G.R. No.

186312 June 29, 2010 SPOUSES

DANTE CRUZ and LEONORA CRUZ,
Petitioners, vs. SUN HOLIDAYS, INC.,
Respondent.
Facts: Spouses Dante and Leonora Cruz
(petitioners) lodged a Complaint on January
25, 2001 against Sun Holidays, Inc.
(respondent) with the Regional Trial Court
(RTC) of Pasig City for damages arising from
the death of their son Ruelito C. Cruz (Ruelito)
who perished with his wife on September 11,
2000 on board the boat M/B Coco Beach III
that capsized en route to Batangas from
Puerto Galera, Oriental Mindoro where the
couple had stayed at Coco Beach Island
Resort (Resort) owned and operated by
respondent.
On September 11, 2000, as it was still windy,
Matute and 25 other Resort guests including
petitioners son and his wife trekked to the
other side of the Coco Beach mountain that
was sheltered from the wind where they
boarded M/B Coco Beach III, which was to
ferry them to Batangas. Shortly after the boat
sailed, it started to rain. As it moved farther
away from Puerto Galera and into the open
seas, the rain and wind got stronger, causing
the boat to tilt from side to side and the
captain to step forward to the front, leaving
the wheel to one of the crew members. The
waves got more unwieldy. After getting hit by
two big waves which came one after the
other, M/B Coco Beach III capsized putting all
passengers underwater. The passengers, who
had put on their life jackets, struggled to get
out of the boat. Upon seeing the captain,
Matute and the other passengers who
reached the surface asked him what they

could do to save the people who were still

trapped under the boat. The captain replied
"Iligtas niyo na lang ang sarili niyo" (Just save
yourselves). Help came after about 45
minutes when two boats owned by Asia
Divers in Sabang, Puerto Galera passed by
the capsized M/B Coco Beach III. Boarded on
those two boats were 22 persons, consisting
of 18 passengers and four crew members,
who were brought to Pisa Island. Eight
passengers, including petitioners son and his
wife, died during the incident.
Issue:
Whether or not respondent is a
common carrier.
Held:
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

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

deliberately refrained from making such

distinctions. Indeed, respondent is a common
carrier. Its ferry services are so intertwined
with its main business as to be properly
considered ancillary thereto. The constancy of
respondents ferry services in its resort
operations is underscored by its having its
own Coco Beach boats. And the tour
packages it offers, which include the ferry
services, may be availed of by anyone who
can afford to pay the same. These services
are thus available to the public. That
respondent does not charge a separate fee or
fare for its ferry services is of no moment. It
would be imprudent to suppose that it
provides said services at a loss. The Court is
aware of the practice of beach resort
operators offering tour packages to factor the
transportation fee in arriving at the tour
package price. That guests who opt not to
avail of respondents ferry services pay the
same amount is likewise inconsequential.
These guests may only be deemed to have
overpaid
AF Sanchez Brokerage vs CA and FGU
Insurance (Dec 21, 2004)
Facts: AF Sanchez is engaged in a broker
business wherein its main job is to calculate
customs duty, fees and charges as well as
storage fees for the cargoes. Part also of the
services being given by AF Sanchez is the
delivery of the shipment to the consignee
upon the instruction of the shipper.
Wyett engaged the services of AF Sanchez
where the latter delivered the shipment to
Hizon Laboratories upon instruction of Wyett.
Upon inspection, it was found out that at

1 |Page

least 44 cartons containing contraceptives

were in bad condition. Wyett claimed
insurance from FGU. FGU exercising its right
of subrogation claims damages against AF
Sanchez who delivered the damaged goods.
AF Sanchez contended that it is not a
common carrier but a brokerage firm.

a tour dubbed "Jewels of Europe". The

package tour cost her 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 formers companys ticketing
manager.

Issue: Is AF Sanchez a common carrier?

Menor went to her aunts residence on a

Wednesday to deliver petitioners travel
documents and plane tickets. Estela, in turn,
gave Menor the full payment for the package
tour. Menor then told her to be at the Ninoy
Aquino International Airport (NAIA) on
Saturday, two hours before her flight on
board British Airways.

Held: SC held that Art 1732 of the Civil Code

in defining common carrier does not
distinguish whether the activity is undertaken
as a principal activity or merely as an
ancillary activity. In this case, while it is true
that AF Sanchez is principally engaged as a
broker, it cannot be denied from the evidence
presented that part of the services it offers to
its customers is the delivery of the goods to
their respective consignees.
Addendum: AF Sanchez claimed that the
proximate cause of the damage is improper
packing. Under the CC, improper packing of
the goods is an exonerating circumstance.
But in this case, the SC held that though the
goods were improperly packed, since AF
Sanchez knew of the condition and yet it
accepted the shipment without protest or
reservation, the defense is deemed waived.
Foul Bill of Lading reservation or protest on
a shipment or goods improperly packed.

Crisostomo v. CA, 409 SCRA 528 (2003)

FACTS: Estela L. Crisostomo contracted the
services of Caravan Travel and Tours
International, Inc. to arrange and facilitate
her booking, ticketing and accommodation in

Without checking her travel documents,

Estela went to NAIA on Saturday, to take the
flight for the first leg of her journey from
Manila to Hongkong. She discovered that the
flight she was supposed to take had already
departed the previous day. She learned that
her plane ticket was for the flight scheduled
on June 14, 1991. She thus called up Menor to
complain.
Subsequently, Menor prevailed upon Estela to
take another tour the "British Pageant, which
cost P20, 881.00. She gave caravan travel
and tours P7, 980.00 as partial payment and
commenced the trip in July 1991.
Upon petitioners 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,
respondent
company refused to reimburse the amount,

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

contending
refundable.

that

the

same

was

non-

Estela filed a complaint against Caravan

travel and Tours for breach of contract of
carriage and damages.
A) Will the action prosper?
B) Will she be entitled to damages?
HELD: No, for there was no contract of
carriage.
By definition, a contract of carriage or
transportation is one whereby a certain
person or association of persons obligate
themselves to transport persons, things, or
news from one place to another for a fixed
price.
From the above definition, Caravan Travel and
Tours is not an entity engaged in the business
of transporting either passengers or goods
and is therefore, neither a private nor a
common carrier. Caravan Travel and Tours did
not undertake to transport Estela from one
place to another since its covenant with its
customers is simply to make travel
arrangements in their behalf. Caravan travel
and tours services as a travel agency include
procuring tickets and facilitating travel
permits or visas as well as booking customers
for tours.
While Estela concededly bought her plane
ticket through the efforts of respondent
company, this does not mean that the latter
ipso facto is a common carrier. At most,
Caravan Travel and Tours acted merely as an
agent of the airline, with whom the former

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ultimately contracted for her carriage to

Europe.

Held:

B) No.
The negligence of the obligor in the
performance of the obligation renders him
liable for damages for the resulting loss
suffered by the obligee. Fault or negligence of
the obligor consists in his failure to exercise
due care and prudence in the performance of
the obligation as the nature of the obligation
so demands.
In the case at bar, Caravan Travel and Tours
exercised due diligence in performing its
obligations under the contract and followed
standard procedure in rendering its services
to Estela. The plane ticket issued to petitioner
clearly reflected the departure date and time,
contrary to Estelas contention. The travel
documents, consisting of the tour itinerary,
vouchers and instructions, were likewise
delivered to her two days prior to the trip.
The Caravan Travel and Tours also properly
booked Estela for the tour, prepared the
necessary documents and procured the plane
tickets.
It
arranged
Estelas
hotel
accommodation as well as food, land
transfers and sightseeing excursions, in
accordance with its avowed undertaking.
From the foregoing, it is clear that the
Caravan Travel and Tours performed its
prestation under the contract as well as
everything else that was essential to book
Estela for the tour.
Hence, Estela cannot recover and must bear
her own damage.

De Guzman v. CA
Facts: Respondent Ernesto Cendana was a
junk dealer. He buys scrap materials and
brings those that he gathered to Manila for
resale using 2 six-wheeler trucks. On the
return trip to Pangasinan, respondent would
load his vehicle with cargo which various
merchants wanted delivered, charging fee
lower than the commercial rates. Sometime
in November 1970, petitioner Pedro de
Guzman contracted with respondent for the
delivery of 750 cartons of Liberty Milk. On
December 1, 1970, respondent loaded the
cargo. Only 150 boxes were delivered to
petitioner because the truck carrying the
boxes was hijacked along the way. Petitioner
commenced an action claiming the value of
the lost merchandise. Petitioner argues that
respondent, being a common carrier, is
bound to exercise extraordinary diligence,
which it failed to do. Private respondent
denied that he was a common carrier, and so
he could not be held liable for force majeure.
The trial court ruled against the respondent,
but such was reversed by the Court of
Appeals.
Issues:
(1) Whether or not private respondent is a
common carrier
(2) Whether private respondent is liable for
the loss of the goods

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

(1) Article 1732 makes no distinction between

one whose principal business activity is the
carrying of persons or goods or both, and one
who does such carrying only as an ancillary
activity. 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. It appears to the Court that
private respondent is properly characterized
as a common carrier even though he merely
"back-hauled" goods for other merchants
from Manila to Pangasinan, although such
backhauling was done on a periodic or
occasional rather than regular or scheduled
manner,
and
even
though
private
respondent's principal occupation was not the
carriage of goods for others. There is no
dispute that private respondent charged his
customers a fee for hauling their goods; that
fee frequently fell below commercial freight
rates is not relevant here. A certificate of
public convenience is not a requisite for the
incurring of liability under the Civil Code
provisions governing common carriers.
(2) 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:

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a. Flood, storm, earthquake, lightning, or

other natural disaster or calamity;
b. Act of the public enemy in war, whether
international or civil;
c. Act or omission of the shipper or owner of
the goods;
d. The character of the goods or defects in
the packing or in the containers; and
e. Order or act of competent public authority."
The hijacking of the carrier's truck - does not
fall within any of the five (5) categories of
exempting causes listed in Article 1734.
Private respondent as common carrier is
presumed to have been at fault or to have
acted negligently. This presumption, however,
may be overthrown by proof of extraordinary
diligence on the part of private respondent.
We believe and so hold that the limits of the
duty of extraordinary diligence in the
vigilance over the goods carried are reached
where the goods are lost as a result of a
robbery which is attended by "grave or
irresistible threat, violence or force." we hold
that the occurrence of the loss must
reasonably be regarded as quite beyond the
control of the common carrier and properly
regarded as a fortuitous event. It is necessary
to recall that even common carriers are not
made absolute insurers against all risks of
travel and of transport of goods, and are not
held liable for acts or events which cannot be
foreseen or are inevitable, provided that they
shall have complied with the rigorous
standard of extraordinary diligence.

First Philippine Industrial Corp. vs. CA

Facts: Petitioner is a grantee of a pipeline
concession under Republic Act No. 387.
Sometime in January 1995, petitioner applied
for mayors permit in Batangas. However, the
Treasurer required petitioner to pay a local
tax based on gross receipts amounting to
P956,076.04. In order not to hamper its
operations, petitioner paid the taxes for the
first
quarter
of
1993
amounting
to
P239,019.01 under protest. On January 20,
1994, petitioner filed a letter-protest to the
City Treasurer, claiming that it is exempt from
local tax since it is engaged in transportation
business. The respondent City Treasurer
denied the protest, thus, petitioner filed a
complaint before the Regional Trial Court of
Batangas for tax refund. Respondents assert
that pipelines are not included in the term
common carrier which refers solely to
ordinary carriers or motor vehicles. The trial
court dismissed the complaint, and such was
affirmed by the Court of Appeals.
Issue:
Whether a pipeline business is included in the
term common carrier so as to entitle the
petitioner to the exemption
Held: Article 1732 of the Civil Code defines a
"common
carrier"
as
"any
person,
corporation, firm or association engaged in
the business of carrying or transporting
passengers or goods or both, by land, water,
or air, for compensation, offering their
services to the public."
The test for determining whether a party is a
common carrier of goods is:

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

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

Erezo v. Jepte
Facts: Defendant-appellant is the registered
owner of a six by six truck bearing. On
August, 9, 1949, while the same was being
driven by Rodolfo Espino y Garcia, it collided
with a taxicab at the intersection of San
Andres and Dakota Streets, Manila. As the
truck went off the street, it hit Ernesto Erezo
and another, and the former suffered injuries,
as a result of which he died.

4 |Page

The driver was prosecuted for homicide

through reckless negligence. The accused
pleaded guilty and was sentenced to suffer
imprisonment and to pay the heirs of Ernesto
Erezo the sum of P3,000. As the amount of
the judgment could not be enforced against
him, plaintiff brought this action against the
registered owner of the truck, the defendantappellant.
The defendant does not deny at the time of
the fatal accident the cargo truck driven by
Rodolfo Espino y Garcia was registered in his
name. He, however, claims that the vehicle
belonged to the Port Brokerage, of which he
was the broker at the time of the accident. He
explained,
and
his
explanation
was
corroborated by Policarpio Franco, the
manager of the corporation, that the trucks of
the corporation were registered in his name
as a convenient arrangement so as to enable
the corporation to pay the registration fee
with his backpay as a pre-war government
employee. Franco, however, admitted that
the arrangement was not known to the Motor
Vehicle Office.
The trial court held that as the defendantappellant represented himself to be the
owner of the truck and the Motor Vehicle
Office,
relying
on
his
representation,
registered the vehicles in his name, the
Government and all persons affected by the
representation had the right to rely on his
declaration of ownership and registration. It,
therefore, held that the defendant-appellant
is liable because he cannot be permitted to
repudiate his own declaration. Issue: WoN
Jepte should be liable to Erezo for the injuries
occasioned to the latter because of the

negligence of the driver even if he was no

longer the owner of the vehicle at the time of
the damage (because he had previously sold
it to another) Held: YES.

caused by the vehicles on the public

highways, responsibility therefore can be
fixed on a definite individual, the registered
owner.

The registered owner, the defendantappellant herein, is primarily responsible for

the damage caused to the vehicle of the
plaintiff-appellee,
but
he
(defendantappellant) has a right to be indemnified by
the real or actual owner of the amount that
he may be required to pay as damage for the
injury caused to the plaintiff-appellant

A registered owner who has already sold or

transferred a vehicle has the recourse to a
third-party complaint, in the same action
brought against him to recover for the
damage or injury done, against the vendee or
transferee of the vehicle.

The Revised Motor Vehicle Law provides that

no vehicle may be used or operated upon any
public highway unless the same is properly
registered. Not only are vehicles to be
registered and that no motor vehicles are to
be used or operated without being properly
registered for the current year, but that
dealers in motor vehicles shall furnish the
Motor Vehicles Office a report showing the
name and address of each purchaser of
motor vehicle during the previous month and
the manufacturer's serial number and motor
number.

Lim v. Court of Appeals

Registration is required not to make said

registration the operative act by which
ownership in vehicles is transferred, as in
land
registration
cases,
because
the
administrative proceeding of registration
does not bear any essential relation to the
contract of sale between the parties, but to
permit the use and operation of the vehicle
upon any public
The main aim of motor vehicle registration is
to identify the owner so that if any accident
happens, or that any damage or injury is

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

Facts: Private respondent herein purchased

an Isuzu passenger jeepney from Gomercino
Vallarta, a holder of a certificate of public
convenience for the operation of a public
utility vehicle. He continued to operate the
public transport business without transferring
the registration of the vehicle to his name.
Thus, the original owner remained to be the
registered owner and operator of the vehicle.
Unfortunately, the vehicle got involved in a
road mishap which caused it severe damage.
The ten-wheeler-truck which caused the
accident was owned by petitioner Lim and
was driven by co-petitioner Gunnaban.
Gunnaban admitted responsibility for the
accident, so that petitioner Lim shouldered
the costs of hospitalization of those wounded,
compensation for the heirs of the deceased
passenger and the restoration of the other
vehicle involved. He also negotiated for the
repair of the private respondent's jeepney but
the latter refused and demanded for its
replacement. Hence, private respondent filed
a complaint for damages against petitioners.
Meanwhile, the jeepney was left by the

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roadside to corrode and decay. The trial court

decided in favor of private respondent and
awarded him his claim. On appeal, the Court
of Appeals affirmed the decision of the trial
court. Hence, petitioner filed this petition.
Issue: WoN the new owner of a passenger
jeepney who continued to operate the same
under the so-called kabit system and in the
course thereof met an accident has the legal
personality to bring the action for damages
against the erring vehicle.
Held: YES. According to the Court, the thrust
of the law in enjoining the kabit system is not
much as to penalize the parties but to
identify the person upon whom responsibility
may be fixed in case of an accident with the
end view of protecting the riding public. In
the present case, it is 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. Hence, the private respondent has the
right to proceed against petitioners for the
damage caused on his passenger jeepney as
well as on his business.
LITA ENTERPRISES, INC.,
vs.INTERMEDIATE APPELLATE COURT,
NICASIO M. OCAMPO and FRANCISCA P.
GARCIA.
[G.R. No. L-64693 April 27, 1984]
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

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

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, 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., Mrs.
de Galvez and the Sheriff of Manila for
reconveyance of motor vehicles with
damages.
ISSUE: Whether or not petitioner has a cause
of action against defendants.
HELD: No.
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

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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.

Teja Marketing v. Intermediate Appellate

Court
(148 SCRA 347)
Facts: Pedro Nale bought from Teja Marketing
a motorcycle with complete accessories and a
sidecar. A chattel mortgage was constituted
as a security for the payment of the balance
of the purchase price. The records of the Land
Transportation Commission 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

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

registration of the motorcycle with the Land

Transportation Commission. 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 said that
the defendant was hiding the motorcycle
from him. Lastly, the plaintiff also explained
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.
Teja Marketing made demands for the
payment of the motorcycle but just the same
Nale failed to comply, thus forcing Teja
Marketing to consult a lawyer and file an
action for damage before the City Court of
Naga in the amount of P546.21 for attorney's
fees and P100.00 for expenses of litigation.
Teja Marketing also claimed that as of 20
February 1978, the total account of Nale was
already P2, 731, 05 as shown in a statement
of account; includes not only the balance of
P1, 700.00 but an additional 12% interest per
annum on the said balance from 26 January
1976 to 27 February 1978; a 2% service
charge; and P546.21 representing attorney's
fees. On his part, Nale did not dispute the
sale and the outstanding balance of
P1,700.00 still payable to Teja Marketing; but
contends that because of this failure of Teja
Marketing to comply with his obligation to
register the motorcycle, Nale suffered
damages when he failed to claim any
insurance indemnity which would amount to
no less than P15,000.00 for the more than 2

7 |Page

times that the motorcycle figured in accidents

aside from the loss of the daily income of
P15.00 as boundary fee beginning October
1976 when the motorcycle was impounded
by the LTC for not being registered. The City
Court rendered judgment in favor of Teja
Marketing, dismissing the counterclaim, and
ordered Nale to pay Teja Marketing On appeal
to the Court of First Instance of Camarines
Sur, the decision was affirmed in toto. Nale
filed a petition for review with the
Intermediate Appellate Court. On 18 July
1983, the appellate court set aside the
decision under review on the basis of doctrine
of "pari delicto," and accordingly, dismissed
the complaint of Teja Marketing, as well as
the
counterclaim
of
Nale;
without
pronouncements as to costs. Hence, the
petition for review was filed by Teja Marketing
and/or Angel Jaucian.
Issue: Whether the defendant can recover
damages against the plaintiff?
Held: Unquestionably, the parties herein
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. Although not out
rightly 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. 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.
VILLANUEVA vs. DOMINGO
FACTS: On 22 October 1991 at about 9:45 in
the evening, following a green traffic light,
Priscilla Domingos silver Lancer car with
Plate No. NDW 781 91 then driven by
Leandro Luis R. Domingo was cruising along
the middle lane of South Superhighway at
moderate speed from north to south.
Suddenly, a green Mitsubishi Lancer with
plate No. PHK 201 91 driven by Renato Dela
Cruz Ocfemia darted from Vito Cruz Street
towards the South Superhighway directly into
the path of NDW 781 91 thereby hitting and
bumping its left front portion. As a result of
the impact, NDW 781 91 hit two (2) parked
vehicles at the roadside, the second hitting
another parked car in front of it.
Per Traffic Accident Report prepared by Traffic
Investigator Pfc. Patrocinio N. Acido, Ocfemia
was driving with expired license and positive
for alcoholic breath. Hence, Manila Assistant
City
Prosecutor
Oscar
A.
Pascua
recommended the filing of information for
reckless imprudence resulting to damage to
property and physical injuries.
The original complaint was amended twice:
first, impleading Auto Palace Car Exchange as
commercial agent and/or buyer-seller and
second, impleading Albert Jaucian as principal
defendant doing business under the name

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

and style of Auto Palace Car Exchange.

Except for Ocfemia, all the defendants filed
separate
answers
to
the
complaint.
Nostradamus Villanueva claimed that he was
no longer the owner of the car at the time of
the mishap because it was swapped with a
Pajero owned by Albert Jaucian/Auto Palace
Car Exchange. For her part, Linda Gonzales
declared that her presence at the scene of
the accident was upon the request of the
actual owner of the Mitsubishi Lancer (PHK
201 91) for whom she had been working as
agent/seller. On the other hand, Auto Palace
Car Exchange represented by Albert Jaucian
claimed that he was not the registered owner
of the car. Moreover, it could not be held
subsidiary liable as employer of Ocfemia
because the latter was off-duty as utility
employee at the time of the incident. Neither
was Ocfemia performing a duty related to his
employment.
After trial, the trial court found petitioner
liable and ordered him to pay respondent
actual, moral and exemplary damages plus
appearance and attorneys fees.
ISSUE: May the registered owner of a motor
vehicle be held liable for damages arising
from a vehicular accident involving his motor
vehicle while being operated by the
employee of its buyer without the latters
consent and knowledge? YES
RULING: We have consistently ruled that the
registered owner of any vehicle is directly and
primarily responsible to the public and third
persons while it is being operated.
The
rationale behind such doctrine was explained
way back in 1957 in Erezo vs. Jepte.

8 |Page

The principle upon which this doctrine is

based is that in dealing with vehicles
registered under the Public Service Law, the
public has the right to assume or presume
that the registered owner is the actual owner
thereof, for it would be difficult for the public
to enforce the actions that they may have for
injuries caused to them by the vehicles being
negligently operated if the public should be
required to prove who the actual owner is.
How would the public or third persons know
against whom to enforce their rights in case
of subsequent transfers of the vehicles? We
do not imply by his doctrine, however, that
the registered owner may not recover
whatever amount he had paid by virtue of his
liability to third persons from the person to
whom he had actually sold, assigned or
conveyed the vehicle.
Under the same principle the registered
owner of any vehicle, even if not used for a
public
service,
should
primarily
be
responsible to the public or to third persons
for injuries caused the latter while the vehicle
is being driven on the highways or streets.
The members of the Court are in agreement
that the defendant-appellant should be held
liable to plaintiff-appellee for the injuries
occasioned to the latter because of the
negligence of the driver, even if the
defendant-appellant was no longer the owner
of the vehicle at the time of the damage
because he had previously sold it to another.
Registration is required not to make said
registration the operative act by which
ownership in vehicles is transferred, as in
land
registration
cases,
because
the
administrative proceeding of registration
does not bear any essential relation to the
contract of sale between the parties

(Chinchilla vs. Rafael and Verdaguer, 39 Phil.

888), but to permit the use and operation of
the vehicle upon any public highway (section
5 [a], Act No. 3992, as amended). The main
aim of motor vehicle registration is to identify
the owner so that if any accident happens, or
that any damage or injury is caused by the
vehicle on the public highways, responsibility
therefore can be fixed on a definite individual,
the
registered
owner.
Instances
are
numerous where vehicles running on public
highways caused accidents or injuries to
pedestrians or other vehicles without positive
identification of the owner or drivers, or with
very scant means of identification. It is to
forestall
these
circumstances,
so
inconvenient or prejudicial to the public, that
the motor vehicle registration is primarily
ordained, in the interest of the determination
of persons responsible for damages or
injuries caused on public highways.
The law, with its aim and policy in mind, does
not relieve him directly of the responsibility
that the law fixes and places upon him as an
incident or consequence of registration. Were
a registered owner allowed to evade
responsibility by proving who the supposed
transferee or owner is, it would be easy for
him, by collusion with others or otherwise, to
escape said responsibility and transfer the
same to an indefinite person, or to one who
possesses no property with which to respond
financially for the damage or injury done. A
victim of recklessness on the public highways
is usually without means to discover or
identify the person actually causing the injury
or damage. He has no means other than by a
recourse to the registration in the Motor
Vehicles Office to determine who is the
owner. The protection that the law aims to
extend to him would become illusory were

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

the registered owner given the opportunity to

escape liability by disproving his ownership.
If the policy of the law is to be enforced and
carried out, the registered owner should not
be allowed to prove the contrary to the
prejudice of the person injured, that is, to
prove that a third person or another has
become the owner, so that he may thereby
be relieved of the responsibility to the injured
person.
A registered owner who has already sold or
transferred a vehicle has the recourse to a
third-party complaint, in the same action
brought against him to recover for the
damage or injury done, against the vendee or
transferee of the vehicle. The inconvenience
of the suit is no justification for relieving him
of liability; said inconvenience is the price he
pays for failure to comply with the
registration that the law demands and
requires.
Whether the driver is authorized or not
by the actual owner is irrelevant to
determining
the
liability
of
the
registered owner who the law holds
primarily and directly responsible for any
accident, injury or death caused by the
operation of the vehicle in the streets and
highways. To require the driver of the vehicle
to be authorized by the actual owner before
the registered owner can be held accountable
is to defeat the very purpose why motor
vehicle legislations are enacted in the first
place.
FEB Leasing and Finance Corporation
(now BPI Leasing Corp.) vs. Spouses
Sergio P. Baylon and Maritess Villena

9 |Page

Baylon, et.al. [GR No. 181398, June 29,

2011]
FACTS: An Isuzu oil tanker, registered in the
name of petitioner FEB Leasing and Finance
Corporation and leased to BG Hauler, Inc.,
was running along Del Monte Avenue in
Quezon City. While executing a left turn upon
reaching an intersection, the oil tanker hit
Loretta Baylon, daughter of respondent
spouses Sergio and Maritess Baylon, who was
then crossing the Del Monte Avenue. Due to
the strong impact, Loretta was violently
thrown away resulting to her death.
ISSUE: Whether or not FEB Leasing and
Finance Corp. (now BPI Leasing Corp.) should
be held liable
RULING: Yes. In accordance with the law on
compulsory motor vehicle registration, with
respect to the public and third persons,
the registered owner of a motor vehicle is
directly and primarily responsible for the
consequence of its operation regardless of
who the actual vehicle owner might be. Wellsettled is the rule that the registered owner of
the vehicle is liable for quasi-delicts resulting
from its use. Thus, even if the vehicle has
already been sold, leased or transferred to
another person at the time the vehicle
figured in an accident, the registered vehicle
owner would still be liable for damages
caused by the accident. The sale, transfer or
lease
of
the
vehicle,
which
is
not registered with the Land Transportation
Office, will not bindthird persons aggrieved in
an accident involving the vehicle.

SPS PERENA V. SPS ZARATE

FACTS: In June 1996, Nicolas and Teresita
Zarate contracted Teodoro and Nanette
Perea to transport their (Zarates) son,
Aaron Zarate, to and from school. The
Pereas were owners of a van being used for
private school transport.
At about 6:45am of August 22, 1996, the
driver of the said private van, Clemente
Alfaro, while the children were on board
including Aaron, decided to take a short cut in
order to avoid traffic. The usual short cut was
a railroad crossing of the Philippine National
Railway (PNR).
Alfaro saw that the barandilla (the pole used
to block vehicles crossing the railway) was up
which means it was okay to cross. He then
tried to overtake a bus. However, there was
in fact an oncoming train but Alfaro no longer
saw the train as his view was already blocked
by the bus he was trying to overtake. The bus
was able to cross unscathed but the vans
rear end was hit. During the collision, Aaron,
was thrown off the van. His body hit the
railroad tracks and his head was severed. He
was only 15 years old.
It turns out that Alfaro was not able to hear
the train honking from 50 meters away before
the collision because the vans stereo was
playing loudly.
The Zarates sued PNR and the Pereas
(Alfaro became at-large). Their cause of

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

action against PNR was based on quasi-delict.

Their cause of action against the Pereas was
based on breach of contract of common
carriage.
In their defense, the Pereas invoked that as
private carriers they were not negligent in
selecting Alfaro as their driver as they made
sure that he had a drivers license and that
he was not involved in any accident prior to
his being hired. In short, they observed the
diligence of a good father in selecting their
employee.
PNR also disclaimed liability as they insist
that the railroad crossing they placed there
was not meant for railroad crossing (really,
thats their defense!).
The RTC ruled in favor of the Zarates. The
Court of Appeals affirmed the RTC. In the
decision of the RTC and the CA, they awarded
damages in favor of the Zarates for the loss
of earning capacity of their dead son.
The Pereas appealed. They argued that the
award was improper as Aaron was merely a
high school student, hence, the award of such
damages was merely speculative. They cited
the case of People vs Teehankee where the
Supreme Court did not award damages for
the loss of earning capacity despite the fact
that the victim there was enrolled in a pilot
school.
ISSUES: Whether or not the defense of due
diligence of a good father by the Pereas is

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untenable. Whether or not the award of

damages for loss of income is proper.
HELD: Yes, in both issues.
Defense of Due Diligence of a Good Father
This defense is not tenable in this case. The
Pereas are common carriers. They are not
merely private carriers. (Prior to this case, the
status of private transport for school services
or school buses is not well settled as to
whether or not they are private or common
carriers but they were generally regarded
as private carriers). Private transport for
schools are common carriers. The Pereas, as
the operators of a school bus service were:
(a) engaged in transporting passengers
generally as a business, not just as a casual
occupation;
(b)
undertaking
to
carry
passengers over established roads by the
method by which the business was
conducted; and (c) transporting students for
a fee. Despite catering to a limited clientle,
the Pereas operated as a common carrier
because they held themselves out as a ready

transportation
indiscriminately
to
the
students of a particular school living within or
near where they operated the service and for
a fee.
Being a common carrier, what is required of
the Pereas is not mere diligence of a good
father. What is specifically required from
them by law is extraordinary diligence a
fact which they failed to prove in court. Verily,
their obligation as common carriers did not
cease upon their exercise of diligently
choosing Alfaro as their employee.
(It is recommended that you read the full
text, the Supreme Court made an elaborate
and extensive definition of common and
private carriers as well as their distinctions.)
Award of Damages for Aarons loss of earning
capacity despite he being a high school
student at the time of his death

normal health and was an able-bodied

person. Further, the basis of the computation
of his earning capacity was not on what he
would have become. It was based on the
current minimum wage. The minimum wage
was
validly
used
because
with
his
circumstances at the time of his death, it is
most certain that had he lived, he would at
least be a minimum wage earner by the time
he starts working. This is not being
speculative at all.
The Teehankee case was different because in
that case, the reason why no damages were
awarded for loss of earning capacity was that
the defendants there were already assuming
that the victim would indeed become a pilot
hence,
that
made
the
assumption
speculative. But in the case of Aaron, there
was no speculation as to what he might be
but whatever hell become, it is certain that
he will at the least be earning minimum
wage.

The award is proper. Aaron was enrolled in a

reputable school (Don Bosco). He was of

CASES IN TRANSPORTATION LAW (Atty. Janice Regoso)

Topic: Registered Owner Rule and Kabit System

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