1

Crisostomo vs CA
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours
International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed Jewels of
Europe. Package tour included the countries of England, Holland, Germany, Austria, Liechstenstein, Switzerland and France
at a total cost of P74,322.70. She was given a 5% discount on the amount, which included airfare, and the booking fee was
also waived because petitioners niece, Meriam Menor, was respondent companys ticketing manager.
On June 12, 1991(Wednesday), Menor went to her residence to deliver petitioners travel documents and plane tickets.
Estela, in turn, gave her the full payment for the package tour. Menor then told her to be at NAI A on SATURDAY, two
hours before her flight on board British Airways.
On June 15, 1991 (Saturday) , she went to NAIA take the first leg of her journey from Manila to Hongkong WITHOUT
checking her travel documents.
To her dismay, she discovered that her flight already departed the previous day. She learned that her plane ticket was for
the flight scheduled on June 14, 1991.
She called up Menor to complain who prevailed upon her to take another tour British Pageant.
She was asked anew to pay US$785.00 or P20,881.00. Petitioner gave respondent US$300 or P7,980.00 as partial payment
and commenced the trip.
Upon her return from Europe, she demanded from respondent the reimbursement of P61, 421.70, representing the
difference between the sum she paid for Jewels of Europe and the amount she owed respondent for the British
Pageant tour.
Despite several demands, CARAVAN refused to reimburse the amount, contending that the same was non-refundable.
Petitioner then filed a complaint against respondent for breach of contract of carriage and damages, which was docketed
as Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City.
She alleged that that her failure to join Jewels of Europe was due to respondents fault since it did not clearly indicate
the departure date on the plane ticket. Also, respondent was negligent in informing her of the wrong flight schedule
through its employee Menor. She insisted that the British Pageant was merely a substitute for the Jewels of Europe
tour, such that the cost of the former should be properly set-off against the sum paid for the latter.
On the other hand, respondent, through its Operations Manager, Concepcion Chipeco, denied responsibility for
petitioners failure to join the first tour on the following grounds:
1.) Estela was informed of the correct departure date, which was clearly and legibly printed on the
plane ticket. The travel documents were given to her two days ahead of the scheduled trip.
Petitioner had only herself to blame for missing the flight, as she did not bother to read or confirm
her flight schedule as printed on the ticket.
2.) That it can no longer reimburse the amount paid for Jewels of Europe, because it had already
been remitted to its principal Lotus Travel Ltd., in Singapore. Lotus had already billed the same even
if she did not join the tour. Lotus European tour organizer, Insight International Tours Ltd.,
determines the cost of a package tour based on a minimum number of projected participants. For
this reason, it is accepted industry practice to disallow refund for individuals who failed to take a
booked tour.
3.) British Pageant was not a substitute for the package tour since it was independently procured after
realizing that she made a mistake in missing her flight for Jewels of Europe.
4.) She was allowed to make a partial payment because her niece was then an employee of the travel
agency.

Consequently, respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the British Pageant
package tour.

TRIAL COURT DECISION: Respondent was negligent in erroneously advising petitioner of her departure date through its
employee, Menor, who was not presented as witness to rebut petitioners testimony. HOWEVER, petitioner should have
verified the exact date and time of departure by looking at her ticket and should have simply not relied on Menors verbal
representation. The trial court thus declared that petitioner was guilty of contributory negligence and accordingly,
deducted 10% from the amount being claimed as refund.
CA DECSION: Respondent appealed to the CA, which likewise found both parties to be at fault. HOWEVER, the appellate
court held that petitioner is more negligent than respondent because as a lawyer and well-traveled person, she should
have known better than to simply rely on what was told to her. This being so, she is not entitled to any form of damages.
Petitioner also forfeited her right to the Jewels of Europe tour and must therefore pay respondent the balance of the
price for the British Pageant tour.
ISSUE: Whether or not respondent Caravan is a common carrier and thus did not observe the standard of care required of a
common carrier when it informed the petitioner wrongly of the flight schedule.
Ruling: The petition was denied for lack of merit. CA decision was affirmed.
Caravan is not a common carrier.
Under Article 1732 of the Civil Code a common carrier is defined as persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both, by land, water or air, for compensation, affecting
their services to the public.
Caravan is NOT an entity engaged in the business of transporting either passengers or goods and is therefore, neither a
private nor a common carrier. Respondent did not undertake to transport petitioner from one place to another since its
covenant with its customers is simply to make travel arrangements in their behalf.
2

Respondents services as a travel agency include procuring tickets and facilitating travel permits or visas as well as
booking customers for tours. It is in this sense that the contract between the parties in this case was an ordinary one for
services and not one of carriage.
At most, it acted merely as an agent of the airline, with whom petitioner ultimately contracted for her carriage to Europe.
Its obligation to petitioner was simply to see to it that petitioner was properly booked with the airline for the appointed
date and time. Her transport to the place of destination, meanwhile, pertained directly to the airline.
Since the contract between them is an ordinary one for services, the standard of care required of respondent is that of a
good father of a family under Article 1173 of the Civil Code.
Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which
is expected of a good father of a family shall be required.
This connotes reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the performance of an obligation is:
did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then he is guilty of negligence.
It is clear that respondent performed its prestation under the contract as well as everything else that was essential to book
petitioner for the tour. Had petitioner exercised due diligence in the conduct of her affairs, there would have been no
reason for her to miss the flight. Needless to say, after the travel papers were delivered to petitioners, it became incumbent
upon her to take ordinary care of her concerns. This undoubtedly would require that she at least read the documents in
order to assure herself of the important details regarding the trip.
Also, respondents failure to present Menor as witness to rebut petitioners testimony could not give rise to an inference
unfavorable to the former. Menor was already working in France at the time of the filing of the complaint, making it
physically impossible to present her as a witness. Then too, EVEN IF IT WERE POSSIBLE for t to secure Menors testimony,
the presumption under Rule 131, Section 3(e) would still NOT apply. The opportunity and possibility for obtaining
Menors testimony belonged to both parties, considering that Menor was not just respondents employee, but also
petitioners niece. It was thus error for the lower court to invoke the presumption that respondent willfully suppressed
evidence under Rule 131, Section 3(e). Said presumption would logically be inoperative if the evidence is not intentionally
omitted but is simply unavailable, or when the same could have been obtained by both parties.
In the case at bar, the evidence on record shows that respondent company performed its duty diligently and did not
commit any contractual breach. Hence, petitioner cannot recover and must bear her own damage.
PEDRO DE GUZMAN vs. COURT OF APPEALS and ERNESTO CENDANA

FACTS:
Ernesto Cendana was a junk dealer engaged in buying up used bottles and scrap metal in Pangasinan.
Upon gathering sufficient quantities, he would bring them to Manila for resale by utilizing his 2 six-wheeler trucks. On the
return trip to Pangasinan, he would load his vehicles with cargo that various merchants wanted delivered to differing
establishments in Pangasinan. For that service, he charged freight rates which were commonly lower than regular
commercial rates.
Sometime in November 1970, Pedro de Guzman, a merchant & authorized dealer of General Milk Company (Philippines),
Inc., contracted with Cendana for the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in
Makati, to De Guzmans establishment in Urdaneta on or before December 4, 1970.
Accordingly, on December 1, 1970, Cendana loaded in Makati the merchandise on to his trucks:
Truck 1- 150 cartons were loaded, driven by him
Truck 2- 600 cartons placed, driven by his driver and employee,Manuel Estrada

However, only 150 boxes of Liberty filled milk were delivered to de Guzman. The other 600 boxes never reached him since
the truck carrying 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 January 6, 1971, petitioner commenced action against respondent in the CFI of Pangasinan, demanding payment of P
22,150.00, the claimed value of the lost merchandise, plus damages and attorney's fees. He argued that Cendana, 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.
Cendana 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.

TRIAL COURTS DECISION: It found Cendana to be a common carrier & held him liable for the value of the undelivered
goods (P22,150.00) as well as for P4,000 as damages & P 2,000 as attorneys fees.
Cendana appealed to CA urging that the trial court had erred in:
1.) considering him a common carrier;
2.) in finding that he had habitually offered trucking services to the public;
3.) not exempting him from liability on the ground of force majeure; and
4.) in ordering him to pay damages and attorney's fees.

CA decision: It 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.
3

Hence, 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.

Issue:
1. WON Cendana may be properly characterized as a common carrier;
2. WON the hijacking of respondents truck constitutes force majeure exempting Cendana from liability
3.. What are the specific requirements of the duty of extraordinary diligence in the vigilance over the goods carried in the specific
context of hijacking or armed robbery.


RULING:
1. Yes. 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 article makes NO distinction between one whose principal business activity is the carrying of persons/goods/both,
and one who does such carrying only as an ancillary activity (in local Idiom as a sideline). It also carefully avoids making any
distinction between a person/enterprise offering transportation service on a regular/scheduled basis and one offering such service
on an occasional/episodic/unscheduled basis. It does not distinguish between a carrier offering its services to the general public,
and one who offers services/solicits business only from a narrow segment of the general population.

Cendena is properly characterized as a common carrier even though he merely back hauled goods for other merchants
from Manila to Pangasinan, on a periodic/occasional rather than regular/scheduled manner, and even though it was not his principal
occupation. There is no dispute that private respondent charged his customers a fee for hauling their goods.

A certificate of public convenience is NOT a requisite for the incurring of liability . That liability arises the moment a
person/firm acts as a common carrier, regardless of such carriers compliance 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 him 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 him precisely for failing to comply with applicable
statutory requirements. The business of a common carrier impinges directly and intimately upon the safety, well being & property
of those members of the general community who happen to deal with such carrier. The law imposes duties & liabilities upon
common carriers for the safety & 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.

2 . Common carriers, by the nature of their business and for reasons of public policy are held to a very high degree of care &
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/omission of the shipper/owner of the goods;
(4) The character of the goods/defects in the packing or-in the containers; and
(5) Order/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, 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.
The hijacking of the carriers truck does not fall within any of the 5 categories of exempting causes listed in Article 1734.
Therefore, it would follow that the hijacking of the carriers vehicle must be dealt with under the provisions of Article 1735 that the
Cendana as common carrier is presumed to have been at fault or to have acted negligently. HOWEVER, this presumption may be
overthrown by proof of extraordinary diligence on Cendanas part.

3. Article 1745 provides:

Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary
to public policy:xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6) that the common carriers 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.
(Emphasis supplied)
4

Under Article 1745 (6), 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.
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.
The record shows that an information for robbery in band was filed in the CFI of Tarlac, Branch 2, entitled People of the
Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe. There, accused were charged
with willfully and unlawfully taking & carrying away with them the 2nd truck, driven by Manuel Estrada and loaded with the 600
cartons of Liberty filled milk destined for delivery at De Guzmans store in Urdaneta, Pangasinan. The trial court decision shows that
the accused acted with grave, if not irresistible, threat, violence or force. 3 of the 5 hold-uppers were armed with firearms. The
robbers not only took away the truck & its cargo but also kidnapped the driver & his helper, detaining them for several days and
later releasing them in another province. The hijacked truck was subsequently found by the police in Quezon City. The CFI convicted
all the accused of robbery, though not of robbery in band.
The occurrence of the loss must reasonably be regarded as quite beyond the control of the common carrier & 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 & of transport of goods, and are not held liable for acts/events which cannot be foreseen/ inevitable, provided that they
shall have complied with the rigorous standard of extraordinary diligence.
Thus, Cendana cannot be held liable for the value of the undelivered merchandise which was lost because of an event
entirely beyond private his control.


VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER TERMINAL SERVICES, INC., petitioner, vs.
UCPB GENERAL INSURANCE CO., INC. (formerly Allied Guarantee Ins. Co.,Inc.) respondent.

FACTS: Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI), a sole proprietorship customs
broker. At the time material to this case, petitioner entered into a contract with San Miguel Corporation (SMC) for the transfer of
114 reels of semi-chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila to SMCs warehouse at the
Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was insured by respondent UCPB General Insurance Co., Inc.On
July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on board M/V Hayakawa Maru and, after 24
hours, were unloaded from the vessel to the custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25,
1990, petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator and delivered it to SMCs
warehouse in Ermita, Manila. On July 25, 1990, the goods were inspected by Marine Cargo Surveyors, who found that 15 reels of the
semi-chemical fluting paper were wet/stained/torn and 3 reels of kraft liner board were likewise torn. The damage was placed at
P93,112.00.SMC collected payment from respondent UCPB under its insurance contract for the aforementioned amount. In turn,
respondent, as subrogee of SMC, brought suit against petitioner in the Regional Trial Court, Branch 148, Makati City, which, on
December 20, 1995, rendered judgment finding petitioner liable to respondent for the damage to the shipment. The decision was
affirmed by the Court of Appeals on appeal. Hence this petition for review on certiorari.

ISSUE: WON THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN CLASSIFYING THE PETITIONER AS A
COMMON CARRIER AND NOT AS PRIVATE OR SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.

HELD: NO. Petitioner contends that contrary to the findings of the trial court and the Court of Appeals, she is not a common carrier
but a private carrier because, as a customs broker and warehouseman, she does not indiscriminately hold her services out to the
public but only offers the same to select parties with whom she may contract in the conduct of her business. The contention has no
merit.

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

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

There is greater reason for holding petitioner to be a common carrier because the transportation of goods is an integral part of her
business. To uphold petitioners contention would be to deprive those with whom she contracts the protection which the law
affords them notwithstanding the fact that the obligation to carry goods for her customers, as already noted, is part and parcel of
petitioners business.
5


As to petitioners liability, Art. 1733 of the Civil Code provides:
Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the
circumstances of each case. . .

In Compania Maritima v. Court of Appeals, the meaning of extraordinary diligence in the vigilance over goods was explained thus:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and
to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for sale, carriage and
delivery. It requires common carriers to render service with the greatest skill and foresight and to use all reasonable means
to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires.

In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the spoilage or wettage took place while
the goods were in the custody of either the carrying vessel M/V Hayakawa Maru, which transported the cargo to Manila, or the
arrastre operator, to whom the goods were unloaded and who allegedly kept them in open air for nine days from July 14 to July 23,
1998 notwithstanding the fact that some of the containers were deformed, cracked, or otherwise damaged, as noted in the Marine
Survey Report. As found by the Court of Appeals:
From the [Survey Report], it [is] clear that the shipment was discharged from the vessel to the arrastre, Marina Port Services Inc., in
good order and condition as evidenced by clean Equipment Interchange Reports (EIRs). Had there been any damage to the
shipment, there would have been a report to that effect made by the arrastre operator. The cargoes were withdrawn by the
defendant-appellant from the arrastre still in good order and condition as the same were received by the former without exception,
that is, without any report of damage or loss. Surely, if the container vans were deformed, cracked, distorted or dented, the
defendant-appellant would report it immediately to the consignee or make an exception on the delivery receipt or note the same in
the Warehouse Entry Slip (WES). None of these took place. It can only be concluded that the damages to the cargo occurred while it
was in the possession of the defendant-appellant. Whenever the thing is lost (or damaged) in the possession of the debtor (or
obligor), it shall be presumed that the loss (or damage) was due to his fault, unless there is proof to the contrary. No proof was
proffered to rebut this legal presumption and the presumption of negligence attached to a common carrier in case of loss or damage
to the goods.

Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides:
Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the
following causes only:
. . . .
(4) The character of the goods or defects in the packing or in the containers.
. . . .
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s in the container, is/are known to the
carrier or his employees or apparent upon ordinary observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for damage resulting therefrom. In this case, petitioner accepted the
cargo without exception despite the apparent defects in some of the container vans. Hence, for failure of petitioner to prove that
she exercised extraordinary diligence in the carriage of goods in this case or that she is exempt from liability, the presumption of
negligence as provided under Art. 1735 holds.

LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and THE MANILA INSURANCE CO., INC., respondents.
FACTS: On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter, the vessel) the following goods for
shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods were insured with MIC against various risks including TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The vessel, in
turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI). On its way to Manila from the port of Nasipit, Agusan
del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made
a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid the value of the goods to the insured in full
settlement of its claim. Subsequently, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was
due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the insurance proceeds
therefrom directly to MIC, to be deducted from the latters claim from LOADSTAR.
ISSUES: 1) WON LOADSTAR is a private carrier,
2) WON LOADSTAR observed due diligence
HELD: 1) NO. Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the carrier be
issued a certificate of public convenience, and this public character is not altered by the fact that the carriage of the goods in
question was periodic, occasional, episodic or unscheduled.
In Home Insurance Co. v. American Steamship Agencies, Inc.,
[11]
where this Court held that a common carrier transporting
special cargo or chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of the Civil
Code. Any stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent is void only if
the strict policy governing common carriers is upheld. Such policy has no force where the public at large is not involved, as in the
case of a ship totally chartered for the use of a single party. This said case is not applicable in the case at bar for simple reason that
the factual settings are different. The records do not disclose that the M/V Cherokee, on the date in question, undertook to carry
a special cargo or was chartered to a special person only. There was no charter party. The bills of lading failed to show any special
arrangement, but only a general provision to the effect that the M/V Cherokee was a general cargo carrier.
[14]
Further, the bare
6

fact that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is not reason
enough to convert the vessel from a common to a private carrier, especially where, as in this case, it was shown that the vessel was
also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier under Article 1732
of the Civil Code. In the case of De Guzman v. Court of Appeals,
[15]
the Court juxtaposed the statutory definition of common
carriers with the peculiar circumstances of that case, viz.:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity (in local idiom, as a sideline. Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such
service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services
to the general public, i.e., the general community or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1733 deliberately refrained from making such distinctions.
2) NO. M/V Cherokee was not seaworthy when it embarked on its voyage on 19 November 1984. The vessel was not even
sufficiently manned at the time. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel
involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.
[16]


FIRST PHILIPPINE INDUSTRIAL CORPORATION vs. COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas

FACTS: 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.
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City. However,
before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local tax based on its gross
receipts for the fiscal year 1993 pursuant to the Local Government Code. Petitioner filed a letter-protest addressed to the
respondent City Treasurer.
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.
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.
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.
The trial court rendered a decision dismissing the complaint: "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: 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."
The respondent court (Court of Appeals) rendered a decision
[11]
affirming the trial court's dismissal of petitioner's
complaint.

ISSUE: Whether petitioner is a common carrier or a transportation contractor.

HELD: YES. The test for determining whether a party is a common carrier of goods is:
7

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.
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.
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.
Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Republic Act
387 also regards petroleum operation as a public utility.
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.

ASIA LIGHTERAGE AND SHIPPING, INC., vs. COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., Facts:

On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at US$423,192.35 was shipped by
Marubeni American Corporation of Portland, Oregon on board the vessel M/V NEO CYMBIDIUM V-26 for delivery to the
consignee, General Milling Corporation in Manila.
1
The shipment was insured by the private respondent Prudential Guarantee and Assurance, Inc. against loss or damage for
P14,621,771.75.
2

The petitioner was contracted by the consignee as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig
City. On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody of the petitioner
Asia Lighterage and Shipping, Inc.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, for delivery to consignee.
3

On August 17, 1990, the transport of said cargo was suspended due to a warning of an incoming typhoon.
On August 22, 1990, the petitioner proceeded to pull the barge to Engineering Island off Baseco to seek shelter from the
approaching typhoon. A few days after, the barge developed a list because of a hole it sustained after hitting an unseen
protuberance underneath the water.
4

Petitioner secured the services of Gaspar Salvaging Corporation which refloated the barge. The hole was then patched with
clay and cement. The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf on
September 5, 1990.
Upon reaching the Sta. Mesa spillways, the barge again ran aground due to strong current. To avoid the complete sinking
of the barge, a portion of the goods was transferred to three other barges.
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the total loss of the
remaining cargo.
5

On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and loaded on the three
other barges. The total proceeds from the sale of the salvaged cargo was P201,379.75.
Consignee sent a claim letter to the petitioner, and another letter dated September 18, 1990 to the private respondent for
the value of the lost cargo. On January 30, 1991, the private respondent indemnified the consignee in the amount of
P4,104,654.22. Thereafter, as subrogee, it sought recovery of said amount from the petitioner, but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the amount of indemnity,
attorney's fees and cost of suit. Petitioner filed its answer with counterclaim.
RTC: Ruled in favor of the private respondent. Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential Guarantee &
Assurance Co., Inc. the sum of P4,104,654.22 with interest from the date complaint was filed on July 3, 1991 until fully satisfied plus
10% of the amount awarded as and for attorney's fees. Defendant's counterclaim is dismissed.
CA: The appellate court affirmed the decision of the trial court with modification. The salvage value of P201,379.75 shall be
deducted from the amount of P4,104,654.22.

Issue/s:

1
Evidenced by Bill of Lading No. PTD/Man-4
2
Under Marine Cargo Risk Note RN 11859/90.
3
Evidenced by Lighterage Receipt No. 0364
4
The petitioner filed a Marine Protest on August 28, 1990.
5
A second Marine Protest was filed on September 7, 1990.
8

(1) Whether the petitioner is a common carrier; and, (2) Assuming the petitioner is a common carrier, whether it exercised
extraordinary diligence in its care and custody of the consignees cargo.

Ruling: (1) Petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to
the public.
Petitioners contention: It is not a common carrier but a private carrier. Allegedly, it has no fixed and publicly known route,
maintains no terminals, and issues no tickets. It points out that it is not obliged to carry indiscriminately for any person. It is not
bound to carry goods unless it consents. In short, it does not hold out its services to the general public.
SC: The principal business of the petitioner is that of lighterage and drayage and it offers its barges to the public for carrying
or transporting goods by water for compensation. Petitioner is a common carrier whether its carrying of goods is done on an
irregular rather than scheduled manner, and with an only limited clientele. A common carrier need not have fixed and publicly
known routes. Neither does it have to maintain terminals or issue tickets.
Citing Bascos vs CA: The test to determine a common carrier is whether the given undertaking is a part of the business
engaged in by the carrier which he has held out to the general public as his occupation rather than the quantity or extent of the
business transacted.
In the case at bar, the petitioner admitted that it is engaged in the business of shipping and lighterage, offering its barges to
the public, despite its limited clientele for carrying or transporting goods by water for compensation.

(2) Petitioner failed to exercise extraordinary diligence in its care and custody of the consignees goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported by them. They
are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated. To overcome the
presumption of negligence in the case of loss, destruction or deterioration of the goods, the common carrier must prove that it
exercised extraordinary diligence. There are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the
instances when the presumption of negligence does not attach:

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to
any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.

Petitioners contention: The barge completely sank after its towing bits broke, resulting in the total loss of its cargo but petitioner
claims that this was caused by a typhoon, hence, it should not be held liable for the loss of the cargo.

SC: Petitioner failed to prove that the typhoon is the proximate and only cause of the loss of the goods, and that it has
exercised due diligence before, during and after the occurrence of the typhoon to prevent or minimize the loss. The evidence show
that, even before the towing bits of the barge broke, it had already previously sustained damage when it hit a sunken object while
docked at the Engineering Island where it suffered a hole. Clearly, this could not be solely attributed to the typhoon. The partly-
submerged vessel was refloated but its hole was patched with only clay and cement. The patch work was merely a provisional
remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to proceed with the voyage, it recklessly exposed
the cargo to further damage.
Petitioner still headed to the consignees wharf despite knowledge of an incoming typhoon. During the time that the barge
was heading towards the consignee's wharf on September 5, 1990, typhoon Loleng has already entered the Philippine area of
responsibility.
More importantly, the officers/employees themselves of petitioner admitted that when the towing bits of the vessel broke
that caused its sinking and the total loss of the cargo upon reaching the Pasig River, it was no longer affected by the typhoon. The
typhoon then is not the proximate cause of the loss of the cargo; a human factor, i.e., negligence had intervened.

FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTOTRUCKING CORPORATION and LAMBERT M. EROLES,

FACTS: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units of Condura S.D. white
refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South
Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north
diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall
into a deep canal, resulting in damage to the cargoes.
FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered
cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought
reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a
complaint for damages and breach of contract of carriage against GPS and its driver Lambert Eroles with the Regional Trial Court,
Branch 66, of Makati City.
In its answer, respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it
was not so engaged in business as a common carrier. Respondents further claimed that the cause of damage was purely accidental.
The issues having thus been joined, FGU presented its evidence, establishing the extent of damage to the cargoes and the amount it
had paid to the assured. GPS, instead of submitting its evidence, filed with leave of court a motion to dismiss the complaint by way
of demurrer to evidence on the ground that petitioner had failed to prove that it was a common carrier. Trial court granted the
motion to dismiss and denied subsequent MR. Plaintiff appealed to CA and the same was rejected and MR was denied.

ISSUE and HELD: WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED
UNDER THE LAW AND EXISTING JURISPRUDENCE.

9

No. The Court finds the conclusion of the trial court and the Court of Appeals to be amply justified. GPS, being an exclusive
contractor and hauler of Concepcion Industries, Inc., rendering or offering its services to no other individual or entity, cannot be
considered a common carrier. 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 hire or compensation, offering their services to
the public, whether to the public in general or to a limited clientele in particular, but never on an exclusive basis. The true test of
a common carrier is the carriage of passengers or goods, providing space for those who opt to avail themselves of its
transportation service for a fee. Given accepted standards, GPS scarcely falls within the term common carrier.
The above conclusion nothwithstanding, GPS cannot escape from liability. In culpa contractual, upon which the action of
petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure
of its compliance justify, prima facie, a corresponding right of relief. Respondent trucking corporation recognizes the existence of a
contract of carriage between it and petitioners assured, and admits that the cargoes it has assumed to deliver have been lost or
damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation in this case, the
delivery of the goods in its custody to the place of destination gives rise to a presumption of lack of care and corresponding liability
on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not himself be ordered to pay
petitioner. The driver, not being a party to the contract of carriage between petitioners principal and defendant, may not be held
liable under the agreement. Petitioners civil action against the driver can only be based on culpa aquiliana, which, unlike culpa
contractual, would require the claimant for damages to prove negligence or fault on the part of the defendant. (mention of the
doctrine of res ipsa loquitor, visit the full text. not that relevant for transpo though.)
ESTRELLITA M. BASCOS, petitioners, vs. COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.
FACTS: Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a hauling contract 2 with
Jibfair Shipping Agency Corporation whereby the former bound itself to haul the latter's 2,000 m/tons of soya bean meal from
Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its obligation,
CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya
bean meal from the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner failed to deliver the said
cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping Agency the amount of the lost goods in accordance with the
contract.
In her answer, petitioner interposed the following defenses: that there was no contract of carriage since CIPTRADE leased
her cargo truck to load the cargo from Manila Port Area to Laguna; that the truck carrying the cargo was hijacked along Canonigo St.,
Paco, Manila on the night of October 21, 1988; that the hijacking was immediately reported to CIPTRADE and that petitioner and the
police exerted all efforts to locate the hijacked properties; and that hijacking, being a force majeure, exculpated petitioner from any
liability to CIPTRADE.
ISSUE: 1) WON a contract of carriage or a lease of cargo truck existed.
2) WON the hijacking was a force majeure, exempting Petitioner from any liability.
HELD: 1) YES. Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or 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 to determine a common carrier is "whether the given undertaking is a part of the business engaged in by
the carrier which he has held out to the general public as his occupation rather than the quantity or extent of the business
transacted." 12 In this case, petitioner herself has made the admission that she was in the trucking business, offering her trucks to
those with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the same. 13
In De Guzman vs. Court of Appeals held:"The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a "sideline").
Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732
distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general population. We think that Article 1732 deliberately
refrained from making such distinctions."
2) NO. Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them. 17
Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated. 18
There are very few instances when the presumption of negligence does not attach and these instances are enumerated in Article
1734. 19 In those cases where the presumption is applied, the common carrier must prove that it exercised extraordinary diligence
in order to overcome the presumption.
In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from liability for the loss of the cargo.
In De Guzman vs. Court of Appeals, 20 the Court held that hijacking, not being included in the provisions of Article 1734, must be
dealt with under the provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or negligent. To
exculpate the carrier from liability arising from hijacking, he must prove that the robbers or the hijackers acted with grave or
irresistible threat, violence, or force.
Fabre vs. CA
FACTS: Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus. They used the bus principally in
connection with a bus service for school children which they operated in Manila. The couple had a driver, Porfirio J. Cabil, whom
10

they hired in 1981, after trying him out for two weeks, His job was to take school children to and from the St. Scholastica's College in
Malate, Manila.
The group was scheduled to leave on November 2, 1984, at 5:00 o'clock in the afternoon. However, as several members of the party
were late, the bus did not leave the Tropical Hut at the corner of Ortigas Avenue and EDSA until 8:00 o'clock in the evening.
The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at Carmen was under repair, so
that petitioner Cabil, who was unfamiliar with the area (it being his first trip to La Union), was forced to take a detour through the
town of Baay in Lingayen, Pangasinan. At 11:30 that night, petitioner Cabil came upon a sharp curve on the highway, running on a
south to east direction, which he described as "siete." The road was slippery because it was raining, causing the bus, which was
running at the speed of 50 kilometers per hour, to skid to the left road shoulder. The bus hit the left traffic steel brace and sign along
the road and rammed the fence of one Jesus Escano, then turned over and landed on its left side, coming to a full stop only after a
series of impacts. The bus came to rest off the road. A coconut tree which it had hit fell on it and smashed its front portion. Several
passengers were injured. Private respondent Amyline Antonio was thrown on the floor of the bus and pinned down by a wooden
seat.
Cabil said he was not familiar with the area and he could not have seen the curve despite the care he took in driving the
bus, because it was dark and there was no sign on the road. He said that he saw the curve when he was already wi thin 15 to 30
meters of it. He allegedly slowed down to 30 kilometers per hour, but it was too late.
The Lingayen police filed a criminal complaint against the driver. Petitioners Fabre paid Jesus Escano P1,500.00 for the
damage to the latter's fence. On the basis of Escano's affidavit of desistance the case against petitioners Fabre was dismissed.
Amyline Antonio, who was seriously injured, brought this case in the RTC of Makati, Metro Manila. As a result of the accident, she is
now suffering from paraplegia and is permanently paralyzed from the waist down.
The trial court found that: No convincing evidence was shown that the minibus was properly checked for travel to a long
distance trip and that the driver was properly screened and tested before being admitted for employment. Indeed, all the evidence
presented have shown the negligent act of the defendants which ultimately resulted to the accident subject of this case.
Accordingly, it gave judgment for private respondents pursuant to articles 2176 and 2180 of the Civil Code of the Philippines.
The Court of Appeals affirmed the decision of the trial court with respect to Amyline Antonio but dismissed it with respect
to the other plaintiffs on the ground that they failed to prove their respective claims. It sustained the trial court's finding that
petitioner Cabil failed to exercise due care and precaution in the operation of his vehicle considering the time and the place of the
accident. The Court of Appeals held that the Fabres were themselves presumptively negligent.

ISSUE: Whether the bus driver, petitioner Porfirio Cabil, was negligent.

HELD: YES. The finding that Cabil drove his bus negligently, while his employer, the Fabre, who owned the bus, failed to exercise the
diligence of a good father of the family in the selection and supervision of their employee is fully supported by the evidence on
record. These factual findings of the two courts we regard as final and conclusive, supported as they are by the evidence. Indeed, it
was admitted by Cabil that on the night in question, it was raining, and as a consequence, the road was slippery, and it was dark. He
averred these facts to justify his failure to see that there lay a sharp curve ahead. However, it is undisputed that Cabil drove his bus
at the speed of 50 kilometers per hour and only slowed down when he noticed the curve some 15 to 30 meters ahead.
3
By then it
was too late for him to avoid falling off the road. Given the conditions of the road and considering that the trip was Cabil' s first one
outside of Manila, Cabil should have driven his vehicle at a moderate speed. There is testimony
4
that the vehicles passing on that
portion of the road should only be running 20 kilometers per hour, so that at 50 kilometers per hour, Cabil was running at a very
high speed.
Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise to the presumption that his employers, the
Fabres, were themselves negligent in the selection and supervisions of their employee.
Due diligence in selection of employees is not satisfied by finding that the applicant possessed a professional driver's license. The
employer should also examine the applicant for his qualifications, experience and record of service.
5
Due diligence in supervision, on
the other hand, requires the formulation of rules and regulations for the guidance of employees and issuance of proper instructions
as well as actual implementation and monitoring of consistent compliance with the rules.

The Fabres, in allowing Cabil to drive the bus to La Union, apparently did not consider the fact that Cabil had been driving
for school children only, from their homes to the St. Scholastica's College in Metro Manila.
7
They had hired him only after a two-
week apprenticeship. They had tested him for certain matters, such as whether he could remember the names of the children he
would be taking to school, which were irrelevant to his qualification to drive on a long distance travel, especially considering that the
trip to La Union was his first. The existence of hiring procedures and supervisory policies cannot be casually invoked to overturn the
presumption of negligence on the part of an employer.
Petitioners argue that they are not liable because (1) an earlier departure (made impossible by the congregation's delayed
meeting) could have a averted the mishap and (2) under the contract, the WWCF was directly responsible for the conduct of the trip.
Neither of these contentions hold water. The hour of departure had not been fixed. Even if it had been, the delay did not bear
directly on the cause of the accident. With respect to the second contention, it was held in an early case that:
[A] person who hires a public automobile and gives the driver directions as to the place to which he wishes to be conveyed, but
exercises no other control over the conduct of the driver, is not responsible for acts of negligence of the latter or prevented from
recovering for injuries suffered from a collision between the automobile and a train, caused by the negligence or the automobile
driver.
As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres, did not have to be engaged in the
business of public transportation for the provisions of the Civil Code on common carriers to apply to them.
11

The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or
both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that Article 1732 deliberately refrained from making such
distinctions. As common carriers, the Fabres were found to exercise "extraordinary diligence" for the safe transportation of the
passengers to their destination. This duty of care is not excused by proof that they exercise the diligence of a good father of the
family in the selection and supervision of their employee.
The same circumstances detailed above, supporting the finding of the trial court and of the appellate court that petitioners
are liable under Arts. 2176 and 2180 for quasi delict, fully justify findings them guilty of breach of contract of carriage under Arts.
1733, 1755 and 1759 of the Civil Code.
As above stated, the decision of the Court of Appeals can be sustained either on the theory of quasi delict or on that of
breach of contract. The question is whether, as the two courts below held, petitioners, who are the owners and driver of the bus,
may be made to respond jointly and severally to private respondent. We hold that they may be. In Dangwa Trans. Co. Inc. v. Court of
Appeals,
14
on facts similar to those in this case, this Court held the bus company and the driver jointly and severally liable for
damages for injuries suffered by a passenger.

Home Insurance vs American Steamship
Distinguished from private Carrier, Towage, Arrastre and Stevedoring
FACTS:
Consorcio Pesquero del Peru of South America shipped 21,740 jute bags of Peruvian fish meal through SS Crowborough
(operated by American Steamship Agencies) from Chimbate, Peru to Manila.
It is covered by bill of ladings 1 and 2, both dated January 17, 1963
Cargo is consigned to San Miguel Corporation (SMC)
Cargo is insured by Home Insurance Company for $202,505
Cargo arrived on March 7, 1963
Cargo was discharged into the lighters of Luzon Stevedoring Company
There were shortages amounting to P12,033.85 so SMC tried to claim from Luzon, Home Insurance and American
Steamship Agencies.
Others denied liability so Home Insurance paid P14,870.71 to SMC
Luzon and American Steamship refused to reimburse Home Insurance.
Claims
o Luzon
alleged that it delivered with due diligence the goods in the same quantity and quality that it had received
the same from the carrier
Home Insurances claim prescribed under Art 366 of Civil Code
o American Steamship
Alleged that under the provisions of the Charter party referred to in the bills of lading, the charterer is
responsible for any loss or damage to the vargo.
Exercised due diligence in stowing goods and a mere forwarding agent.
Court of First Instance:
o Absolved Luzon
o Ordered American Steamship to pay Home Insurance P14,870.71
(a) The non-liability claim of American Steamship Agencies under the charter party contract is not tenable
because Article 587 of the Code of Commerce makes the ship agent also civilly liable for damages in favor
of third persons due to the conduct of the captain of the carrier;
(b) The stipulation in the charter party contract exempting the owner from liability is against public policy
under Article 1744 of the Civil Code;
(c) In case of loss, destruction or deterioration of goods, common carriers are presumed at fault or
negligent under Article 1735 of the Civil Code unless they prove extraordinary diligence, and they cannot
by contract exempt themselves from liability resulting from their negligence or that of their servants; and
(d) When goods are delivered to the carrier in good order and the same are in bad order at the place of
destination, the carrier is prima facie liable

ISSUE:
WON American Steamship is required to reimburse Home Insurance?

HELD: NO.
American steamship was acting as a private carrier and not as a common carrier so Art 1744 of the Civil Code cannot apply.
.The stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent would be
void only if the strict public policy governing common carriers is applied. Such policy has no force where the public at large
is not involved, as in the case of a ship totally chartered for the use of a single party.
In a charter of the entire vessel, the bill of lading issued by the master to the charterer, as shipper, is in fact and legal
contemplation merely a receipt and a document of title not a contract, for the contract is the charter party.


PLANTERS PRODUCTS, INC., vs. COURT OF APPEALS
FACTS: 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
12

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

After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the steel hatches were
closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with steel bonds. The hatches remained closed and
tightly sealed throughout the entire voyage. Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches
were opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks
which were parked alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the
charter-partly (which provided for an F.I.O.S. clause). The hatches remained open throughout the duration of the discharge. 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. 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 ferilizer. It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and 18th).
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. 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.
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. 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."
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. 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., the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private respondent
KKKK was a private carrier and not a common carrier by reason of the time charterer-party.

ISSUE: Whether a common carrier becomes a private carrier by reason of a charter-party

HELD: NO.
Definition:
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; 20 a contract of affreightment by which the owner of a ship or other vessel lets
the whole or a part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of affreightment which involves
the use of shipping space on vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by
demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire
command and possession and consequent control over its navigation, including the master and the crew, who are his
servants. Contract of affreightment may either be time charter, wherein the vessel is leased to the charterer for a fixed
period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party
provides for the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage, the
shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray the expenses for the
maintenance of the ship.

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.
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage-charter. It
is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private,
13

at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in a time or voyage
charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer.
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima facie presumption of
negligence. Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by the
showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. Indeed, we agree with respondent
carrier that bulk shipment of highly soluble goods like fertilizer carries with it the risk of loss or damage. More so, with a variable
weather condition prevalent during its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to
face. Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it highly vulnerable to
deterioration; as well as the inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was
adduced by the petitioner showing that the carrier was remise in the exercise of due diligence in order to minimize the loss or
damage to the goods it carried.

WHEREFORE, the petition is DISMISSED.
NATIONAL STEEL CORPORATION vs. CA

Facts: On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc. (VSI) as
Owner, entered into a Contract of Voyage Charter Hire whereby NSC hired VSIs vessel, the MV VLASONS I to make one (1) voyage
to load steel products at Iligan City and discharge them at North Harbor, Manila. On August 6, 7 and 8, 1974, in accordance with the
Contract of Voyage Charter Hire, the MV VLASONS I loaded at plaintiffs pier at Iligan City, the NSCs shipment of 1,677 skids of
tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric tons for
carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of
the vessel acknowledged receipt of the cargo on board and signed the corresponding bill of lading, B.L.P.P. No. 0233 on August 8,
1974.
The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following day, August 13, 1974,
when the vessels three (3) hatches containing the shipment were opened by plaintiffs agents, nearly all the skids of tinplates and
hot rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by stevedores hired by the
Charterer.
Unloading was completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain which
interrupted the unloading operations. To determine the nature and extent of the wetting and rusting, NSC called for a survey of the
shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975, MASCO made a
report of its ocular inspection conducted on the cargo, both while it was still on board the vessel and later at the NDC warehouse in
Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO reported that it found wetting and rusting of the
packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that
container/metal casings of the skids were rusting all over.
MASCO ventured the opinion that rusting of the tinplates was caused by contact with SEA WATER sustained while still on
board the vessel as a consequence of the heavy weather and rough seas encountered while en route to destination. It was also
reported that MASCOs surveyors drew at random samples of bad order packing materials of the tinplates and delivered the same to
the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770 which in
part, states, The analysis of bad order samples of packing materials xxx shows that wetting was caused by contact with SEA WATER.
On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its claim for damages
suffered due to the downgrading of the damaged tinplates in the amount of P941, 145.18. Then on October 3, 1974, plaintiff
formally demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant
on April 21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal.

Issue: Whether or not VSI contracted with NSC as a common carrier or as a private carrier.

Held: Article 1732 of the Civil Code defines a common carrier as persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or ai r, for compensation, offering their services
to the public. It has been held that the true test of a common carrier is the carriage of passengers or goods, provided it has space,
for all who opt to avail themselves of its transportation service for a fee. A carrier which does not qualify under the above test is
deemed a private carrier. Generally, private carriage is undertaken by special agreement and the carrier does not hold himself out
to carry goods for the general public. The most typical, although not the only form of private carriage, is the charter party, a
maritime contract by which the charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship
for a period of time or a voyage or voyages.


In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the Regional Trial
Court, it carried passengers or goods only for those it chose under a special contract of charter party. As correctly concluded by
the Court of Appeals, the MV Vlasons I was not a common but a private carrier. Consequently, the rights and obligations of VSI
and NSC, including their respective liability for damage to the cargo, are determined primarily by stipulations in their contract of
private carriage or charter party. x x x in a contract of private carriage, the parties may freely stipulate their duties and obligations
which perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the
general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably
be applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts involving common
carriers (Valenzuela Hardwood & Industrial Supply vs. CA).
It is clear from the parties Contract of Voyage Charter Hire, dated July 17, 1974, that VSI shall not be responsible for losses
except on proven willful negligence of the officers of the vessel. The NANYOZAI Charter Party, which was incorporated in the
parties contract of transportation, further provided that the shipowner shall not be liable for loss of or damage to the cargo arising
or resulting from unseaworthiness, unless the same was caused by its lack of due diligence to make the vessel seaworthy or to
ensure that the same was properly manned, equipped and supplied, and to make the holds and all other parts of the vessel in
which cargo *was+ carried, fit and safe for its reception, carriage and preservation. The NANYOZAI Charter Party also provided that
*o+wners shall not be responsible for split, chafing and/or any damage unless caused by the negligence or default of the master or
crew.

14

VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., vs. COURT OF APPEALS ANG SEVEN BROTHERS SHIPPING CORP.

FACTS: On 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.) entered into an agreement with the
defendant Seven Brothers (Shipping Corporation) whereby the latter undertook to load on board its vessel M/V Seven Ambassador
the formers lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila. On 20 January 1984,
plaintiff insured the logs against loss and/or damage with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and
the latter issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date. On 24 January 1984, the plaintiff
gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the plaintiffs
insured logs. On 30 January 1984, a check for P5,625.00 to cover payment of the premium and documentary stamps due on the
policy was tendered due to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the
insurance policy it issued as of the date of the inception for non-payment of the premium due in accordance with Section 77 of the
Insurance Code.On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of
the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven
Brothers Shipping Corporation for the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against defendants. Both defendants
shipping corporation and the surety company appealed. South Sea and herein Petitioner Valenzuela Hardwood and Industrial
Supply, Inc. (Valenzuela) filed separate petitions for review before this Court. In a Resolution dated June 2, 1995, this Court denied
the petition of South Sea. There the Court found no reason to reverse the factual findings of the trial court and the Court of Appeals
that Chua was indeed an authorized agent of South Sea when he received Valenzuelas premium payment for the marine cargo
insurance policy which was thus binding on the insurer.


ISSUE: Whether or not respondent Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in
the charter party executed between the petitioner and the private respondent exempting the latter from liability for the loss of
petitioners logs arising from the negligence of its (Seven Brothers) captain.

HELD: No. As adverted to earlier, it is undisputed that private respondent had acted as a private carrier in transporting petitioners
lauan logs. Thus, Article 1745 and other Civil Code provisions on common carriers which were cited by petitioner may not be applied
unless expressly stipulated by the parties in their charter party. In a contract of private carriage, the parties may validly stipulate that
responsibility for the cargo rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the cargo
caused even by the negligence of the ship captain.
Pursuant to Article 1306 of the Civil Code, such stipulation is valid because it is freely entered into by the parties and the
same is not contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of private carriage is not
even a contract of adhesion. We stress that in a contract of private carriage, the parties may freely stipulate their duties and
obligations which perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does not
involve the general public.
Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably be
applied to a ship transporting commercial goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts involving common
carriers. In practice, the parties in a contract of private carriage can stipulate the carriers obligations and liabilities over the
shipment which, in turn, determine the price or consideration of the charter. Thus, a charterer, in exchange for convenience and
economy, may opt to set aside the protection of the law on common carriers. When the charterer decides to exercise this option, he
takes a normal business risk.
In fine, the respondent appellate court aptly stated that *in the case of+ a private carrier, a stipulation exempting the
owner from liability even for the negligence of its agent is valid.
SAMAR MINING COMPANY, INC. vs. NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC.
FACTS: An importation from Germany was made by SAMAR MINING COMPANY, INC., of one (1) crate Optima welded wedge wire
sieves through the M/S SCHWABENSTEIN a vessel owned by NORDEUTSCHER LLOYD, (represented in the Philippines by its agent,
C.F. SHARP & CO., INC.). Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation was unloaded
and delivered in good order and condition to the bonded warehouse of AMCYL, pursuant to the terms of the bill of lading. 1 The
goods were however never delivered to, nor received by, the consignee at the port of destination Davao. When demands were
made, and failed to elicit desired response, SAMAR filed an instant suit to enforce payment. Trial court rendered judgment in its
favor. However, the Court stated that defendants may recoup whatever they may pay plaintiff by enforcing the judgment against
third party defendant AMCYL, which acted as an agent .
ISSUE: WON Defendants-Appellants have been discharged from responsibility as the cargo had ceased upon transfer of custody to
AMCYL.
HELD: YES. The liability of the common carrier for the loss, destruction or deterioration of goods transported from a foreign country
to the Philippines is governed primarily by the New Civil Code. 15 In all matters not regulated by said Code, the rights and obligations
of common carriers shall be governed by the Code of Commerce and by special laws. 16A careful perusal of the provisions of the
New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to Article 1736 thereof, which reads: Article
1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to
the consignee, or to the person who has a right to receive them, without prejudice to the provisions of article 1738.
Art. 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a
warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them.
15

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article contemplates a situation where the goods
had already reached their place of destination and are stored in the warehouse of the carrier. The subject goods were still awaiting
transshipment to their port of destination, and were stored in the warehouse of a third party when last seen and/or heard of.
Under Article 1736, the carrier may be relieved of the responsibility for loss or damage to the goods upon actual or
constructive delivery of the same by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual
delivery has been defined as the ceding of corporeal possession by the seller, and the actual apprehension of corporeal possession
by the buyer or by some person authorized by him to receive the goods as his representative for the purpose of custody or
disposal. 17 By the same token, there is actual delivery in contracts for the transport of goods when possession has been turned
over to the consignee or to his duly authorized agent and a reasonable time is given him to remove the goods. 18 The court a
quo found that there was actual delivery to the consignee through its duly authorized agent, the carrier. Upon such delivery, the
appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may befall the goods from that point
onwards. This is the full import of Article 1736, as applied to the case before Us.
EASTERN SHIPPING LINES, INC. vs. INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION

FACTS: In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern Shipping
Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of
calorized lance pipes in 28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare
parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their
stated value with respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and accessories,
in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman
Enterprises and General Merchandise. The 128 cartons were insured for their stated value by respondent Nisshin Fire & Marine
Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respective
respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were thus subrogated unto
the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having
been subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the recovery of the amounts it
had paid to the insured before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event, hence, it
is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039.00
and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an appeal to
the then Court of Appeals which, on August 14, 1984, affirmed.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine Insurance
Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery of the insured value of
the cargo lost with the then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness of the
ship and non-observance of extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship is an exempting
circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and that when the loss of fire is established, the
burden of proving negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US $46,583.00
and US $11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then
Court of Appeals on September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the amount
recoverable by DOWA to US $1,000.00 because of $500 per package limitation of liability under the COGSA.

ISSUES: (1) which law should govern the Civil Code provisions on Common carriers or the Carriage of Goods by Sea Act?; and
(2) who has the burden of proof to show negligence of the carrier?

HELD: 1. The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their
loss, destruction or deterioration.
4
As the cargoes in question were transported from Japan to the Philippines, the liability of
Petitioner Carrier is governed primarily by the Civil Code.
5
However, in all matters not regulated by said Code, the rights and
obligations of common carrier shall be governed by the Code of Commerce and by special laws.
6
Thus, the Carriage of Goods by Sea
Act, a special law, is suppletory to the provisions of the Civil Code.

2. Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over goods, according to all the circumstances of each case.
8
Common carriers are
responsible for the loss, destruction, or deterioration of the goods unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
xxx xxx xxx
9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or
calamity. " However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so as it arises
16

almost invariably from some act of man or by human means. 10 It does not fall within the category of an act of God unless caused by
lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier.
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code
provides that all cases than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have
acted negligently, unless it proves that it has observed the extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have been lost.
Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier to proved that it has
exercised the extraordinary diligence required by law.
Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the goods. The
evidence of the defendant did not show that extraordinary vigilance was observed by the vessel to prevent the occurrence of fire at
hatches numbers 2 and 3. Defendant's evidence did not likewise show he amount of diligence made by the crew, on orders, in the
care of the cargoes. What appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage. Consequently, the crew could not have even explain what could have caused the fire. The defendant, in
the Court's mind, failed to satisfactorily show that extraordinary vigilance and care had been made by the crew to prevent the
occurrence of the fire. The defendant, as a common carrier, is liable to the consignees for said lack of deligence required of it under
Article 1733 of the Civil Code.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual fault" of the
carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already big; that the fire must have started
twenty-four (24) hours before the same was noticed; " and that "after the cargoes were stored in the hatches, no regular inspection
was made as to their condition during the voyage." The foregoing suffices to show that the circumstances under which the fire
originated and spread are such as to show that Petitioner Carrier or its servants were negligent in connection therewith.
Consequently, the complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner Carrier.
NATIONAL DEVELOPMENT COMPANY vs.THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION
FACTS: With a memorandum agreement entered into between defendants NDC and MCP, defendant NDC as the first preferred
mortgagee of three ocean going vessels including one with the name 'Dona Nati' appointed defendant MCP as its agent to manage
and operate said vessel for and in its behalf and account. Subsequently, the E. Philipp Corporation of New York loaded on board the
vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of Manila
Banking Corporation, Manila and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial
Company, Inc., who represents Riverside Mills Corporation.
Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of
Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil. En route to Manila the
vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a
result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged
were landed and sold, and 15 bales were not landed and deemed lost. The damaged and lost cargoes was worth P344,977.86 which
amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed. Also
considered totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking
Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder
of the duly endorsed bill of lading. Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their
successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the
defendants-NDC and MCP as owner and ship agent respectively, of the said 'Dofia Nati' vessel.
ISSUE: Of which laws govern loss or destruction of goods due to collision of vessels outside Philippine waters, and the extent of
liability as well as the rules of prescription provided thereunder.
HELD: In Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of
the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction
or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the
Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights
and obligations of common carrier shall be governed by the Code of commerce and by laws (Article 1766, Civil Code). Hence, the
Carriage of Goods by Sea Act, a special law, is merely suppletory to the provision of the Civil Code.
In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan
to the Philippines and that they were lost or due to a collision which was found to have been caused by the negligence or fault of
both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is
immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, 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 circumstances of each case. Accordingly, under Article 1735 of the same Code, in all other than those mentioned is Article 1734
thereof, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has
observed the extraordinary diligence required by law.
17

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be
found in respondent courses application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal
exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the
owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the
instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its
own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt
from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the
shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative
of the owner who has the actual or constructive control over the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v.
Urrutia & Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to
foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the
subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and
from Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that "nothing in this Act shall be construed as
repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application." By such incorporation,
it is obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor
limit its application.
F.C. FISHER vs. YANGCO STEAMSHIP COMPANY
FACTS: Summarized briefly, the complaint alleges that plaintiff is a stockholder in the Yangco Steamship Company, the owner of a
large number of steam vessels, duly licensed to engage in the coastwise trade of the Philippine Islands; that on or about June 10,
1912, the directors of the company adopted a resolution which was thereafter ratified and affirmed by the shareholders of the
company, "expressly declaring and providing that the classes of merchandise to be carried by the company in its business as a
common carrier do not include dynamite, powder or other explosives, and expressly prohibiting the officers, agents and servants of
the company from offering to carry, accepting for carriage said dynamite, powder or other explosives;"
that thereafter the respondent Acting Collector of Customs demanded and required of the company the acceptance and
carriage of such explosives; that he has refused and suspended the issuance of the necessary clearance documents of the vessels of
the company unless and until the company consents to accept such explosives for carriage; that plaintiff is advised and beli eves that
should the company decline to accept such explosives for carriage, the respondent Attorney-General of the Philippine Islands and
the respondent prosecuting attorney of the city of Manila intend to institute proceedings under the penal provisions of sections 4, 5,
and 6 of Act No. 98 of the Philippine Commission against the company, its managers, agents and servants, to enforce the
requirements of the Acting Collector of Customs as to the acceptance of such explosives for carriage;
that notwithstanding the demands of the plaintiff stockholder, the manager, agents and servants of the company decline
and refuse to cease the carriage of such explosives, on the ground that by reason of the severity of the penalties with which they are
threatened upon failure to carry such explosives, they cannot subject themselves to "the ruinous consequences which would
inevitably result" from failure on their part to obey the demands and requirements of the Acting Collector of Customs as to the
acceptance for carriage of explosives; that plaintiff believes that the Acting Collector of Customs erroneously construes the
provisions of Act No. 98 in holding that they require the company to accept such explosives for carriage notwithstanding the above
mentioned resolution of the directors and stockholders of the company, and that if the Act does in fact require the company to carry
such explosives it is to that extent unconstitutional and void;
that notwithstanding this belief of complainant as to the true meaning of the Act, the questions involved cannot be raised
by the refusal of the company or its agents to comply with the demands of the Acting Collector of Customs, without the risk of
irreparable loss and damage resulting from his refusal to facilitate the documentation of the company's vessels, and without
assuming the company to test the questions involved by refusing to accept such explosives for carriage.

ISSUE: Whether the companys resolution which prohibits the offering to carry or accepting for carriage dynamite, powder or other
explosives results to discrimination which is undue, unnecessary or unreasonable.


HELD: YES. The statute does not "require of a carrier, as a condition to his continuing in said business, that he must carry anything
and everything," and thereby "render useless the facilities he may have for the carriage of certain lines of freight." It merely forbids
failures or refusals to receive persons or property for carriage which have the effect of giving an "unreasonable or unnecessary
preference or advantage" to any person, locality or particular kind of traffic, or of subjecting any person, locality or particular kind of
traffic to any undue or unreasonable prejudice or discrimination.
We find nothing confiscatory or unreasonable in the conditions imposed in the Philippine statute upon the business of
common carriers. Correctly construed they do not force him to engage in any business his will or to make use of his facilities in a
manner or for a purpose for which they are not reasonably adapted. It is only when he offers his facilities as a common carri er to the
public for hire, that the statute steps in and prescribes that he must treat all alike, that he may not pick and choose which customer
he will serve, and, specifically, that he shall not make any undue or unreasonable preferences or discriminations whatsoever to the
prejudice not only of any person or locality but also of any particular kind of traffic. The grounds for the discrimination must be
substantial ones, such as will justify the courts in holding the discrimination to have been reasonable and necessary under all
circumstances of the case.
18

It is not alleged in the complaint that "dynamite, gunpowder and other explosives" can in no event be transported with
reasonable safety on board steam vessels engaged in the business of common carriers. It is not alleged that all, or indeed any of the
defendant steamship company's vessels are unsuited for the carriage of such explosives. It is not alleged that the nature of the
business in which the steamship company is engaged is such as to preclude a finding that a refusal to accept such explosives on any
of its vessels would subject the traffic in such explosives to an undue and unreasonable prejudice and discrimination.
It cannot be doubted that the refusal of a "steamship company, the owner of a large number of vessels" engaged in that
trade to receive for carriage any such explosives on any of its vessels would subject the traffic in such explosives to a manifest
prejudice and discrimination. The only question to be determined therefore is whether such prejudice or discrimination might in any
case prove to be undue, unnecessary or unreasonable.
The words "dynamite, powder or other explosives" are broad enough to include matches, and other articles of like nature,
and may fairly be held to include also kerosene oil, gasoline and similar products of a highly inflammable and explosive character.
Many of these articles of merchandise are in the nature of necessities in any country open to modern progress and advancement.
We are not fully advised as to the methods of transportation by which they are made commercially available throughout the world,
but certain it is that dynamite, gunpowder, matches, kerosene oil and gasoline are transported on many vessels sailing the high seas.
Indeed it is a matter of common knowledge that common carriers throughout the world transport enormous quantities of these
explosives, on both land and sea, and there can be little doubt that a general refusal of the common carriers in any country to accept
such explosives for carriage would involve many persons, firms and enterprises in utter ruin, and would disastrously affect the
interests of the public and the general welfare of the community.
As we construe the Philippine statute, the mere fact that violent and destructive explosions can be obtained by the use of
dynamite under certain conditions would not be sufficient in itself to justify the refusal of a vessel, duly licensed as a common carrier
of merchandise, to accept it for carriage, if it can be proven that in the condition in which it is offered for carriage there is no real
danger to the carrier, nor reasonable ground to fear that his vessel or those on board his vessel will be exposed to unnecessary and
unreasonable risk in transporting it, having in mind the nature of his business as a common carrier engaged in the coastwise trade in
the Philippine Islands, and his duty as a servant of the public engaged in a public employment. So also, if by the exercise of due
diligence and the taking of unreasonable precautions the danger of explosions can be practically eliminated, the carrier would not be
justified in subjecting the traffic in this commodity to prejudice or discrimination by proof that there would be a possibili ty of danger
from explosion when no such precautions are taken.
The complaint in the case at bar lacking the necessary allegations under this ruling, the demurrer must be sustained on the
ground that the facts alleged do not constitute a cause of action.

KILUSANG MAYO UNO LABOR CENTER vs. HON. JESUS B. GARCIA, JR
FACTS : The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars and/or
orders of the Department of Transportation and Communications (DOTC) and the Land Transportation Franchising and Regulatory
Board LTFRB).
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then LTFRB
Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within a range of 15% above and
15% below the LTFRB official rate for a period of one (1) year.
The LTFRB is hereby directed to immediately publicize a fare range scheme for all provincial bus routes in country (except
those operating within Metro Manila). Transport Operators shall be allowed to charge passengers within a range of fifteen percent
(15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one year. Guidelines and procedures for the said
scheme shall be prepared by LTFRB in coordination with the DOTC Planning Service and implementation of the said fare range
scheme to start on 6 August 1990.
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted a
memorandum to Oscar M. Orbos on July 24, 1990 assailing that:
1.) Section 16(c) of the Public Service Act or Commonwealth Act No. 146 prescribes the following for the fixing and
determination of rates:
(a) the rates to be approved should be proposed by public service operators;
(b) there should be a publication and notice to concerned or affected parties in the territory affected; and
(c) a public hearing should be held for the fixing of the rates; hence, implementation of the proposed fare range scheme
on August 6 without complying with the requirements of the Public Service Act may not be legally feasible.

2.) To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in the wake of the devastation,
death and suffering caused by the July 16 earthquake will not be socially warranted and will be politically unsound; most likely public
criticism against the DOTC and the LTFRB.
On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes Prado
issued Department Order No. 92-587 defining the policy framework on the regulation of transport services.
Executive Order No. 125 as amended, designates the Department of Transportation and Communications (DOTC) as the primary
policy, planning, regulating and implementing agency on transportation.
A policy in Rate and Fare Setting states that freight rates shall be freed gradually from government controls. Passenger fares
shall also be deregulated, except for the lowest class of passenger service (normally third class passenger transport) for which the
government will fix indicative or reference fares. Operators of particular services may fix their own fares within a range 15% above
and below the indicative or reference rate.
On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications Jesus B. Garcia,
Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the adoption of rules and procedures to
implement above-quoted Department Order No. 92-587 that laid down deregulation and other liberalization policies for the
transport sector.
On February 17, 1993, the LTFRB issued Memorandum Circular No. 92-009 promulgating the guidelines for the
implementation of DOTC Department Order No. 92-587. A portion of it is as follows:
V. Rate and Fare Setting
19

The control in pricing shall be liberalized to introduce price competition complementary with the quality of service,
subject to prior notice and public hearing. Fares shall not be provisionally authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses and jeepneys shall be
widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an indicative or reference rate as the basis
for the expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class and premier services.

On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus fares
anchoring its claim on the authority given by respondent LTFRB to provincial bus operators to set a fare range of plus or minus
fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing
authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit.

ISSUE: Whether or not the authority given by respondent LTFRB to provincial bus operators to set a fare range of plus or minus
fifteen (15%) percent, later increased to plus twenty (20%) and minus twenty-five (-25%) percent, over and above the existing
authorized fare without having to file a petition for the purpose, is unconstitutional, invalid and illegal.

HELD: The Court find the instant petition impressed with merit.
Petitioner KMU has the standing to sue.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage from
the implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was
violated and continues to be violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members,
who avail of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in
passenger fares. They are part of the millions of commuters who comprise the riding public. Certainly, their rights must be
protected, not neglected nor ignored.
Under Section 16(c) of the Public Service Act, the Legislature delegated to the defunct Public Service Commission the power
of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is likewise vested with the same.
Section 5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and
adjust, reasonable fares, rates and other related charges, relative to the operation of public land transportation services provided by
motorized vehicles." Such delegation of legislative power to an administrative agency is permitted in order to adapt to the increasing
complexity of modern life. However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB
alike, authorized to delegate that power to a common carrier, a transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over and above the
authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of legislative authority. Potestas delegata
non delegari potest. What has been delegated cannot be delegated.
The policy of allowing the provincial bus operators to change and increase their fares at will would result not only to a
chaotic situation but to an anarchic state of affairs. This would leave the riding public at the mercy of transport operators who may
increase fares every hour, every day, every month or every year, whenever it pleases them or whenever they deem it "necessary" to
do so.
The Legislature has delegated to the Public Service Commission the power of fixing the rates of public services, but it has not
authorized the Public Service Commission to delegate that power to a common carrier or other public service. In effect, commuters
will be continuously subjected, not only to a double fare adjustment but to a compounding fare as well.
The rate should enable public utilities to generate revenues sufficient to cover operational costs and provide reasonable
return on the investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary to public interest. A
rate, therefore, must be reasonable and fair and must be affordable to the end user who will utilize the services.
Petition is hereby GRANTED. DOTC Department Order No. 92-587, LTFRB Memorandum Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary to law and invalid
insofar as they affect provisions therein
(a) delegating to provincial bus and jeepney operators the authority to increase or decrease the duly prescribed transportation fares;
and
(b) creating a presumption of public need for a service in favor of the applicant for a certificate of public convenience and placing the
burden of proving that there is no need for the proposed service to the oppositor.

BIENVENIDO GELISAN vs. BENITO ALDAY
FACTS: Defendant Bienvenido Gelisan is the owner of a freight truck bearing plate No. TH-2377. On January 31, 1962, defendant
Bienvenido Gelisan and Roberto Espiritu entered into a contract marked Exhibit 3-Gelisan under which Espiritu hired the same
freight truck of Gelisan for the purpose of hauling rice, sugar, flour and fertilizer at an agreed price of P18.00 per trip within the
limits of the City of Manila provided the loads shall not exceed 200 sacks. It is also agreed that Espiritu shall bear and pay all losses
and damages attending the carriage of the goods to be hauled by him.
The truck was taken by a driver of Roberto Espiritu on February 1, 1962. Plaintiff Benito Alday, a trucking operator, and who
owns about 15 freight trucks, had known the defendant Roberto Espiritu since 1948 as a truck operator. Plaintiff had a contract to
haul the fertilizers of the Atlas Fertilizer Corporation from Pier 4, North Harbor, to its Warehouse in Mandaluyong. Alday met
Espiritu at the gate of Pier 4 and the latter offered the use of his truck with the driver and helper at 9 centavos per bag of fertilizer.
The offer was accepted by plaintiff Alday and he instructed his checker Celso Henson to let Roberto Espiritu haul the fertilizer.
Espiritu made two hauls of 200 bags of fertilizer per trip. The fertilizer was delivered to the driver and helper of Espiritu with the
necessary way bill receipts. Espiritu, however, did not deliver the fertilizer to the Atlas Fertolizer bodega at Mandaluyong. The
signatures appearing in the way bill receipts of the Alday Transportation admittedly not the signature of any representative or
employee of the Atlas Fertilizer Corporation.
Roberto Espiritu could not be found, and plaintiff reported the loss to the Manila Police Department. Roberto Espiritu was
later arrested and booked for theft. Subsequently, plaintiff Alday saw the truck in question on Sto. Cristo St. and he notified the
20

Manila Police Department, and it was impounded by the police. It was claimed by Bienvenido Gelisan from the Police Department
after he had been notified by his employees that the truck had been impounded by the police; but as he could not produce at the
time the registration papers, the police would not release the truck to Gelisan.
As a result of the impounding of the truck according to Gelisan, and that for the release of the truck he paid the premium of
P300 to the surety company. Benito Alday was compelled to pay the value of the 400 bags of fertilizer, in the amount of P5,397.33,
to Atlas Fertilizer Corporation so that, on 12 February 1962, he (Alday) filed a complaint against Roberto Espiritu and Bienvenido
Gelisan with the Court of First Instance of Manila, docketed therein as Civil Case No. 49603, for the recovery of damages suffered by
him thru the criminal acts committed by the defendants. The defendant, Roberto Espiritu failed to file an answer and was,
accordingly, declared in default.
The defendant, Bienvenido Gelisan, upon the other hand, disowned responsibility. He claimed that he had no contractual
relations with the plaintiff Benito Alday as regards the hauling and/or delivery of the 400 bags of fertilizer mentioned in the
complaint; that the alleged misappropriation or nondelivery by defendant Roberto Espiritu of plaintiff's 400 bags of fertilizer, was
entirely beyond his (Gelisan's) control and knowledge, and which fact became known to him, for the first time, on 8 February 1962
when his freight truck, with plate No. TH-2377,was impounded by the Manila Police Department, at the instance of the plaintiff; and
that in his written contract of hire with Roberto Espiritu, it was expressly provided that the latter will bear and pay all loss and
damages attending the carriage of goods to be hauled by said Roberto Espiritu.
Trial court ruled that Espiritu alone was liable to Alay since Gelisan was not privy to the contract between the two. On
appeal, CA found Gelisan liable for being the registered owner of the truck and the lease contract between Gelisan and Espiritu is
not binding upon Alday for not being previously approved by the Public Service Commission. Hence this petition by Gelisan.

ISSUE: WON Gelisan is liable.

HELD: Yes. The Court has invariably held in several decisions that the registered owner of a public service vehicle is responsible for
damages that may arise from consequences incident to its operation or that may be caused to any of the passengers therein. The
claim of the petitioner that he is not liable in view of the lease contract executed by and between him and Roberto Espiritu which
exempts him from liability to third persons, cannot be sustained because it appears that the lease contract, adverted to, had not
been approved by the Public Service Commission. It is settled in our jurisprudence that if the property covered by a franchise is
transferred or leased to another without obtaining the requisite approval, the transfer is not binding upon the public and third
persons.
The court also find no merit in the petitioner's argument that the rule requiring the previous approval by the Public Service
Commission, of the transfer or lease of the motor vehicle, may be applied only in cases where there is no positive Identification of
the owner or driver, or where there are very scant means of Identification, but not in those instances where the person responsible
for damages has been fixed or determined beforehand, as in the case at bar.
Bienvenido Gelisan, the registered owner, is not however without recourse. He has a right to be indemnified by Roberto
Espiritu for the amount that he may be required to pay as damages for the injury caused to Benito Alday, since the lease contract in
question, although not effective against the public for not having been approved by the Public Service Commission, is valid and
binding between the contracting parties.
They also find no merit in the petitioner's contention that his liability is only subsidiary. The Court has consistently
considered the registered owner/operator of a public service vehicle to be jointly and severally liable with the driver for damages
incurred by passengers or third persons as a consequence of injuries sustained in the operation of said vehicles.
BENEDICTO vs. IAC
FFACTS: Private respondent Greenhills, a lumber manufacturing firm with business address at Dagupan City, operates sawmill in
Maddela, Quirino. Sometime in May 1980, private respondent bound itself to sell and deliver to Blue Star Mahogany, Inc., ("Blue
Star") a company with business operations in Valenzuela, Bulacan 100,000 board feet of sawn lumber with the understanding that
an initial delivery would be made on 15 May 1980.
1
To effect its first delivery, private respondent's resident manager in Maddela,
Dominador Cruz, contracted Virgilio Licuden, the driver of a cargo truck to transport its sawn lumber to the consignee Blue Star in
Valenzuela, Bulacan. This cargo truck was registered in the name of petitioner Ma. Luisa Benedicto, the proprietor of Macoven
Trucking, a business enterprise engaged in hauling freight, with main office in B.F. Homes, Paraaque.
On the same day, Cruz, in the presence and with the consent of driver Licuden, supervised the loading of 7,690 board feet of sawn
lumber aboard the cargo truck. The following day, the Manager of Blue Star called up by long distance telephone Greenhills'
president, Henry Lee Chuy, informing him that the sawn lumber on board the subject cargo truck had not yet arrived in Valenzuela,
Bulacan. The latter in turn informed Greenhills' resident manager in its Maddela saw-mill of what had happened. In a letter, Blue
Star's administrative and personnel manager, Manuel R. Bautista, formally informed Greenhills' president and general manager that
Blue Star still had not received the sawn lumber which was supposed to arrive on 15 May 1980 and because of this delay, "they were
constrained to look for other suppliers."
After confirming the above with Blue Star and after trying vainly to persuade it to continue with their contract, private respondent
Greenhill's filed Criminal Case against driver Licuden for estafa. Greenhills also filed against petitioner Benedicto Civil Case for
recovery of the value of the lost sawn lumber plus damages.
ISSUE: WON petitioner Benedicto being the registered owner of the carrier, should be held liable for the value of the undelivered
or lost sawn lumber.
HELD: YES. There is no dispute that petitioner Benedicto has been holding herself out to the public as engaged in the business of
hauling or transporting goods for hire or compensation. Petitioner Benedicto is, in brief, a common carrier.
The prevailing doctrine on common carriers makes the registered owner liable for consequences flowing from the operations of the
carrier, even though the specific vehicle involved may already have been transferred to another person. This doctrine rests upon the
principle that in dealing with vehicles registered under the Public Service Law, the public has the right to assume that the registered
owner is the actual or lawful owner thereof It would be very difficult and often impossible as a practical matter, for members of the
21

general public to enforce the rights of action that they may have for injuries inflicted by the vehicles being negligently operated if
they should be required to prove who the actual owner is.
11
The registered owner is not allowed to deny liability by proving the
identity of the alleged transferee. Thus, contrary to petitioner's claim, private respondent is not required to go beyond the vehicle's
certificate of registration to ascertain the owner of the carrier. In this regard, the letter presented by petitioner allegedly written by
Benjamin Tee admitting that Licuden was his driver, had no evidentiary value not only because Benjamin Tee was not presented in
court to testify on this matter but also because of the aforementioned doctrine. To permit the ostensible or registered owner to
prove who the actual owner is, would be to set at naught the purpose or public policy which infuses that doctrine.
Petitioner Benedicto, however, insists that the said principle should apply only to cases involving negligence and resulting injury to
or death of passengers, and not to cases involving merely carriage of goods. We believe otherwise.
A common carrier, both from the nature of its business and for insistent reasons of public policy, is burdened by the law with the
duty of exercising extraordinary diligence not only in ensuring the safety of passengers but also in caring for goods transported by
it.
13
The loss or destruction or deterioration of goods turned over to the common carrier for conveyance to a designated
destination, raises instantly a presumption of fault or negligence on the part of the carrier, save only where such loss, destruction or
damage arises from extreme circumstances such as a natural disaster or calamity or act of the public enemy in time of war, or from
an act or omission of the shipper himself or from the character of the goods or their packaging or container.
14

This presumption may be overcome only by proof of extraordinary diligence on the part of the carrier.
15
Clearly, to permit a
common carrier to escape its responsibility for the passengers or goods transported by it by proving a prior sale of the vehicle or
means of transportation to an alleged vendee would be to attenuate drastically the carrier's duty of extraordinary diligence. It would
also open wide the door to collusion between the carrier and the supposed vendee and to shifting liability from the carrier to one
without financial capability to respond for the resulting damages. In other words, the thrust of the public policy here involved is as
sharp and real in the case of carriage of goods as it is in the transporting of human beings. Thus, to sustain petitioner Benedicto's
contention, that is, to require the shipper to go behind a certificate of registration of a public utility vehicle, would be utterly
subversive of the purpose of the law and doctrine.
PHILTRANCO SERVICE ENTERPRISES, INC. vs. COURT OF APPEALS and HEIRS OF THE LATE RAMON ACUESTA
FACTS: The private respondents alleged that the petitioners were guilty of gross negligence, recklessness, violation of traffic rules
and regulations, abandonment of victim, and attempt to escape from a crime.
[I]n the early morning of March 24, 1990, about 6:00 o'clock, the victim Ramon A. Acuesta was riding in his easy rider
bicycle (Exhibit O), along the Gomez Street of Calbayog City. . On the Magsaysay Blvd., also in Calbayog City, defendant Philtranco
Service Enterprises, Inc. (Philtranco for brevity) driven by defendant Rogasiones Manilhig y Dolira was being pushed by some
persons in order to start its engine. Some of the persons who were pushing the bus were on its back, while the others were on the
sides. As the bus was pushed, its engine started thereby the bus continued on its running motion and it occurred at the time when
Ramon A. Acuesta who was still riding on his bicycle was directly in front of the said bus.
As the engine of the Philtranco bus started abruptly and suddenly, its running motion was also enhanced by the said
functioning engine, thereby the subject bus bumped on the victim Ramon A. Acuesta who, as a result thereof fell and, thereafter,
was run over by the said bus. The bus did not stop although it had already bumped and ran [sic] over the victim; instead, it
proceeded running. . P/Sgt. Yabao who was then jogging thru the Gomez Street and was heading and meeting the victim Ramon A.
Acuesta as the latter was riding on his bicycle, saw when the Philtranco bus was being pushed by some passengers, when its engine
abruptly started and when the said bus bumped and ran over the victim. He approached the bus driver defendant Manilhig herein
and signalled to him to stop, but the latter did not listen. So the police officer jumped into the bus and introducing himself to the
driver defendant as policeman, ordered the latter to stop. The said defendant driver stopped the Philtranco bus. Yabao thereafter,
told the driver to proceed to the Police Headquarter which was only 100 meters away. Sgt. Yambao Yabao was only about 20 meters
away when he saw the bus of defendant Philtranco bumped [sic] and [sic] ran over the victim. From the place where the victim was
actually bumped by the bus, the said vehicle still had run to a distance of about 15 meters away.
For their part, the petitioners filed an Answer
[5]
wherein they alleged that petitioner Philtranco exercised the diligence of a
good father of a family in the selection and supervision of its employees, including petitioner Manilhig who had excellent record as a
driver and had undergone months of rigid training before he was hired.
The trial court handed down a decision ordering the petitioners to jointly and severally pay the private respondents.
The Court of Appeals affirmed the decision of the trial court. It held that the petitioners were not denied due process, as
they were given an opportunity to present their defense. The records show that they were notified of the assignment of the case for
30 and 31 March 1992. Yet, their counsel did not appear on the said dates. Neither did he file a motion for postponement of the
hearings, nor did he appeal from the denial of the motions for reconsideration of the 31 March 1992 Order of the trial court. The
petitioners have thereby waived their right to present evidence.

ISSUE: Whether petitioner Philtranco can invoke the defense of diligence of a good father of a family.

HELD: NO. The case is an action for damages based on quasi-delict
[15]
under Article 2176 and 2180 of the Civil Code against
petitioner Manilhig and his employer, petitioner Philtranco, respectively.
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be
liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks even though
the former are not engaged in any business or industry. The responsibility treated of in this article shall cease when the persons
herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.
22

We have consistently held that the liability of the registered owner of a public service vehicle, like petitioner
Philtranco,
[16]
for damages arising from the tortious acts of the driver is primary, direct, and joint and several or solidary with the
driver.
[17]
As to solidarity, Article 2194 expressly provides:
ART. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
Since the employer's liability is primary, direct and solidary, its only recourse if the judgment for damages is satisfied by it is
to recover what it has paid from its employee who committed the fault or negligence which gave rise to the action based on quasi-
delict (Article 2181).
However, the trial court erroneously fixed the "death indemnity" at P200,000. The private respondents defended the
award in their Opposition to the Motion for Reconsideration by saying that "[i]n the case of Philippine Airlines, Inc. vs. Court of
Appeals, 185 SCRA 110, our Supreme Court held that the award of damages for death is computed on the basis of the life
expectancy of the deceased." In that case, the "death indemnity" was computed by multiplying the victim's gross annual income by
his life expectancy, less his yearly living expenses. Clearly then, the "death indemnity" referred to was the additional indemnity for
the loss of earning capacity mentioned in Article 2206(1) of the Civil Code, and not the basic indemnity for death mentioned in the
first paragraph thereof.
We concur with petitioners view that the trial court intended the award of "P200,000.00 as death indemnity" not as
compensation for loss of earning capacity. Even if the trial court intended the award as indemnity for loss of earning capacity, the
same must be struck out for lack of basis. There is no evidence on the victim's earning capacity and life expectancy.
Only indemnity for death under the opening paragraph of Article 2206 is due, the amount of which has been fixed by
current jurisprudence atP50,000.

Adolfo Santos vs. Abraham Sibug
Facts:
Santos was the owner of a passenger jeep but have no certificate of public convenience for the operation of the vehicle as a
public passenger jeep.
Santos transferred his jeep to the name of Vicente Vidad (a duly authorized passenger jeepney operator) so that it could be
operated under the latters certificate of public convenience. Vidad executed a re-transfer document to Santos, which was
to be a private document presumably to be registered if and where it was decided that the passenger jeep of Santos was to
be withdrawn from the Kabit arrangement.
On April 26, 1963, Abraham Sibug was bumped by a passenger jeepney operated by Vidad and driven by Severe Gragas.
Sibug filed damages against Vidad and Gragas with the Court of First Instance of Manila, Branch XVII
Branch XVII rendered its decision sentencing Vidad and Gragas jointly and severally liable.
Sheriff of Manila levied on the motor vehicle with plate no. PUJ-343-64, registered in the name of Vidadand scheduled the
public auction sale
Santos presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon and
instituted an action for damages and injunction with a prayer for Preliminary Mandatory Injunction against Sibug, Vidad,
sheriff and also with the Bonding Co in a civil case at Branch X
Branch X issued a Restraining Order enjoining the Sheriff from conducting the public auction sale.
On October 14, 1965, Branch X affirmed Santos ownership of the jeepney in question based on the evidence adduced and
order the Sheriff to return the vehicle to Santos and sentencing Sibug and the Bonding co. to be jointly and severally liable
and complaint against Vidad was dismissed.
Issue: Whether or not C.A. gravely erred in declaring null and void the decision of the Court of First Instance of Manila (Branch X).
Held: The judgment in the Branch X case appears to be quite legally unpalatable. Since the undertaking furnished to the sheriff by
the Bonding Company did not become effective for the reason that the jeep was not sold, the public sale thereof having been
restrained, there was no reason for promulgating judgment against the Bonding Company.
Most important of all, the judgment against Sibug was inequitable. That in asserting his rights of ownership to the vehicle in
question, Santos candidly admitted his participation in the illegal and pernicious practice in the transportation business known as
the Kabit system. Sec. 20(g) of the Public Service Act, then the applicable law, specifically provided:
it shall be unlawful for any public service or for the owne, lessee or operator thereof, without the approval and
authorization of the commission previously had - (g) to sell, alienate, mortgage, encumber or lease its property, franchise,
certificates, privileges, or rights, or any part thereof.
In this case, Santos had fictitiously sold the jeepney to Vidad, who had become the registered owner and operator of record at the
time of the accident. It is true that Vidad had executed a re-sale to Santos, but the document was not registered. Although Santos,
as the Kabit was the true owner as against Vidad, the latter as the registered owner/operator and grantee of the franchise, is directly
and primarily responsible and liable for the damages caused to Sibug, the injured party, as a consequence of the negligent or
careless operation of the vehicle. This ruling is based on the principle that the operator of record is considered the operator of the
vehicle in contemplation of law as regards the public and third persons even if the vehicle involved in the accident had been sold to
another where such sale had not been approved by the then Public Service Commission. For the same basic reason, as the vehicle
here in question was registered in Vidads name, the levy on execution against said vehicle should be enforced so that the judgment
in the Branch XVII case may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belong to another.
23

Santos, as the Kabit should not be allowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabit owner for he
had led the public to believe that the vehicle belonged to Vidad. This is one way of curbing the pernicious kabit system that
facilitates the commission of fraud against the travelling public.
Santos remedy as the real owner of the vehicle, is to go against Vidad, the actual operator who was responsible for the accident, for
the recovery of whatever damages Santos may suffer by reason of the execution. In fact, if Santos, as the kabit had been impleaded
as the party defendant in the Branch XVII case, he should be held jointly and severally liable with Vidad and the driver for damages
suffered by Sibug as well as for exemplary damages.
The ultimate conclusion of C.A nullifying the decision of Branch X permanently enjoining the auction sale, should be upheld. Legally
speaking, it was not a strangers property that was levied upon by the Sheriff pursuant to the judgment rendered by Branch XVII.
The vehicle was, in fact, registered in the name of Vidad, one of the judgment debtors. And what is more, the aspect of public
service, with its effect on the riding public, is involved. Whatever legal technicalities may be invoked, the S.C. find the judgment of
respondent C.A. to be in consonance with justice.
LITA ENTERPRISES, INC., vs.INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA.

FACTS: Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in
installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no
franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia,
for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental
of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita
Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the name
Acme Taxi, petitioner's trade name.
About a year later 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. Petitioner Lita Enterprises, Inc. was adjudged liable for
damages by the CFI.
This decision having become final, a writ of execution was issued. Two of the vehicles of respondent spouses were levied
upon and sold at public auction.
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.
The Court of First Instance, in its decision, ordered Lita Enterprises to transfer the registration certificate of the three
Toyota cars not levied upon.
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo.
On appeal by petitioner, 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 rears will no longer serve the purpose of the deed of conveyance because of
their deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita Enterprises, Inc. is
ordered to pay the plaintiffs their fair market value.
Hence, Lita Enterprises filed a petition to the Supreme Court.
ISSUE: Whether or not the Sps. Ocampo and Garcia have a cause of action against Lita Enterprises.
HELD: NO. The previous decisions by the CFI and IAC were held null and void.
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 motors vehicles to operate under such
franchise for a fee. A certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege by
the grantees thereof cannot be countenanced. The "kabit system" has been identified as one of the root causes of the prevalence of
graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, "this is a pernicious system
that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the government.
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to
public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will
not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant
error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of
the Civil Code denies them such aid. It provides:
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.

Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts.
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, "the mere lapse of time cannot give efficacy to contracts that are null void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law
prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at
law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or
delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid
down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to
one against the other." 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.
24

TEJA MARKETING v. IAC

FACTS: On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total
consideration of P8,000.00.
The defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff the balance within sixty days.
The defendant, however, failed to comply with his promise and so upon his own request, the period of paying the balance was
extended to one year in monthly installments until January 1976 when he stopped paying anymore.
The plaintiff made demands but just the same the defendant failed to comply with the same thus forcing the plaintiff to
consult a lawyer and file an action, Sum of Money with Damages against defendant.
In this particular transaction a chattel mortgage was constituted as a security for the payment of the balance of the
purchase price. It has been the practice of financing firms that whenever there is a balance of the purchase price, the registration
papers of the motor vehicle subject of the sale are not given to the buyer.
The records of the LTC show that the motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel
Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it was made to appear that way only as the
defendant had no franchise of his own and he attached the unit to the plaintiff's MCH Line.
The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the motorcycle with the
Land Transportation Commission. Pursuant to this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the
P8.00 would be for the mortgage fee and the P82.00 for the registration fee of the motorcycle.
The plaintiff, however failed to register the motorcycle on that year on the ground that the defendant failed to comply with
some requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the LTC for stenciling, the
plaintiff saying that the defendant was hiding the motorcycle from him. On his part, the defendant alleged that the plaintiff failed to
register both the chattel mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00 for
mortgage fee and registration fee and had the motorcycle insured with La Perla Compana de Seguros. The defendant puts the blame
on the plaintiff for not registering the motorcycle with the LTC and for not giving him the registration papers inspite of demands
made.
Lastly, the plaintiff explained also that though the ownership of the motorcycle was already transferred to the defendant,
the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the reason that all motorcycle
purchased from the plaintiff on credit was rediscounted with the bank. On the contrary, the defendant alleged that the motor
vehicle sold to him was mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and the
defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that the motorcycle was
mortgaged because of re-discounting for rediscounting is only true with Rural Banks and the Central Bank.
City Court of Naga City - in favor of Teja Marketing/Angel Jaucian
The defendant purchased the motorcycle in question, particularly for the purpose of engaging and using the same in the
transportation business and for this purpose said trimobile unit was attached to the plaintiffs transportation line who had the
franchise, so much so that in the registration certificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to
have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the yearly registration of the unit
in question with the LTC. Thus, for the registration of the unit for the year 1976, per agreement, the defendant gave to the plaintiff
the amount of P82.00 for its registration, as well as the insurance coverage of the unit.

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

ISSUE: WON the IAC erred in applying the doctrine of "pari delicto."

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

"Kabit system"' although not penalized as a criminal offense, is contrary to public policy
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public
policy and, therefore, void and in existent under Article 1409 of the Civil Code.

Art. 1412, NCC.
It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both where
it finds then. Upon this premise it would be error to accord the parties relief from their predicament. Art. 1412 (a) of the Civil Code
denies them such aid. It provides: "If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed: When the fault is on the part of both contracting parties, neither may recover that he
has given by virtue of the contract, or demand, the performance of the other's undertaking."

Inexistent contract cannot be cured by ratification nor by prescription
The defect of inexistence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse
of time cannot give efficacy to contracts that are null and void.

Ex pacto illicito non oritur actio
"No action arises out of illicit bargain" is the time-honored maxim that must be applied to the parties in the case at bar.
25

Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts.
(Lita Enterprises vs. IAC, 129 SCRA 81.)

ABELARDO LIM and ESMADITO GUNNABAN vs. COURT OF APPEALS and DONATO H. GONZALES
FACTS: Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino
Vallarta, holder of a certificate of public convenience for the operation of public utility vehicles plying the Monumento-Bulacan
route. While private respondent Gonzales continued offering the jeepney for public transport services he did not have the
registration of the vehicle transferred in his name nor did he secure for himself a certificate of public convenience for its
operation. Thus Vallarta remained on record as its registered owner and operator.
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 ofP236,000.00. 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.
The trial court upheld private respondent's claim and awarded him P236,000.00. 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.
The Court of Appeals 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.

ISSUE: Whether private respondent has the right to proceed against petitioners for the damage caused on his passenger jeepney as
well as on his business despite the fact that he is not the registered owner under the certificate of public convenience.

HELD: YES. 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.
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 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 i s 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.
26

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 ofP236,000.00 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.
URBANO MAGBOO and EMILIA C. MAGBOO vs. DELFIN BERNARDO
FACTS: That plaintiffs are the parents of Cesar Magboo, a child of 8 years old, who lived with them and was under their custody until
his death on October 24,1956 when he was killed in a motor vehicle accident, the fatal vehicle being a passenger jeepney owned by
the defendant. At the time of the accident, said passenger jeepney was driven by Conrado Roque. The contract between Conrado
Roque and defendant Delfin Bernardo was that Roque was to pay to defendant for privilege of driving the jeepney on October 24,
1956, it being their agreement that whatever earnings Roque could make out of the use of the jeepney in transporting passengers
from one point to another in the City of Manila would belong entirely to Conrado Roque. As a consequence of the accident and as a
result of the death of Cesar Magboo in said accident, Conrado Roque was prosecuted for homicide thru reckless imprudence. Upon
arraignment Conrado Roque pleaded guilty to the information with the accessory penalty to indemnify the heirs of the deceased.
Conrado Roque served his sentence but he was not able to pay the indemnity because he was insolvent."
ISSUE: WON an employer-employee relationship exists between a jeepney-owner and a driver under a "boundary system"
arrangement.
HELD: YES. Appellant contends that the relationship is essentially that of lessor and lessee.
A similar contention has been rejected. In National Labor Union v. Dinglasan, 52 O.G., No. 4, 1933, it was held that the features
which characterize the "boundary system" namely, the fact that the driver does not receive a fixed wage but gets only the
excess of the receipt of fares collected by him over the amount he pays to the jeep-owner and that the gasoline consumed by the
jeep is for the account of the driver are not sufficient to withdraw the relationship between them from that of employer and
employee.
The same principle applies with greater reason in negligence cases concerning the right of third parties to recover damages for
injuries sustained. In Montoya v. Ignacio, L-5868, December 29, 1953, the owner and operator of a passenger jeepney leased it to
another, but without the approval of the Public Service Commission. In a subsequent collision a passenger died.
We ruled that since the lease was made without such approval, which was required by law, the owner continued to be the operator
of the vehicle in legal contemplation and as such was responsible for the consequences incident to its operation. The same
responsibility was held to attach in a case where the injured party was not a passenger but a third person, who sued on the theory
of culpa aquiliana (Timbol vs. Osias, L-7547, April 30, 1955). There is no reason why a different rule should be applied in a subsidiary
liability case under Article 103 of the Revised Penal Code. As in the existence of an employer-employee relationship between the
owner of the vehicle and the driver. Indeed to exempt from liability the owner of a public vehicle who operates it under the
"boundary system" on the ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service law but
also to place the riding public at the mercy of reckless and irresponsible drivers - reckless because the measure of their earnings
depends largely upon the number of trips they make and, hence, the speed at which they drive; and irresponsible because most if
not all of them are in no position to pay the damages they might cause. (See Erezo vs. Jepte, L-9605, September 30, 1957).