THIRD DIVISION

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

PEDRO DE GUZMAN, PETITIONER, VS. COURT OF APPEALS AND ERNESTO CENDAA,
RESPONDENTS.
DECISION
FELICIANO, J.:
Respondent Ernesto Cendaa, 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 P22,150.00, the claimed value of the lost merchandise, plus damages and attorney's fees. Petitioner
argued that private respondent, being a common carrier, and having failed to exercise the extraordinary diligence required
of him by the law, should be held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be held responsible
for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision[1] finding private respondent to be a common carrier and
holding him liable for the value of the undelivered goods (P22,150.00) as well as for P4,000.00 as damages and P2,000.00
as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common
carrier: in finding that he had habitually offered trucking services to the public; in not exempting him from liability on the
ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in transporting
return loads of freight "as a casual occupation -- a sideline to his scrap iron business" and not as a common carrier.
Petitioner came to this Court by way of a Petition for Review assigning as errors the following conclusions of the Court of
Appeals:
1. that private respondent was not a common carrier;

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

3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendaa may, under the facts earlier set forth, be
properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
"Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public."
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732 also carefully
avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish
between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately
refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service" under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service
Act, "public service" includes:
"x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with
or without fixed route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire
or wireless broadcasting stations and other similar public services. x x x." (Underscoring supplied).
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely
"back-hauled" goods for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic
or occasional rather than regular or scheduled manner, and even though private respondent's principal occupation was not
the carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their
goods; that that fee frequently fell below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded
he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring
of liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm
acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the
applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or
other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable statutory requirements. The business of a common carrier
impinges directly and intimately upon the safety and well being and property of those members of the general community
who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common carrier to render such duties and
liabilities merely facultative by simply failing to obtain the necessary permits and authorizations.

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

Common carriers, "by the nature of their business and for reasons of public policy,"[2] are held to a very high degree of
care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of
extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further
expressed in Articles 1734, 1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration of
the goods which they carry, "unless the same is due to any of the following causes only;
(1)

Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2)

Act of the public enemy in war, whether international or civil;

(3)

Act or omission of the shipper or owner of the goods;

(4)

The character of the goods or defects in the packing or in the containers; and

(5)

Order or act of competent public authority."

It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common
carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to constitute
a species of force majeure, fall within the scope of Article 1735, which provides as follows:
"In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceeding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
required in Article 1733." (Underscoring supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case -- the
hijacking of the carrier's truck -- does not fall within any of the five (5) categories of exempting causes listed in Article
1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the provisions of
Article 1735, in other words, that the private respondent as common carrier is presumed to have been at fault or to have
acted negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on the part of
private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods.
Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard presumably
to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in the instant case,
the standard of extraordinary diligence required private respondent to retain a security guard to ride with the truck and to
engage brigands in a firefight at the risk of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty or extraordinary diligence in the
vigilance over the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional
specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6. Article 1745 provides in
relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:

xxxxxxxxx
(5)

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

(6)

that the common carrier's liability for acts committed by thieves, or of robbers who do not act with grave or
irresistible threat, violence or force, is dispensed with or diminished; and

(7)

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

Under Article 1745 (6) above, a common carrier is held responsible -- and will not be allowed to divest or to diminish such
responsibility -- even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted "with
grave or irresistible threat, violence or force." We believe and so hold that the limits of the duty of extraordinary diligence
in the vigilance over the goods carried are reached where the goods are lost as a result of a robbery which is attended by
"grave or irresistible threat, violence or force."
In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo.
The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in
Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one
John Doe." There, the accused were charged with willfully and unlawfully taking and carrying away with them the second
truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner's
store in Urdaneta, Pampanga. The decision of the trial court shows that the accused acted with grave, if not irresistible
threat, violence or force.[3] Three (3) of the five (5) hold-uppers were armed with firearms. The robbers not only took away
the truck and its cargo but also kidnapped the driver and his helper, detaining them for several days and later releasing
them in another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon City. The
Court of First Instance convicted all the accused of robbery, though not of robbery in band. [4]
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the control of
the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common carriers are not
made absolute insurers against all risks of travel and of transport of goods, and are not held liable for acts or events which
cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary
diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendaa 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.
Fernan, C.J., (Chairman), Gutierrez, Jr., Bidin, and Cortes, JJ., concur.

THIRD DIVISION
G.R. No. 186312, June 29, 2010
SPOUSES DANTE CRUZ AND LEONORA CRUZ, PETITIONERS, VS. SUN HOLIDAYS, INC.,
RESPONDENT.
DECISION
CARPIO MORALES, J.:
Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 2001[1] against Sun Holidays, Inc.
(respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the death of their son Ruelito C.
Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the boat M/B Coco Beach III that capsized en
route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent.
The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by virtue of a tour
package-contract with respondent that included transportation to and from the Resort and the point of departure in
Batangas.
Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors, gave his account of the incident that led to
the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the Resort in the
afternoon of September 10, 2000, but was advised to stay for another night because of strong winds and heavy rains.
On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners' son and his wife
trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they boarded M/B Coco
Beach III, which was to ferry them to Batangas.
Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open seas, the
rain and wind got stronger, causing the boat to tilt from side to side and the captain to step forward to the front, leaving
the wheel to one of the crew members.
The waves got more unwieldy. After getting hit by two big waves which came one after the other, M/B Coco Beach
III capsized putting all passengers underwater.
The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the captain, Matute and the
other passengers who reached the surface asked him what they could do to save the people who were still trapped under
the boat. The captain replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by the
capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers and four crew
members, who were brought to Pisa Island. Eight passengers, including petitioners' son and his wife, died during the
incident.
At the time of Ruelito's death, he was 28 years old and employed as a contractual worker for Mitsui Engineering &
Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900.[3]
Petitioners, by letter of October 26, 2000,[4] demanded indemnification from respondent for the death of their son in the

amount of at least P4,000,000.

Replying, respondent, by letter dated November 7, 2000,[5] denied any responsibility for the incident which it considered to
be a fortuitous event. It nevertheless offered, as an act of commiseration, the amount of P10,000 to petitioners upon their
signing of a waiver.
As petitioners declined respondent's offer, they filed the Complaint, as earlier reflected, alleging that respondent, as a
common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins
issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as early as 5:00
a.m. of September 11, 2000.[6]
In its Answer,[7] respondent denied being a common carrier, alleging that its boats are not available to the general public as
they only ferry Resort guests and crew members. Nonetheless, it claimed that it exercised the utmost diligence in ensuring
the safety of its passengers; contrary to petitioners' allegation, there was no storm on September 11, 2000 as the Coast
Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an award for attorney's fees and litigation
expenses amounting to not less than P300,000.
Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four conditions to be met
before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3) there is clearance
from the captain and (4) there is clearance from the Resort's assistant manager. [8] He added that M/B Coco Beach III met all
four conditions on September 11, 2000,[9] but a subasco or squall, characterized by strong winds and big waves, suddenly
occurred, causing the boat to capsize.[10]
By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed petitioners' Complaint and respondent's
Counterclaim.
Petitioners' Motion for Reconsideration having been denied by Order dated September 2, 2005,[12] they appealed to the
Court of Appeals.
By Decision of August 19, 2008,[13] the appellate court denied petitioners' appeal, holding, among other things, that the
trial court correctly ruled that respondent is a private carrier which is only required to observe ordinary diligence; that
respondent in fact observed extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
proximate cause of the incident was a squall, a fortuitous event.
Petitioners' Motion for Reconsideration having been denied by Resolution dated January 16, 2009, [14] they filed the present
Petition for Review.[15]
Petitioners maintain the position they took before the trial court, adding that respondent is a common carrier since by its
tour package, the transporting of its guests is an integral part of its resort business. They inform that another division of
the appellate court in fact held respondent liable for damages to the other survivors of the incident.
Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it is a common carrier;
that the Resort's ferry services for guests cannot be considered as ancillary to its business as no income is derived
therefrom; that it exercised extraordinary diligence as shown by the conditions it had imposed before allowing M/B Coco
Beach III to sail; that the incident was caused by a fortuitous event without any contributory negligence on its part; and that
the other case wherein the appellate court held it liable for damages involved different plaintiffs, issues and evidence. [16]
The petition is impressed with merit.
Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing respondent as a common carrier.

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

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article
1732 also carefully avoids making any distinctionbetween a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of
"public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:
. . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation,
with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both,
with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or
both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire
or wireless broadcasting stations and other similar public services . . .[18] (emphasis and underscoring supplied.)
Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be properly
considered ancillary thereto. The constancy of respondent's ferry services in its resort operations is underscored by its
having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may be availed of by
anyone who can afford to pay the same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be imprudent to
suppose that it provides said services at a loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That guests who opt not to avail of
respondent's ferry services pay the same amount is likewise inconsequential. These guests may only be deemed to have
overpaid.
As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberately refrained from making
distinctions on whether the carrying of persons or goods is the carrier's principal business, whether it is offered on a
regular basis, or whether it is offered to the general public. The intent of the law is thus to not consider such
distinctions. Otherwise, there is no telling how many other distinctions may be concocted by unscrupulous businessmen
engaged in the carrying of persons or goods in order to avoid the legal obligations and liabilities of common carriers.
Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers transported by them, according to all the circumstances of
each case.[19] They are bound to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances. [20]
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the common carrier is at
fault or negligent. In fact, there is even no need for the court to make an express finding of fault or negligence on the part

of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised
extraordinary diligence.[21]
Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of voyage before it
allowed M/B Coco Beach III to sail on September 11, 2000. Respondent's position does not impress.
The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings for shipping on
September 10 and 11, 2000 advising of tropical depressions in Northern Luzon which would also affect the province of
Mindoro.[22] By the testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls are to be expected
under such weather condition.[23]
A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put other people's
lives at risk. The extraordinary diligence required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.
Respondent's insistence that the incident was caused by a fortuitous event does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the
debtors to comply with their obligations, must have been independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been
such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the obligor must have
been free from any participation in the aggravation of the resulting injury to the creditor. [24]
To fully free a common carrier from any liability, the fortuitous event must have been the proximate and only cause of
the loss. And it should have exercised due diligence to prevent or minimize the loss before, during and after the
occurrence of the fortuitous event.[25]
Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned M/B Coco Beach III. As
reflected above, however, the occurrence of squalls was expected under the weather condition of September 11,
2000. Moreover, evidence shows that M/B Coco Beach III suffered engine trouble before it capsized and sank.[26] The
incident was, therefore, not completely free from human intervention.
The Court need not belabor how respondent's evidence likewise fails to demonstrate that it exercised due diligence to
prevent or minimize the loss before, during and after the occurrence of the squall.
Article 1764[27] vis- -vis Article 2206[28] of the Civil Code holds the common carrier in breach of its contract of carriage
that results in the death of a passenger liable to pay the following: (1) indemnity for death, (2) indemnity for loss of earning
capacity and (3) moral damages.
Petitioners are entitled to indemnity for the death of Ruelito which is fixed at P50,000.[29]
As for damages representing unearned income, the formula for its computation is:
Net Earning
Capacity

= life expectancy x (gross annual income - reasonable and necessary

living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 -- age of deceased at the time of death][30]

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 -- age at death]) adopted in the
American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality.[31]
The second factor is computed by multiplying the life expectancy by the net earnings of the deceased, i.e., the total
earnings less expenses necessary in the creation of such earnings or income and less living and other incidental
expenses.[32] The loss is not equivalent to the entire earnings of the deceased, but only such portion as he would have used
to support his dependents or heirs. Hence, to be deducted from his gross earnings are the necessary expenses supposed to
be used by the deceased for his own needs.[33]
In computing the third factor - necessary living expense, Smith Bell Dodwell Shipping Agency Corp. v. Borja[34] teaches that
when, as in this case, there is no showing that the living expenses constituted the smaller percentage of the gross income,
the living expenses are fixed at half of the gross income.
Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:
Life expectancy = 2/3 x [80 - age of deceased at the time of death]
2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
Documentary evidence shows that Ruelito was earning a basic monthly salary of $900[35] which, when converted to
Philippine peso applying the annual average exchange rate of $1 = P44 in 2000,[36] amounts to P39,600. Ruelito's net
earning capacity is thus computed as follows:
Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living expenses).
= 35 x (P475,200 - P237,600)
= 35 x (P237,600)
Net Earning Capacity = P8,316,000
Respecting the award of moral damages, since respondent common carrier's breach of contract of carriage resulted in the
death of petitioners' son, following Article 1764 vis- -vis Article 2206 of the Civil Code, petitioners are entitled to moral
damages.
Since respondent failed to prove that it exercised the extraordinary diligence required of common carriers, it is presumed
to have acted recklessly, thus warranting the award too of exemplary damages, which are granted in contractual obligations
if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. [37]
Under the circumstances, it is reasonable to award petitioners the amount of P100,000 as moral damages and P100,000 as
exemplary damages.[38]
Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be awarded where exemplary damages are awarded.
The Court finds that 10% of the total amount adjudged against respondent is reasonable for the purpose.
Finally, Eastern Shipping Lines, Inc. v. Court of Appeals[40] teaches that when an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in
the concept of actual and compensatory damages, subject to the following rules, to wit --

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (emphasis supplied).
Since the amounts payable by respondent have been determined with certainty only in the present petition, the interest due
shall be computed upon the finality of this decision at the rate of 12% per annum until satisfaction, in accordance with
paragraph number 3 of the immediately cited guideline in Easter Shipping Lines, Inc.
WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE. Judgment is
rendered in favor of petitioners ordering respondent to pay petitioners the following: (1) P50,000 as indemnity for the
death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelito's loss of earning capacity; (3) P100,000 as moral
damages; (4) P100,000 as exemplary damages; (5) 10% of the total amount adjudged against respondent as attorneys fees;
and (6) the costs of suit.
The total amount adjudged against respondent shall earn interest at the rate of 12% per annum computed from the finality
of this decision until full payment.
SO ORDERED.
Brion, Bersamin, Abad,* and Villarama, Jr., JJ., concur.

Additional member per Special Order No. 843 dated May 17, 2010.

[1]

Records, pp. 2-6.

[2]

TSN of September 12, 2002, pp. 2-22.

[3]

Vide TSN of May 2, 2002, pp. 5-7; records, p. 4.

[4]

Records, pp. 19-20.

[5]

Id. at 21-22.

[6]

Vide Complaint, supra note 1.

[7]

Records, pp. 28-35.

[8]

Vide TSN of February 4, 2003, pp. 6-7.

[9]

Id. at 8.

[10]

TSN of March 4, 2003, pp. 5-6.

[11]

Records, pp. 488-496.

[12]

Id. at 581-585.

Penned by Associate Justice Normandie B. Pizarro, with the concurrence of Associate Justices Edgardo P. Cruz and
Fernanda Lampas Peralta; CA rollo, pp. 135-147.
[13]

[14]

Id. at 190-191.

[15]

Rollo, pp. 18-31.

[16]

Vide Comment, id. at 60-81.

[17]

G.R. No. L-47822, December 22, 1988,168 SCRA 612.

[18]

Id. at 617-618.

[19]

Civil Code, Art. 1733.

[20]

Id., Art. 1755.

[21]

Diaz v. Court of Appeals, G.R. No. 149749, July 25, 2006, 496 SCRA 468, 472.

[22]

Vide records, pp. 268-276.

[23]

Vide TSN of December 13, 2001, pp. 3-19.

[24]

Lea Mer Industries, Inc. v. Malayan Insurance Co., Inc., G.R. No. 161745, September 30, 2005, 471 SCRA 698, 707-708.

[25]

Ibid.

[26]

Records, pp. 279-280.

Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book
concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a
common carrier.
[27]

Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos,
even though there may have been mitigating circumstances. In addition:
[28]

(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the
heirs of the latter; such indemnity 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;
(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir
called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person
causing the death, for a period not exceeding five years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for
mental anguish by reason of the death of the deceased.
[29]

Tiu v. Arriesgado, G.R. No. 138060, September 1, 2004, 437 SCRA 426, 451-452.

[30]

Candano Shipping Lines, Inc. v. Sugata-on, G.R. No. 163212, March 13, 2007, 578 SCRA 221, 235.

[31]

Lambert v. Heirs of Ray Castillon, G.R. No. 160709, February 23, 2005, 452 SCRA 285, 294.

[32]

Ibid.

[33]

Magbanua v. Tabusares, Jr., G.R. No. 152134, June 4, 2004, 431 SCRA 99, 104.

[34]

G.R. No. 143008, June 10, 2002, 383 SCRA 341, 351.

[35]

Vide records, pp. 258-259.

For reference, vide Bangko Sentral ng Pilipinas Treasury Department Reference Exchange Rate Bulletins at
www.bsp.gov.ph/dbank_reports/ExchangeRates.
[36]

[37]

Vide Yobido v. Court of Appeals, 346 Phil. 1, 13 (1997).

[38]

Vide Victory Liner, Inc. v. Gammad, G.R. No. 159636, November 25, 2004, 444 SCRA 355, 370.

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be
recovered, except:
[39]

(1) When exemplary damages are awarded;

[40]

G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95-97.

Copyright 2016 - Batas.org

SECOND DIVISION
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.
"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."
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 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 ofpassengers 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, ortransportation by special methods of petroleum, is hereby declared to be a public
utility." (Underscoring Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it
declared:
"x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is
considered a common carrier under Republic Act No. 387 x x x. Such being the case, it is not subject to withholding tax
prescribed by Revenue Regulations No. 13-78, as amended."
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from the
business tax as provided for in Section 133 (j), of the Local Government Code, to wit:
"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of
the following :
xxx

xxx

xxx

(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."
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 isREVERSED and SET ASIDE.
SO ORDERED.
Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.

[1]

Rollo, pp. 90-94.

Decision of the Energy Regulatory Board in ERB Case No. 92-94, renewing the Pipeline Concession of petitioner First
Philippine Industrial Corporation, formerly known as Meralco Securities Industrial Corporation , (Rollo, pp. 95-100).
[2]

[3]

Sec. 143. Tax on Business. The municipality may impose taxes on the following business:

xxx

xxx

xxx

(e) On contractors and other independent contractors, in accordance with the following schedule:
With gross receipts for the preceding

Amount of Tax Per Annum

Calendar year in the amount:

xxx

xxx

P2,000,000.00 or more

at a rate not exceeding fifty

Percent (50%) of one (1%)

[4]

Letter Protest dated January 20, 1994, Rollo, pp. 110-111.

[5]

Letter of respondent City Treasurer, Rollo, p. 112.

[6]

Complaint, Annex "C", Rollo, pp. 51-56.

[7]

Rollo, pp. 51-57.

[8]

Answer, Annex "J", Rollo, pp. 122-127.

[9]

RTC Decision, Rollo, pp. 58-62.

[10]

Rollo, p. 84.

CA-G.R. SP No.36801; Penned by Justice Jose C. De la Rama and concurred in by Justice Jaime M. Lantin and Justice
Eduardo G. Montenegro; Rollo, pp. 33-47.
[11]

[12]

Rollo, p. 49.

[13]

Resolution dated November 11, 1996 excerpts of which are hereunder quoted:

"The petition is unmeritorious.

"As correctly ruled by respondent appellate court, petitioner is not a common carrier as it is not offering its services to the
public.
"Art. 1732 of the Civil Code defines Common Carriers as: persons, corporations, firms 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.
"We sustain the view that petitioner is a special carrier. Based on the facts on hand, it appears that petitioner is not offering
its services to the public.
"We agree with the findings of the appellate court that the claim for exemption from taxation must be strictly construed
against the taxpayer. The present understanding of the concept of "common carriers" does not include carriers of
petroleum using pipelines. It is highly unconventional to say that the business of transporting petroleum through pipelines
involves "common carrier" business. The Local Government Code intended to give exemptions from local taxation to
common carriers transporting goods and passengers through moving vehicles or vessels and not through pipelines. The
term common carrier under Section 133 (j) of the Local Government Code must be given its simple and ordinary or
generally accepted meaning which would definitely not include operators of pipelines."
G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of Appeals, et. al.)- Considering the grounds of the
motion for reconsideration, dated December 23, 1996, filed by counsel for petitioner, of the resolution of November 11,
1996 which denied the petition for review on certiorari, the Court Resolved:
[14]

(a) to GRANT the motion for reconsideration and to REINSTATE the petition; and
(b) to require respondent to COMMENT on the petition, within ten (10) days from notice.
[15]

Agbayani, Commercial Laws of the Phil., 1983 Ed., Vol. 4, p. 5.

[16]

168 SCRA 617-618 [1998].

Giffin v. Pipe Lines, 172 Pa. 580, 33 Alt. 578; Producer Transp. Co. v. Railroad Commission, 241 US 228, 64 L ed 239,
40 S Ct 131.
[17]

FIRST DIVISION
G.R. No. 101503, September 15, 1993
PLANTERS PRODUCTS, INC., PETITIONER, VS. COURT OF APPEALS, SORIAMONT STEAMSHIP
AGENCIES AND KYOSEI KISEN KABUSHIKI KAISHA, RESPONDENTS.
DECLSION
BELLOSILLO, J.:
Does a charter-party[1] 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 Charter[2] 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. x x x x 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 expenses and the vessel to be presented clean for use in bulk to the
satisfaction of the inspector before daytime commences" (underscoring 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 steel-bodied dump trucks which were parked
alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the charter-party
(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 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 fertilizer.[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). [10] A
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]
x x x x 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 delivery by it of less than 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 shifted 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 negligenceon 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" (underscoring 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 charter-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 x x x x 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 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 Rule 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 obligations x x x x[18] (underscoring 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 caused 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 be 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 theonus 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 charterparty; 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 the 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 themselves out as ready to engage in carrying goods or
transporting passengers or both for compensation as a public employment and not as acasual 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 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 voyagecharter. 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 thecharterer.[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
shipowner 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 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 collussion occur; and the same difficulty in discovering the truth as to what has taken place arises x x x x"
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 facie presumption 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 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 -

"x x x x 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)" (underscoring 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 the shipper, up to and until the vessel reached its destination and its hull was re-examined 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 character of the goods or defects in the packaging or in the containers. The
Code of Commerce also provides that all losses and deteriorations 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 thepreceding 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 deterioration in value, is caused either by an extremely high temperature in
its place of storage, or when it comesin 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 he consignees 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 "bad order cargo" as contained
in their report to PPI was just an approximation or estimate made by themafter the fertilizer was discharged from the
vessel and segregated from the rest of the cargo.
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
remiss 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.
Davide, Jr., and Quiason, JJ., concur.
Cruz, J., (Chairman), no part.
Grio-Aquino, J., on official leave.

A charter-party is a contract by which an entire ship or some principal part thereof, is let by the owner to another
person for a specified time or use (70 Am Jur 2d, p. 580, citing Ward v. Thompson, 63 US 330, 16 L Ed 249; a contract in
which the owner of a vessel lets for consideration the whole or part thereof for the conveyance of goods and/or
passengers on a particular voyage to one or more places or until the expiration of a specified time and surrenders unto the
lessee or charterer the control, by vesting upon the latter the right to appoint the captain, officers and members of the
crew, of the vessel leased or chartered during the duration of the contract (R.A. 913).
[1]

The Baltic and International Maritime Uniform General Charter (As Revised 1922 and 1976), Including "F.I.O.S."
Alternative, etc., Code Name: "GENCON" Adopted by the Documentary Committee of the General Council of British
Shipping, London, and the Documentary Committee of the Japan Shipping Exchange, Inc., Tokyo.
[2]

[3]

Rollo, pp. 105, 128.

Although par. 40 of the Rider (Description of Sun Plum") states that the vessel has 3 holds/3 hatches, Hatch No. 4
which usually was not used for cargo, was converted for such purpose. The time sheet for 12 July 1974 shows that Hatch
No. 4 was first to be discharged of cargo. This was also testified to by the masterof the vessel, Captain Lee Tae Bo.
[4]

[5]

Id., p. 129.

Under the terms and conditions of the charter-party, F.I.O.S. (Free In and Out Shipping/Stevedoring) means that the
shipper takes care of the loading, while the unloading is the sole responsibility of the consignee (Rollo, pp. 128, 184).
[6]

[7]

TSN, 20 July 1977, p. 17.

[8]

TSN, 20 July 1977, p. 18.

[9]

Rollo, p. 130.

Id., p. 129; ADDENDUM NO. 4 dated 17 May 1974 provides: "The cargo to be discharged at the average rate
of 1,000 metric tons per day of 24 hours weather working days, Sundays, Holidays excluded unless used, assuming four (4)
sets of vessel's gear simultaneously workable at vessel's bearthing side."
[10]

TSN, 5 April 1978, pp. 7-8. Drop survey" is the drop of the vessel showing certain meters or centimeters of the vessel.
In the ship there is a draft from one meter upward. When the vessel arrives, (CSCI) conducted initial draft survey before
discharging, together with the ship's representative by getting the draft forward and aft. They divided it by 2 to get the
mean draft and the average draft. After getting the mean draft, they got the displacement scale of the vessel to show
certain tons of the ship, then deducted the non-cargo weight, like the fuel oil, the fresh water. Finally, the total load of the
ship is taken. After discharging, CSCI went over same procedure to get the weight of the vessel. These figures were then
subtracted from the total load of the ships to get the weight of the cargo.
[11]

[12]

Id., p. 106.

[13]

Id., pp. 49, 68.

[14]

TSN, 28 Aug. 1979, pp. 9-10.

Id., p. 68; "Planters Products, Inc. v. Soriamont Steamship Agencies, et al.," Civil Case No. 98623, CFI of Manila, Br.
27, decision penned by Judge E.L. Peralta, 24 March 1980.
[15]

The Court of Appeals (Twelfth Division) rendered its decision on 13 August 1991 in CA-G.R. CV No. 02736 entitled
"Planters Products, Inc. vs. Kyosei Kisen Kabushiki Kaisha & Soriamont Steamship Agencies." Decision penned by Justice
Alfredo L. Benipayo, concurred in by Justices Manuel C. Herrera and Cancio C. Garcia, Rollo, pp. 13-24.
[16]

[17]

No. L-25599, 4 April 1968, 23 SCRA 24.

[18]

Rollo, p. 109.

[19]

Rollo, pp. 8 & 9.

Charter Parties; Charters of Demise and Contracts of Affreightment; 70 Am Jur 2d, p. 580; citing Ward v. Thompson,
63 US 330, 16 L Ed 249; E.R. Harvey Ivamy, Carriage of Goods by Sea, 13th Ed., Chap. 2, pp. 5, 8-10. The term is also
defined under R.A. No. 913, known as "An Act Defining 'Lease' or 'Charter' of Vessels" as to mean a "contract in which
the owner of a vessel lets for consideration the whole or principal part thereof for the conveyance of goods and/or
passengers on a particular voyage to one or more places or until the expiration of a specified time and surrenders unto the
lessee or charterer the control, by vesting upon the latter the right to appoint the captain, officers and members of the
crew, of the vessel leased or chartered during the duration of the contract."
[20]

[21]

Bouvier's Law Dictionary, Third Rev., Vol. I, p. 470.

[22]

Id. pp. 581-582.

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public.
[23]

See De Guzman v. Court of Appeals, No. L-47822, 22 December 1988, 168 SCRA 612; U.S. v. Quinajon, No. 8686, 30
July 1915.
[24]

Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according
to all the circumstances of each case.
[25]

Such extraordinary diligence in the vigilance over the goods is further expressed in Arts. 1734, 1735 and
1745, Nos. 5, 6 and 7, while the extraordinary diligence for the safety of the passengers is further set forth in Arts. 1755
and 1756.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as required in article 1733.
[26]

[27]

E.R. Harvey Ivamy, pp. 8-10.

70 Am Jur 2nd, p. 608 S 238, citing Grace v. Palmer, 21 US 605, 5 L Ed 696, and Kerry v. Pacific Marine Co., 12 CAL
564, 54, p.89.
[28]

[29]

30 C.J.S., pp. 269-693.

British Shipping Laws, Vol. 2, "Carver's Carriage by Sea," By Raoul Colinvaux, Vol. 1, 12th Ed., Published by Stevens
& Sons Limited of London, Printed in Great Britain, 1971.
[30]

See Ynchausti Steamship Co. v. Dexter, No. 15652, 41 Phil. 289, 14 Dec. 1920; Mirasol v. Robert Dollar, Co., No.
29721, 53 Phil. 124, 27 March 1929.
[31]

[32]

Deposition of Capt. Lee Tae Bo, Exh. "4", pp. 22-23.

[33]

TSN, 20 July 1977, p.14.

[34]

TSN, 5 April 1978, pp. 24-25.

[35]

See Note 6.

[36]

70 Am Jur 2d, p. 603 S 230, citing Oxford Paper Co. v. The Nidarholm, 282 US 681, 75L Ed 614, 51 S Ct 266.

[37]

Art. 361, par. 4, Code of Commerce.

[38]

Art. 362, par. 1, id.

SECOND DIVISION
G.R. No. 125817, January 16, 2002
ABELARDO LIM AND ESMADITO GUNNABAN, PETITIONERS, VS. COURT OF APPEALS AND
DONATO H. GONZALES, RESPONDENTS.
DECISION
BELLOSILLO, J.:
When a passenger jeepney covered by a certificate of public convenience is sold to another who continues to operate it
under the same certificate of public convenience under the so-called kabit system, and in the course thereof the vehicle
meets an accident through the fault of another vehicle, may the new owner sue for damages against the erring
vehicle? Otherwise stated, does the new owner have any legal personality to bring the action, or is he the real party in
interest in the suit, despite the fact that he is not the registered owner under the certificate of public convenience?
Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino
Vallarta, holder of a certificate of public convenience for the operation of public utility vehicles plying the MonumentoBulacan route. While private respondent Gonzales continued offering the jeepney for public transport services he did not
have the registration of the vehicle transferred in his name nor did he secure for himself a certificate of public convenience
for its operation. Thus Vallarta remained on record as its registered owner and operator.
On 22 July 1990, while the jeepney was running northbound along the North Diversion Road somewhere in Meycauayan,
Bulacan, it collided with a ten-wheeler-truck owned by petitioner Abelardo Lim and driven by his co-petitioner Esmadito
Gunnaban. Gunnaban owned responsibility for the accident, explaining that while he was traveling towards Manila the
truck suddenly lost its brakes. To avoid colliding with another vehicle, he swerved to the left until he reached the center
island. However, as the center island eventually came to an end, he veered farther to the left until he smashed into a
Ferroza automobile, and later, into private respondent's passenger jeepney driven by one Virgilio Gonzales. The impact
caused severe damage to both the Ferroza and the passenger jeepney and left one (1) passenger dead and many others
wounded.
Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated the heirs of the deceased passenger,
and had the Ferroza restored to good condition. He also negotiated with private respondent and offered to have the
passenger jeepney repaired at his shop. Private respondent however did not accept the offer so Lim offered him
P20,000.00, the assessment of the damage as estimated by his chief mechanic. Again, petitioner Lim's proposition was
rejected; instead, private respondent demanded a brand-new jeep or the amount of P236,000.00. Lim increased his bid to
P40,000.00 but private respondent was unyielding. Under the circumstances, negotiations had to be abandoned; hence,
the filing of the complaint for damages by private respondent against petitioners.
In his answer Lim denied liability by contending that he exercised due diligence in the selection and supervision of his
employees. He further asserted that as the jeepney was registered in Vallartas name, it was Vallarta and not private
respondent who was the real party in interest.[1] For his part, petitioner Gunnaban averred that the accident was a
fortuitous event which was beyond his control.[2]
Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private respondent explained
that although he wanted to take his jeepney home he had no capability, financial or otherwise, to tow the damaged
vehicle.[3]
The main point of contention between the parties related to the amount of damages due private respondent. Private
respondent Gonzales averred that per estimate made by an automobile repair shop he would have to spend P236,000.00 to

restore his jeepney to its original condition.[4] On the other hand, petitioners insisted that they could have the vehicle
repaired for P20,000.00.[5]
On 1 October 1993 the trial court upheld private respondent's claim and awarded him P236,000.00 with legal interest from
22 July 1990 as compensatory damages and P30,000.00 as attorney's fees. In support of its decision, the trial court
ratiocinated that as vendee and current owner of the passenger jeepney private respondent stood for all intents and
purposes as the real party in interest. Even Vallarta himself supported private respondent's assertion of interest over the
jeepney for, when he was called to testify, he dispossessed himself of any claim or pretension on the property. Gunnaban
was found by the trial court to have caused the accident since he panicked in the face of an emergency which was rather
palpable from his act of directing his vehicle to a perilous streak down the fast lane of the superhighway then across the
island and ultimately to the opposite lane where it collided with the jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of diligence in
supervising his employees. It was admitted during trial that Gunnaban doubled as mechanic of the ill-fated truck despite
the fact that he was neither tutored nor trained to handle such task.[6]
Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the decision of the trial court. In
upholding the decision of the court a quo the appeals court concluded that while an operator under the kabit system could
not sue without joining the registered owner of the vehicle as his principal, equity demanded that the present case be made
an exception.[7] Hence this petition.
It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court despite their
opposition to the well-established doctrine that an operator of a vehicle continues to be its operator as long as he remains
the operator of record. According to petitioners, to recognize an operator under the kabit system as the real party in
interest and to countenance his claim for damages is utterly subversive of public policy. Petitioners further contend that
inasmuch as the passenger jeepney was purchased by private respondent for only P30,000.00, an award of P236,000.00 is
inconceivably large and would amount to unjust enrichment.[8]
Petitioners' attempt to illustrate that an affirmance of the appealed decision could be supportive of the
pernicious kabit system does not persuade. Their labored efforts to demonstrate how the questioned rulings of the
courts a quo are diametrically opposed to the policy of the law requiring operators of public utility vehicles to secure a
certificate of public convenience for their operation is quite unavailing.
The kabit system is an arrangement whereby a person who has been granted a certificate of public convenience allows
other persons who own motor vehicles to operate them under his license, sometimes for a fee or percentage of the
earnings.[9] Although the parties to such an agreement are not outrightly penalized by law, the kabit system is invariably
recognized as being contrary to public policy and therefore void and inexistent under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio[10] the Court explained that one of the primary factors considered in the granting of a
certificate of public convenience for the business of public transportation is the financial capacity of the holder of the
license, so that liabilities arising from accidents may be duly compensated. The kabit system renders illusory such
purpose and, worse, may still be availed of by the grantee to escape civil liability caused by a negligent use of a vehicle
owned by another and operated under his license. If a registered owner is allowed to escape liability by proving who the
supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another who possesses no
property with which to respond financially for the damage done. Thus, for the safety of passengers and the public
who may have been wronged and deceived through the baneful kabit system, the registered owner of the vehicle is not
allowed to prove that another person has become the owner so that he may be thereby relieved of
responsibility. Subsequent cases affirm such basic doctrine.[11]
It would seem then that the thrust of the law in enjoining the kabit system is not so much as to penalize the parties but to
identify the person upon whom responsibility may be fixed in case of an accident with the end view of protecting the

riding public. The policy therefore loses its force if the public at large is not deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented in enjoining the kabit system does not
exist. First, neither of the parties to the pernicious kabit system is being held liable for damages. Second, the case arose
from the negligence of another vehicle in using the public road to whom no representation, or misrepresentation, as
regards the ownership and operation of the passenger jeepney was made and to whom no such representation, or
misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and the registered owner of the
jeepney were in estoppel for leading the public to believe that the jeepney belonged to the registered owner. Third, the
riding public was not bothered nor inconvenienced at the very least by the illegal arrangement. On the contrary, it was
private respondent himself who had been wronged and was seeking compensation for the damage done to
him. Certainly, it would be the height of inequity to deny him his right.
In light of the foregoing, it is evident that private respondent has the right to proceed against petitioners for the damage
caused on his passenger jeepney as well as on his business. Any effort then to frustrate his claim of damages by the
ingenuity with which petitioners framed the issue should be discouraged, if not repelled.
In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for adequate compensation
by putting the plaintiff in the same financial position he was in prior to the tort. It is a fundamental principle in the law on
damages that a defendant cannot be held liable in damages for more than the actual loss which he has inflicted and that a
plaintiff is entitled to no more than the just and adequate compensation for the injury suffered. His recovery is, in the
absence of circumstances giving rise to an allowance of punitive damages, limited to a fair compensation for the harm
done. The law will not put him in a position better than where he should be in had not the wrong happened.[12]
In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only P30,000.00 to award
damages considerably greater than this amount would be improper and unjustified. Petitioners are at best reminded that
indemnification for damages comprehends not only the value of the loss suffered but also that of the profits which the
obligee failed to obtain. In other words, indemnification for damages is not limited to damnum emergens or actual loss but
extends to lucrum cessans or the amount of profit lost.[13]
Had private respondent's jeepney not met an accident it could reasonably be expected that it would have continued
earning from the business in which it was engaged. Private respondent avers that he derives an average income of P300.00
per day from his passenger jeepney and this earning was included in the award of damages made by the trial court and
upheld by the appeals court. The award therefore of P236,000.00 as compensatory damages is not beyond reason nor
speculative as it is based on a reasonable estimate of the total damage suffered by private respondent, i.e. damage wrought
upon his jeepney and the income lost from his transportation business. Petitioners for their part did not offer any
substantive evidence to refute the estimate made by the courts a quo.
However, we are constrained to depart from the conclusion of the lower courts that upon the award of compensatory
damages legal interest should be imposed beginning 22 July 1990, i.e. the date of the accident. Upon the provisions of Art.
2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can
be established with reasonable certainty." It is axiomatic that if the suit were for damages, unliquidated and not known
until definitely ascertained, assessed and determined by the courts after proof, interest at the rate of six percent (6%) per
annum should be from the date the judgment of the court is made (at which time the quantification of damages may be
deemed to be reasonably ascertained).[14]
In this case, the matter was not a liquidated obligation as the assessment of the damage on the vehicle was heavily debated
upon by the parties with private respondent's demand for P236,000.00 being refuted by petitioners who argue that they
could have the vehicle repaired easily for P20,000.00. In fine, the amount due private respondent was not a liquidated
account that was already demandable and payable.
One last word. We have observed that private respondent left his passenger jeepney by the roadside at the mercy of the

elements. Article 2203 of the Civil Code exhorts parties suffering from loss or injury to exercise the diligence of a good
father of a family to minimize the damages resulting from the act or omission in question. One who is injured then by the
wrongful or negligent act of another should exercise reasonable care and diligence to minimize the resulting
damage. Anyway, he can recover from the wrongdoer money lost in reasonable efforts to preserve the property injured
and for injuries incurred in attempting to prevent damage to it.[15]
However we sadly note that in the present case petitioners failed to offer in evidence the estimated amount of the damage
caused by private respondent's unconcern towards the damaged vehicle. It is the burden of petitioners to show
satisfactorily not only that the injured party could have mitigated his damages but also the amount thereof; failing in this
regard, the amount of damages awarded cannot be proportionately reduced.
WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales P236,000.00 with legal interest
from 22 July 1990 as compensatory damages and P30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six
percent (6%) per annum shall be computed from the time the judgment of the lower court is made until the finality of this
Decision. If the adjudged principal and interest remain unpaid thereafter, the interest shall be twelve percent (12%) per
annum computed from the time judgment becomes final and executory until it is fully satisfied.
Costs against petitioners.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[1]

Original Records, pp. 23-26.

[2]

Id., pp. 15-18.

[3]

TSN, 6 February 1992, pp. 1-14.

[4]

Ibid.

[5]

See Note 1, p. 109.

[6]

Decision penned by Judge Basilio R. Gabo, RTC-Br. 11, Malolos, Bulacan; CA Rollo, pp. 41-44.

Decision penned by Associate Justice Maximiano C. Asuncion, concurred in by Associate Justices Salome A. Montoya and Godardo A.
Jacinto; Rollo, pp 25-33.
[7]

[8]

Id., pp. 12-23.

Baliwag Transit Inc. v. Court of Appeals, G.R. No. 57493, 7 January 1987, 147 SCRA 82; Teja Marketing v. IAC, G.R. No.
65510, 9 March 1987, 148 SCRA 347; Lita Enterprises, Inc. v. Second Civil Cases Division, IAC, G.R. No. 64693, 27 April 1984,
129 SCRA 79.
[9]

[10]

51 O.G. 4059 (1955).

Santos v. Sibug, No. L-26815, 26 May 1981, 104 SCRA 520; Vargas v. Langcay, 116 Phil 478 (1962); Tamayo v. Aquino 105
Phil. 949 (1959); Erezo v. Jepte, 102 Phil. 103 (1957) .
[11]

EN BANC
G.R. No. L-64693, April 27, 1984
LITA ENTERPRISES, INC., PETITIONER, VS. SECOND CIVIL CASES DIVISION, INTERMEDIATE
APPELLATE COURT, NICASIO M. OCAMPO AND FRANCISCA P. GARCIA, RESPONDENTS.
DECISION
ESCOLIN, J.:
"Ex pacto illicito non oritur actio [No action arises out of an illicit bargain] is the time-honored maxim that must be applied to
the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must
bear the consequences of his acts.
The factual background of this case is undisputed.
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in
installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since
they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative,
Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an initial payment of
P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate said agreement, the aforesaid cars were
registered in the name of petitioner Lita Enterprises, Inc. Possession, however, remained with the spouses Ocampo who
operated and maintained the same under the name Acme Taxi, petitioner's trade name.
About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a
motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was
eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda.
de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab. In the latter case, Civil Case
No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the
amount of P25,000.00 and P7,000.00 for attorney's fees.
This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine
No. 2R-914472 was levied upon and sold at public auction for P2,150.00 to one Sonnie Cortez, the highest bidder.
Another car with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr.
Lopez.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the
manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused.
Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety &
Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No.
90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court rendered a
decision, the dispositive portion of which reads:
"WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian vda. de Galvez, Visayan Surety
& Insurance Company and the Sheriff of Manila are concerned.
"Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied upon
with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in
favor of the plaintiff.

"Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of convenience from
March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars." [Annex A, Record on Appeal, p. 102103, Rollo)
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on
October 27, 1975. (p. 121, Ibid.)
On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by
including as part of its dispositive portion another paragraph, to wit:
In the event the condition of the three Toyota cars will no longer serve the purpose of the deed of conveyance because
of their deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita
Enterprises, Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975." (Annex "D", p. 167, Rollo.)
Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that:
"1. x x x
"2. x x x after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending the
decision of public respondent so that:
"(a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) be deleted;
"(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or was declared liable
(in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim
Florante Galvez, who died as a result of the gross negligence of private respondents' driver while driving one private
respondents' taxicabs." (p. 39, Rollo.)
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system", whereby a
person who has been granted a certificate of convenience allows another person who owns motor vehicles to operate
under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government.
Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been identified as one of
the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of Chief
Justice Makalintal,[1] "this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon
the good faith of the government."
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to
public policy and, therefore, void and inexistent under Article 1409 of the Civil Code. It is a fundamental principle that the
court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their
predicament. Article 1412 of the Civil Code denies them such aid. It provides:
"ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:
"(1) when the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other's undertaking."
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription.
As this Court said in Eugenio v. Perdido,[2] "the mere lapse of time cannot give efficacy to contracts that are null and
void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law
prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in
equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property
agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was
equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the
other."[3] Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the
rule should not be applied in the instant case.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs,
versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R
entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs-Appellees, versus Lita Enterprises, Inc., DefendantAppellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are hereby annulled and set
aside. No costs.
SO ORDERED.
Fernando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova, Gutierrez,
Jr., and De la Fuente, JJ., concur.
Aquino, J., no part.

[1]

Dizon v. Octavio, 51 O.G. 4059.

[2]

97 Phil. 41.

[3]

Pomeroy's Equity Jurisprudence, Vol. 3, 5th ed., p. 728.

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