
opening?
WITNESS
A: It was placed flat on top of the hatch cover, with a little canvas flowing over the
sides and we place[d] a flat bar over the canvas on the side of the hatches
and then we place[d] a stopper so that the canvas could not be removed.
ATTY DEL ROSARIO
Q: And will you tell us the size of the hatch opening? The length and the width of
the hatch opening.
A: Forty-five feet by thirty-five feet, sir.
xxxxxxxxx
Q: How was the canvas supported in the middle of the hatch opening?
A: There is a hatch board.
ATTY DEL ROSARIO

100
Q: What is the hatch board made of?
A: It is made of wood, with a handle.
Q: And aside from the hatch board, is there any other material there to cover the
hatch?
A: There is a beam supporting the hatch board.
Q: What is this beam made of?
A: It is made of steel, sir.
Q: Is the beam that was placed in the hatch opening covering the whole hatch
opening?
A: No, sir.
Q: How many hatch beams were there placed across the opening?
A: There are five beams in one hatch opening.
ATTY DEL ROSARIO
Q: And on top of the beams you said there is a hatch board. How many pieces of
wood are put on top?
A: Plenty, sir, because there are several pieces on top of the hatch beam.
Q: And is there a space between the hatch boards?
A: There is none, sir.
Q: They are tight together?
A: Yes, sir.
Q: How tight?
A: Very tight, sir.
Q: Now, on top of the hatch boards, according to you, is the canvas cover. How
many canvas covers?
A: Two, sir. [29]
That due diligence was exercised by the officers and the crew of the MV Vlasons
I was further demonstrated by the fact that, despite encountering rough weather twice,
the new tarpaulin did not give way and the ships hatches and cargo holds remained
waterproof. As aptly stated by the Court of Appeals, xxx we find no reason not to sustain
the conclusion of the lower court based on overwhelming evidence, that the MV
VLASONS I was seaworthy when it undertook the voyage on August 8, 1974 carrying on
board thereof plaintiff-appellants shipment of 1,677 skids of tinplates and 92 packages of
hot rolled sheets or a total of 1,769 packages from NSCs pier in Iligan City arriving safely
at North Harbor, Port Area, Manila, on August 12, 1974; xxx. [30]
Indeed, NSC failed to discharge its burden to show negligence on the part of the
officers and the crew of MV Vlasons I. On the contrary, the records reveal that it was the
stevedores of NSC who were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong
rains occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-
like covering, however, was clearly inadequate for keeping rain and seawater away from
the hatches of the ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q: Now, during your testimony on November 5, 1979, you stated on August 14
you went on board the vessel upon notice from the National Steel Corporation

101
in order to conduct the inspection of the cargo. During the course of the
investigation, did you chance to see the discharging operation?
WITNESS:
A: Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already
discharged on the pier but majority of the tinplates were inside the hall, all the
hatches were opened.
Q: In connection with these cargoes which were unloaded, where is the place.
A: At the Pier.
Q: What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This particular matter .
. . the transcript of stenographic notes shows the same was covered in the
direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious part of the
testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q: What was used in order to protect the cargo from the weather?
A: A base of canvas was used as cover on top of the tin plates, and tents were
built at the opening of the hatches.
Q: You also stated that the hatches were already opened and that there were
tents constructed at the opening of the hatches to protect the cargo from the
rain. Now, will you describe [to] the Court the tents constructed.
A: The tents are just a base of canvas which look like a tent of an Indian camp
raise[d] high at the middle with the whole side separated down to the hatch,
the size of the hatch and it is soaks [sic] at the middle because of those
weather and this can be used only to temporarily protect the cargo from
getting wet by rains.
Q: Now, is this procedure adopted by the stevedores of covering tents proper?
A: No, sir, at the time they were discharging the cargo, there was a typhoon
passing by and the hatch tent was not good enough to hold all of it to prevent
the water soaking through the canvas and enter the cargo.
Q: In the course of your inspection, Mr. Anglingto [sic], did you see in fact the
water enter and soak into the canvas and tinplates.
A: Yes, sir, the second time I went there, I saw it.
Q: As owner of the vessel, did you not advise the National Steel Corporation [of]
the procedure adopted by its stevedores in discharging the cargo particularly
in this tent covering of the hatches?
A: Yes, sir, I did the first time I saw it, I called the attention of the stevedores but
the stevedores did not mind at all, so, I called the attention of the
representative of the National Steel but nothing was done, just the
same.Finally, I wrote a letter to them. [31]

102
NSC attempts to discredit the testimony of Angliongto by questioning his failure to
complain immediately about the stevedores negligence on the first day of unloading,
pointing out that he wrote his letter to petitioner only seven days later. [32] The Court is not
persuaded. Angliongtos candid answer in his aforequoted testimony satisfactorily
explained the delay. Seven days lapsed because he first called the attention of the
stevedores, then the NSCs representative, about the negligent and defective procedure
adopted in unloading the cargo. This series of actions constitutes a reasonable response
in accord with common sense and ordinary human experience. Vicente Angliongto could
not be blamed for calling the stevedores attention first and then the NSCs representative
on location before formally informing NSC of the negligence he had observed, because
he was not responsible for the stevedores or the unloading operations. In fact, he was
merely expressing concern for NSC which was ultimately responsible for the stevedores
it had hired and the performance of their task to unload the cargo.
We see no reason to reverse the trial and the appellate courts findings and
conclusions on this point, viz:

In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the
stevedores hired by NSC were negligent in the unloading of NSCs shipment. We do not
think so. Such negligence according to the trial court is evident in the stevedores hired
by [NSC], not closing the hatch of MV VLASONS I when rains occurred during the
discharging of the cargo thus allowing rain water and seawater spray to enter the
hatches and to drift to and fall on the cargo. It was proven that the stevedores merely
set up temporary tents or canvas to cover the hatch openings when it rained during the
unloading operations so that it would be easier for them to resume work after the rains
stopped by just removing said tents or canvass. It has also been shown that on August
20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the manner
the stevedores hired by [NSC] were discharging the cargo on rainy days and the
improper closing of the hatches which allowed continuous heavy rain water to leak
through and drip to the tinplates covers and [Vicente Angliongto] also suggesting that
due to four (4) days continuos rains with strong winds that the hatches be totally closed
down and covered with canvas and the hatch tents lowered. (Exh 13). This letter was
received by [NSC] on 22 August 1974 while discharging operations were still going on
(Exhibit 13-A). [33]

The fact that NSC actually accepted and proceeded to remove the cargo from the
ship during unfavorable weather will not make VSI liable for any damage caused
thereby. In passing, it may be noted that the NSC may seek indemnification, subject to
the laws on prescription, from the stevedoring company at fault in the discharge
operations. A stevedore company engaged in discharging cargo xxx has the duty to load
the cargo xxx in a prudent manner, and it is liable for injury to, or loss of, cargo caused
by its negligence xxx and where the officers and members and crew of the vessel do
nothing and have no responsibility in the discharge of cargo by stevedores xxx the vessel
is not liable for loss of, or damage to, the cargo caused by the negligence of
the stevedores xxx [34] as in the instant case.

Do Tinplates Sweat?

The trial court relied on the testimony of Vicente Angliongto in finding that xxx
tinplates sweat by themselves when packed even without being in contact with water from
outside especially when the weather is bad or raining xxx. [35] The Court of Appeals
affirmed the trial courts finding.
A discussion of this issue appears inconsequential and unnecessary. As previously
discussed, the damage to the tinplates was occasioned not by airborne moisture but by

103
contact with rain and seawater which the stevedores negligently allowed to seep in during
the unloading.

Second Issue: Effect of NSCs Failure to Insure the Cargo

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter
Hire is totally separate and distinct from the contractual or statutory responsibility that
may be incurred by VSI for damage to the cargo caused by the willful negligence of the
officers and the crew of MV Vlasons I. Clearly, therefore, NSCs 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 latters 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 NSCs obtaining an insurance over the cargo.

Third Issue: Admissibility of Certificates Proving Seaworthiness

NSCs contention that MV Vlasons I was not seaworthy is anchored on the alleged
inadmissibility of the certificates of seaworthiness offered in evidence by VSI. The said
certificates include the following:
1. Certificate of Inspection of the Philippine Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs. [36]

NSC argues that the certificates are hearsay for not having been presented in
accordance with the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are
not written records or acts of public officers; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not
evidenced by official publications or certified true copies as required by Sections 25 and
26, Rule 132, of the Rules of Court. [37]
After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6,
7, 8, 9 and 12 are inadmissible, for they have not been properly offered as
evidence. Exhibits 3 and 4 are certificates issued by private parties, but they have not
been proven by one who saw the writing executed, or by evidence of the genuineness of
the handwriting of the maker, or by a subscribing witness. Exhibits 5, 6, 7, 8, 9, and 12
are photocopies, but their admission under the best evidence rule have not been
demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the
hearsay rule per Section 44 of Rule 130 of the Rules of Court, which provides that
(e)ntries in official records made in the performance of a duty by a public officer of the
Philippines, or by a person in the performance of a duty specially enjoined by law,
are prima facie evidence of the facts therein stated. [38] Exhibit 11 is an original certificate
of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores
to the effect that the vessel VLASONS I was drydocked x x x and PCG Inspectors were
sent on board for inspection x x x. After completion of drydocking and duly inspected by
PCG Inspectors, the vessel VLASONS I, a cargo vessel, is in seaworthy condition, meets
all requirements, fitted and equipped for trading as a cargo vessel was cleared by the
Philippine Coast Guard and sailed for Cebu Port on July 10, 1974. (sic) NSCs claim,
therefore, is obviously misleading and erroneous.

104
At any rate, it should be stressed that that NSC has the burden of proving that MV
Vlasons I was not seaworthy. As observed earlier, the vessel was a private carrier and,
as such, it did not have the obligation of a common carrier to show that it was
seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the willful
negligence of VSI in making the ship seaworthy resulting in damage to its cargo. Assailing
the genuineness of the certificate of seaworthiness is not sufficient proof that the vessel
was not seaworthy.

Fourth Issue: Demurrage and Attorneys Fees

The contract of voyage charter hire provides inter alia:


xxx xxx xxx

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

xxx xxx xxx

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

7. Demurrage/Dispatch : P8,000.00/P4,000.00 per day. [39]

The Court defined demurrage in its strict sense as the compensation provided for in
the contract of affreightment for the detention of the vessel beyond the laytime or that
period of time agreed on for loading and unloading of cargo. [40] It is given to compensate
the shipowner for the nonuse of the vessel. On the other hand, the following is well-
settled:

Laytime runs according to the particular clause of the charter party. x x x If laytime is
expressed in running days, this means days when the ship would be run continuously,
and holidays are not excepted. A qualification of weather permitting excepts only those
days when bad weather reasonably prevents the work contemplated. [41]

In this case, the contract of voyage charter hire provided for a four-day laytime; it also
qualified laytime as WWDSHINC or weather working days Sundays and holidays
included. [42] The running of laytime was thus made subject to the weather, and would
cease to run in the event unfavorable weather interfered with the unloading of
cargo. [43] Consequently, NSC may not be held liable for demurrage as the four-day
laytime allowed it did not lapse, having been tolled by unfavorable weather condition in
view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was error for
the trial court and the Court of Appeals to have found and affirmed respectively that NSC
incurred eleven days of delay in unloading the cargo. The trial court arrived at this
erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to
August 24, 1974, the only day of unloading unhampered by unfavorable weather or rain
which was August 22, 1974. Based on our previous discussion, such finding is a
reversible error. As mentioned, the respondent appellate court also erred in ruling that
NSC was liable to VSI for demurrage, even if it reduced the amount by half.

Attorneys Fees

VSI assigns as error of law the Court of Appeals deletion of the award of attorneys
fees. We disagree. While VSI was compelled to litigate to protect its rights, such fact by
itself will not justify an award of attorneys fees under Article 2208 of the Civil Code when

105
x x x no sufficient showing of bad faith would be reflected in a partys persistence in a case
other than an erroneous conviction of the righteousness of his cause x x x. [44] Moreover,
attorneys 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 ones
right to litigate or seek judicial redress of legitimate grievances. [45]

Epilogue

At bottom, this appeal really hinges on a factual issue: when, how and who caused
the damage to the cargo? Ranged against NSC are two formidable truths. First, both
lower courts found that such damage was brought about during the unloading process
when rain and seawater seeped through the cargo due to the fault or negligence of the
stevedores employed by it. Basic is the rule that factual findings of the trial court, when
affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are
settled exceptions, NSC has not satisfactorily shown that this case is one of
them. Second, the agreement between the parties -- the Contract of Voyage Charter Hire
-- placed the burden of proof for such loss or damage upon the shipper, not upon the
shipowner. Such stipulation, while disadvantageous to NSC, is valid because the parties
entered into a contract of private charter, not one of common carriage. Basic too is the
doctrine that courts cannot relieve a party from the effects of a private contract freely
entered into, on the ground that it is allegedly one-sided or unfair to the plaintiff. The
charter party is a normal commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport price which is
determined not only by the actual costs but also by the risks and burdens assumed by
the shipper in regard to possible loss or damage to the cargo. In recognition of such
factors, the parties even stipulated that the shipper should insure the cargo to protect
itself from the risks it undertook under the charter party. That NSC failed or neglected to
protect itself with such insurance should not adversely affect VSI, which had nothing to
do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby
DENIED. The questioned Decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the demurrage awarded to VSI is deleted. No pronouncement as to
costs.
SO ORDERED.

17.

G.R. No. L-25266 January 15, 1975

AETNA INSURANCE COMPANY, plaintiff-appellant,


vs.
BARBER STEAMSHIP LINES, INC., and/or LUZON STEVEDORING CORPORATION
and/or LUZON BROKERAGE CORPORATION, defendants-appellees.

Camacho, Zapa Andaya and Associates for plaintiff-appellant.

Rose, Selph, Salcedo, Del Rosario, Bito and Mesa for defendant-appellee Barber
Steamship Lines, Inc.

H. San Luis and L. V. Simbulan for defendant-appellee Luzon Stevedoring Corporation.

Jalandoni and Jamir for defendant-appellee Luzon Brokerage Corporation.

106
AQUINO, J.:

Aetna Insurance Company appealed on a legal question from the order of the Court of
First Instance of Manila, dismissing its amended complaint against Barber Line Far East
Service on the ground of prescription.

The facts are as follows:

On February 22, 1965 Aetna Insurance Company, as insurer, filed a complaint against
Barber Steamship Lines, Inc., Luzon Stevedoring Corporation and Luzon Brokerage
Corporation.

It sought to recover from the defendants the sum of P12,100.06 as the amount of the
damages which were caused to a cargo of truck parts shipped on the SS Turandot. The
insurer paid the damages to Manila Trading & Supply Company, the consignee.

In a manifestation dated March 31, 1965, Barber Steamship Lines, Inc., without
submitting to the court's jurisdiction, alleged that it was a foreign corporation not
licensed to do business in the Philippines, that it was not engaged in business here, that
it had no Philippine agent and that it did not own nor operate the SS Turandot.

On April 5, 1965 Barber Steamship Lines, Inc., again with the caveat that it was not
submitting to the court's jurisdiction, filed a motion to dismiss on the grounds of (a) lack
of jurisdiction over the person and (b) that it was not the real party in interest.

Barber Steamship Lines, Inc. alleged that the service of summons was not effected
upon it in accordance with section 14, Rule 14 of the Rules of Court. It clarified that the
summons intended for it was served upon Macondray & Co., Inc. which was not its
agent.

It asserted that it was not the real party in interest because according to the bill of lading
annexed to the complaint the owner of the SS Turandot, the carrying vessel, was the
Wilh, Wilhemsen Group. (Note, however, that the same bill of lading indicated that
Barber Steamship Lines, Inc. was the vessel's agent).

Two days later, or on April 7, 1965 plaintiff Aetna Insurance Company filed a
manifestation stating that the name of defendant Barber Steamship Lines, Inc. was
incorrect and that the correct name was Barber Line Far East Service. Attached to the
manifestation was an amended complaint containing the correction. Aetna Insurance
Company manifested that copies of the amended complaint would be served on the
parties by means of alias summons.

On April 20, 1965 Aetna Insurance Company filed a motion for the admission of its
amended complaint. Barber Steamship Lines, Inc. opposed the motion. It contended
that its pending motion to dismiss the original complaint should first be resolved before
the amended complaint may be admitted.

Judge Ramon O. Nolasco in an order dated April 19, 1965 dismissed the complaint
against Barber Steamship Lines, Inc. and directed that alias summonses be issued to
the defendants named in the amended complaint.

On May 19, 1965 Barber Line Far East Service, supposedly without admitting to the
court's jurisdiction, moved for the dismissal of the amended complaint on the grounds
(1) that it is not a juridical person and, hence, it could not be sued; (2) that the court had
no jurisdiction over its person; (3) that it was not the real party in interest and (4) that the

107
action had prescribed according to the bill of lading and the Carriage of Goods by Sea
Act. Aetna Insurance Company opposed the motion.

Judge Nolasco in his order of July 7, 1965 ruled that inasmuch as according to the
complaint the shipment arrived in Manila on February 22, 1964 and the amended
complaint, impleading Barber Line Far East Service, was filed on April 7, 1965, or
beyond the one-year period fixed in the Carriage of Goods by Sea Act, the action had
already prescribed. The case was dismissed as to Barber Line Far East Service.

The legal question under the above facts is whether the action of Aetna Insurance
Company against Barber Line Far East Service, as ventilated in its amended complaint,
which was filed on April 7, 1965, had prescribed.

As previously stated, the action was for the recovery of damages to a cargo of truck
parts which was insured by Aetna Insurance Company and which arrived in Manila on
the SS Turandot and were delivered in bad order to the consignee on February 25,
1968 (4 Record on Appeal).

The bill of lading covering the shipment provides:

19. 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 the delivery of the goods or the dates when the goods should have
been delivered. Suit shall not be deemed brought until jurisdiction shall
have been obtained over the Carrier and/or the ship by service of process
or by an agreement to appear.

On the other hand, the Carriage of Goods by Sea Act, Commonwealth Act No. 65
(Public Act No. 521 of the 74th Congress of the United States) provides:

RESPONSIBILITIES AND LIABILITIES

Section 3. xxx xxx xxx

(6) xxx xxx xxx

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.

Aetna Insurance Company contends in this appeal that the trial court erred (1) in
holding that the Barber Line Far East Service was substituted for Barber Steamship
Lines, Inc. and (2) in dismissing the action on the ground of prescription.

There is no merit in the appeal. The trial court correctly held that the one-year statutory
and contractual prescriptive period had already expired when appellant company filed
on April 7, 1965 its action against Barber Line Far East Service. The one year period
commenced on February 25, 1964 when the damaged cargo was delivered to the
consignee. (See Chua Kuy vs. Everrett Steamship Corporation, 93 Phil. 207; Yek Tong
Fire & Marine Insurance Co., Ltd. vs. American President Lines, Inc., 103 Phil. 1125).

108
Appellant company invokes the rule that where the original complaint states a cause of
action but does it imperfectly, and afterwards an amended complaint is filed, correcting
the defect, the plea of prescription will relate to the time of the filing of the original
complaint (Pangasinan Transportation Co. vs. Phil. Farming Co., Ltd., 81 Phil. 273). It
contends that inasmuch as the original complaint was filed within the one year period,
the action had not prescribed.

That ruling would apply to defendants Luzon Stevedoring Corporation and Luzon
Brokerage Corporation. But it would not apply to Barber Line Far East Service which
was impleaded for the first time in the amended complaint.

It should be recalled that the original complaint was dismissed as to Barber Steamship
Lines, Inc. in the lower court's order of April 19, 1965. New summons had to be issued
to Barber Line Far East Service which had replaced Barber Steamship Lines, Inc. as a
defendant.

The filing of the original complaint interrupted the prescriptive period as to Barber
Steamship Lines, Inc. but not as to Barber Line Far East Service, an entity supposedly
distinct from the former. Appellant's contention that there was merely a correction in the
name of a party-defendant is untenable. *

In view of the foregoing considerations, the lower court's order of dismissal is affirmed.
Costs against the plaintiff-appellant.

SO ORDERED.

109

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